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.