Soaring staff costs hit agency profit margins

Profit margins at Britain’s agencies are being hit by runaway salary costs, according to research carried out for Campaign by the specialist accountancy firm, Willott Kingston Smith.

Profit margins at Britain’s agencies are being hit by runaway

salary costs, according to research carried out for Campaign by the

specialist accountancy firm, Willott Kingston Smith.



The research shows that while revenues are increasing, high overheads

mean that profits are going down. Gross income per head increased

slightly in the five months from January to June 1998, but operating

profits fell from 7.1 per cent of gross income to 6.2 per cent.



Steve Waring, a partner at Willott Kingston Smith, attributed the rise

in costs to a shortage of skilled employees. ’The marketing services

industry as a whole is doing well at the moment, but staff cutbacks

during the last recession have resulted in a shortage of people with the

right skills,’ he said.



Stephen Carter, chief executive of J.Walter Thompson, said the problem

was exacerbated by the number of entrants into the market. ’Rising staff

costs are a consequence of the number of small and medium-sized agencies

in the industry,’ he said. ’Agencies not carrying a critical mass of

talent will be prepared to pay a 10-15 per cent premium for staff when

they win contracts.’ But Carter said profit margins were not being

affected at Britain’s bigger agencies.



Richard Hytner, chief executive of Publicis, said: ’It is a key issue

for all agencies to get a share of the talent. There is a yawning gap at

a certain level because of a failure to recruit bright young things when

the going got tough.’



According to Willott Kingston Smith, employment costs rose from 52.8 per

cent of gross income last January to 53.2 per cent in June,

significantly higher than the firm’s benchmark figure of 50 per cent.

But the report says that this is still down on the May 1993 level of

58.2 per cent.



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