Office Space Is the Unforeseen Upside for PR Agencies
When reviewing a PR agency profit and loss statement, there are usually several recurring expenses. One of them has traditionally been office space. In the past, office space has usually accounted for anywhere from 7% to 12% of a typical agency’s annual revenue.
So if an agency has, say, $10 million in net fee revenues, its annual cost for office space would be around $1 million. Given the aftermath of the Covid pandemic, that is no longer the case.
Many, if not most, PR agencies, have gotten used to their employees and virtual contractors working from home. Given this trend, PR agencies have opted out of short and long term leases for office space and have either given up on office space altogether or have taken on considerably less office space. What this means in financial terms is that PR agencies have increased their profits anywhere from five to ten percent.
A $10 million agency is no longer spending $1 million for office space. If it has given up maintaining office space altogether it is adding $1 million to the bottom line. If it’s previous profit margin was 20% it is now 30%.
Who would have thought, prior to Covid, that PR agencies would even consider downsizing their office space. At one point in the history of PR agencies, slick and posh space was the goal. The premise was that the slicker the office space, the more desirable a PR agency was. I personally know of PR agencies that went bankrupt because they invested in TOO much office space. One lost an account that represented 50% of its total billing and was losing a considerable amount of money from that point on because of the cost of office space.
In today’s world, business executives are traveling less with the advent of such services as Zoom and Google. Agency people work from home, meet their clients on a computer screen and get even more work done than in an outside office. The primary losers in this turnabout are the real estate companies who have lost PR agencies as tenants.
This trend will only continue as more agencies put their toes in the water and test the giving up space concept. They will make more money, get more work done out of their employees and outside contractors and have more funds available to invest in the future.
