Diana Marszalek 06 Nov 2023 // 5:26PM GMT
NEW YORK — The PR industry has taken significant hits this year, with about half as many firms as last year reporting revenue or profit increases and significantly more anticipating decreases in 2023, according to new research from Davis+Gilbert.
The law firm’s 11th annual Public Relations Industry Trends Report finds that during the first eight months of 2023, 42% of the 182 agencies that participated in the study have seen revenue rise versus 81% last year. More than three times as many firms (44%) experienced a drop in revenue and more than two times as many firms (47%) saw profits decrease.
The outlook is slightly better for the whole year, during which 53% of firms expect to see revenue rise, down from 88% last year, and 47% percent predict a profit increase, down from 69% in 2022. Some 34% expect revenue to be down in 2023 versus 5% in 2022; 40% expect to see a decrease in profit, significantly higher than last year’s 15%.
Firms with 50-99 employees were hit the hardest with revenue and profit decreases, although firms of all sizes experienced weaker financial performance than in 2021 and 2022, the survey found. About 67% of firms in that size range experienced revenue decreases and 75% experienced profit decreases, whereas other sized firms in total saw decreases of 46% and 47% respectively.
While there was an overall decrease in the number of specialty firms reporting increased revenue or profits, healthcare, public affairs and corporate and financial firms outperformed their peers, the research found. Tech was not identified as a top specialty.
The study also looked at pertinent issues affecting the industry including AI. The research found 75% of firms that have increased both revenues and profits over 10% are currently using AI; 47% of the firms that have already incorporated the most common generative AI applications into their workflow processes expect an increase in revenue in 2023, and 24% project an increase in profits; and more than 70% of the firms indicate that improving workflows and time efficiencies was the biggest motivation for using AI.
Earned media, social and content creation, digital, branding and paid media in order were the top revenue-generating service offerings in the first eight months of this year. The top service offerings firms plan to expand in the next year are social and content creation; digital; research/analytics; paid media; and influencer marketing.
Agencies are paying more in staff salaries this year, with 36% spending 60% of net revenue on salaries, up from 28% in 2022 and 2021. Managing out weaker performers (66%) and hiring freelancers (45%) and layoffs (26%) were the most common actions agencies have taken to right-size staff.
They also, however, took actions to retain staff, the most popular being creating more flexible working arrangements; increasing professional development opportunities; rolling out mental health initiatives; making one-time salary corrects; and expanding employee benefits.
Meantime, DEI efforts have waned somewhat. So far this year, 42% of agencies have increased employees from underrepresented groups, down from 60% in 2022. No change was reported by 49% of respondents; 9% reported a decrease.
About 53% of the firms have an optimistic outlook on business for 2024, which is significantly down from last year when 66% reported an optimistic outlook. Meanwhile, 8% described their outlook as anxious — also a material increase from 4% last year. Flat or decreased client budgets, the rising cost of talent and retaining existing talent are firms’ top concerns.
When it comes to M&A, 65 buyers were involved in the 78 transactions completed so far this year. In 78% of the reported deals, seller revenue was less than $10 million, reflecting a rise in smaller and mid-sized deals. Only 6% of sellers had revenue over $25 million.