Small PR firms in survival mode

CHICAGO Wed Aug 11, 2010 12:06pm EDT

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CHICAGO (Reuters) - When the recession took hold, Sally Hodge was forced to make some drastic changes at her small Chicago-based public relations firm, Hodge Schindler Integrated Communications.

She hunkered down, last year shifting to a four-day workweek for the firm's nine-person staff - four full time - and cutting costs such as postage and unnecessary supplies.

Today, cash flow remains tight, but the staff is intact. To help get through the crunch, Hodge sometimes forgoes weekly compensation, relying instead on additional income from a family farm and tenants in a building she owns to help pay the mortgage. Raises are on hold.

"The incoming calls, the queries, the pipeline just dried up totally," said Hodge, 59, whose office is slightly off the beaten path from more high-rent locations. "You do everything you can think of to try to hold your own."

Even so, Hodge said it's tough to go up against big-name firms that are lowering rates to keep their own business from eroding.

"How do you compete with a company with global offices that is charging the same thing we charge?" she said. "It just makes it harder to sell new business."

BATTERED BY RECESSION

The beat is the same for many small PR firms around the country that were among the hardest hit by an economic downturn that led to a dramatic belt tightening of marketing budgets.

In 2009, nearly 64 percent of PR firms nationwide suffered declining revenues, according to Stevens Gould Pincus, a New York-based consulting firm that regularly surveys the industry. Those with revenues in the range of $3-10 million were the hardest hit, with nearly 70 percent reporting lost business.

"A number of small agencies have lost a lot of revenue in the past two years," said Art Stevens, the firm's managing partner. "Some have managed to hold down the fort and restructure their firms for the sake of survival; lowering costs, downsizing, taking on accounts that they would not touch because of the level of the fees. They're doing whatever they can to survive."

Even so, Stevens said there is a growing sense the worst bleeding may be over. More than half the agencies Stevens Gould Pincus surveyed last year projected higher revenues for 2010.

But some insiders are convinced the industry will never return to its pre-recession heyday, a time when corporations of all sizes threw budgetary caution to the wind, splurging on lavish, amply staffed promotional campaigns.

"Certainly the pace of layoffs has declined and that's good news," said Peter Bell, president of New York-based Peter Bell & Associates, an executive search firm focused on PR placements. "I don't ever think it's going to be what it once was."

CHANGING LANDSCAPE

From the ashes new practices are emerging for smaller agencies, calling for them to make the most of leaner resources. "I think we're doing more integrated marketing services," said Ann Subervi, chair of the Counselors Academy for the Public Relations Society of America, which represents the interests of small to mid-sized firms belonging to the trade group.

"They're looking at us more as marketing partners. They're asking for counsel that goes beyond the public relations campaign," said Subervi, who runs Utopia Communications, a small firm in central New Jersey. "Everybody expects more lately for their marketing dollars."

That also means downward pressure on monthly retainers, the umbrella fees that historically covered an agency's services, as clients scrutinize budgets and some push for project-based billing, she said.

The upside is that surviving PR firms are being taken more seriously now than in prior economic periods, when they may have been viewed solely as publicists assigned just to hound the press for coverage or coordinate special events. Utopia, which bucked the industry trend last year by posting improved revenue, has expanded its consulting practice to include more training, as well as pushing into advertising copywriting and website development.

Many small firms remain reluctant to add staff in this environment, relying instead on outside resources when needed. M Strategies Inc., a small Dallas-based agency, maintains an in-house team of five and uses a network of freelancers and partner agencies across the country for overflow work.

"We'll see our business ebb and flow with the market," said L. Michelle Smith, a former Ketchum executive, who founded the firm eight years ago. "Bigger agencies can throw a lot of bodies. We do it with fewer people."

Hodge agreed that a less-is-more approach is the key to long-term survival: "I don't have anybody that I don't want here," she said.

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