The most important financial KPIs for PR agencies in 2026

This episode distils the six most important financial KPIs PR agency leaders should track, with Rachael Marshall, founder of specialist accountancy firm Magic Digits.

Market context

Rachael describes the current PR agency landscape as highly competitive and uneven: some agencies are “absolutely flying” while others are under real strain from rising costs and longer times to land business.

“It’s been a rough year (for PR)… it’s a really mixed bag at the minute.” – Rachael [0:02:26]

1. Cost of Sales (~30% of turnover)

Third‑party delivery costs (freelancers, client‑specific software, etc.) should sit at about 30% of turnover. Higher levels can work for project-based agencies only if those costs are correctly rebilled to clients.

“Anything you can do to rebill any of these third‑party costs is going to increase your revenue.” – Rachael [0:06:10]

2. Staff Cost Ratio (50–60% of fee income)

Direct, billable staff (including employers’ NIC, pensions, and proportionate directors’ salaries) should be 50–60% of fee income.

• Below 50%: team likely overstretched and near burnout.
• Above 60%: usually a pricing problem or inefficient structure.

3. Gross Profit, Overheads and Net Profit

A 40–50% gross profit gives agencies the “oxygen” to operate without constant stress.

“If you’ve got a healthy gross profit, everything’s easier… if it’s not, everything’s harder.” – Rachael [0:16:32]

Overheads should be around 20%, leaving room for a target net profit of 20% (though many are currently at 5–15%).

4. Cash, Debtor Days and Resilience

Rachael recommends three months’ cash reserves plus the next corporation tax bill, with debtor days ideally 30–45. She underlines that:

“Profit doesn’t equal cash… it matters what you’ve got in the bank to pay people.” – Rachael [0:29:45]

Transcript

[0:00:02] Ben Smith: Paul, welcome to the PRmoment Podcast, produced in association with the Marketeers Network.

[0:00:20] Ben Smith: Welcome to this latest PRmoment Podcast. We're going to talk about the most important financial KPIs for PR firms, and we're going to be discussing that with Rachael Marshall, who's founder of Magic Digits.

Rachael, if you don't already know, is the founder of Magic Digits, which is a specialist accountancy firm that works with a number of PR firms in the UK.

In a related theme, don’t miss our AI in PR Masterclass. Unlike many other PR conferences out there, our PR Masterclass series has no sponsors. All the people who are speaking are there because they are experts in what they’re talking about, not because they have paid to be there, and they are not generalist speakers. Our speakers have a track record of building and activating AI in PR teams. They’re not PR circuit speakers, if you know what I mean, who seem to speak at all of these types of events, no matter what the theme.

Also, just a flag: the latest semester of PRmoment Leaders has just kicked off, but we’ll include the link to all the information you need to know about that scheme in the show notes.

Rachael, welcome to the PRmoment Podcast.

[0:02:10] Rachael Marshall: Thank you for having me.

[0:02:12] Ben Smith: An absolute pleasure.

Now, we were chatting the other week, weren’t we, and you have identified six of the most important financial KPIs for PR agency teams. A lot of these KPIs people will have heard of before; some of them might be a bit newer to people. But what I like about the analysis you’ve done is the context you add to it: a bit of benchmarking in terms of what’s “normal” amongst your raft of PR clients. So I’m really looking forward to hearing from you about that.

To start with, as you, as an accountant, obviously have a window into the financials of PR firms out there, how is the market currently from a financial perspective?

[0:02:26] Rachael Marshall: Yeah, I mean, to be honest, it’s a really mixed bag at the minute. I would say the majority at the moment have seen quite a rough year.

I think people were hoping that things were picking up and going quite well over the last few months, but we’ve seen a real strain on some of the agencies that we work with, for multiple different reasons. One is the increase in costs and the time it’s taking to land business.

I think there’s enough business out there to be won, but the market is just so competitive right now. It’s about winning the business, making sure that the pipeline is always full, and managing the time it’s taking to land it.

It’s about getting the balance right of what you hold in fixed costs in that time before the revenue comes in—especially if you’re project-based. If you’re on retainers, you’ve got a lot more certainty around revenue and you can build a business based on that; it’s safer.

But a lot of the businesses that we work with now are project-based, or they’re on one‑month rolling retainers, so the risk is always there. So yes, it is a mixed bag. We’ve got some agencies absolutely flying and doing better than they’ve ever done, but it’s a funny market at the minute.

[0:03:49] Ben Smith: Yeah, and possibly it’s been like that for a while, hasn’t it? It’s not that consistent. Some of the firms that you think have done well in the past have a tougher six months, and then they go again. So it does tend to go in fits and starts a little bit, doesn’t it?

Anyway, let’s dive into it, because some of the stuff you’re referring to—around project‑based work, cost of sale, and things like that—clearly comes out in these six KPIs you’ve put together as being the most important for PR firms.

What’s your first KPI that you think agency owners and agency directors out there should really keep their eye on?

[0:04:32] Rachael Marshall: The first one we always look at when we come to do the accounts is the cost of sales.

Your cost of sale is all your third‑party costs that are connected with delivering your services: your freelancers, any outsourced specialists, any software that’s directly tied to delivery of a service. So that’s all your third‑party costs.

Realistically, you want that to be around 30% of your total turnover that you invoice. Anything more than that is eating into your margin. You also want to be looking at:

• How can we do more of this in‑house?
• Why are our third‑party costs so high?

If you’re able to control that, it’s going to improve efficiency in the business, protect your margin, and leave enough room for salaries and profit.

[0:05:36] Ben Smith: That’s a key point. When you include cost of sale, just summarise again what you’re including in that. You’re not including salaries. Are you including premises, software, all that stuff?

[0:05:49] Rachael Marshall: No, all of that is going to sit in your overheads.

Mainly, cost of sale is going to be any freelancers that you’ve brought in to work on a specific project—not someone who’s effectively an internal staff cost, like a freelancer who’s just there to fill a gap you’re trying to recruit for. It’s someone specifically brought in for that project, and hopefully you’ve worked that person into the budget as well.

It could be any software that you’re paying for that’s tied to a particular client—say, monitoring for a certain client—where you want to make sure you’re re‑billing that back. If you’re not, and you’re absorbing that cost, that again affects your cost of sale.

Anything you can do to re‑bill these third‑party costs is going to increase your revenue. So it’s basically any costs incurred that are really tied to delivering a service.

[0:06:43] Ben Smith: And I guess if you’re keeping an eye on cost of sale as you’ve defined it, it pushes you to make sure you’re running an efficient operation.

[0:06:53] Rachael Marshall: Yeah, absolutely.

One thing to note is that a lot of project‑based agencies will naturally have a higher cost of sale if they’re bringing in freelancers on projects rather than using a fixed staff‑cost base. That’s actually a healthier way to do it, because they’re only incurring those costs when the project revenue is there, and not hanging on to fixed costs.

So some people’s cost of sale might be above 30%, but if it is, that can be okay as long as you’re re‑billing those charges back to your client and including them in the budget. If you’re not, then it’s going to eat into the margin.

[0:07:31] Ben Smith: So as your overheads go up, that will impact your cost of sale a little bit if you’re employing more people versus bringing in freelancers. There’s a balance there, is there?

[0:07:43] Rachael Marshall: Yeah, definitely. If you’ve got fewer fixed staff costs, your cost of sale might be higher because you’re bringing in freelancers—and vice versa.

[0:07:55] Ben Smith: And staff cost ratio is your second most important KPI that you highlight for PR teams to keep an eye on.

[0:08:03] Rachael Marshall: Yes. Staff cost ratio: you want that to be between 50–60% of your fee income.

So you take your turnover minus your cost of sale; underneath that you’ve got your staff costs. All your direct staff costs should be included in that: anyone who is actually part of delivering a service. So not your accounts people, not your admin people, but your direct staff who are part of the billable team.

You take your total staff salary bill, including employer’s National Insurance and pension contributions, and divide that by your net revenue (your sales minus your cost of sale). That gives you your staff cost ratio percentage.

The best‑performing agencies we’ve got, who are currently within that 50–60% range, also ensure that the director’s salary is proportioned into that as well. If it’s not, it’s an unrealistic staff cost ratio.

[0:09:05] Ben Smith: And I guess that’s normally the biggest cost in an agency, isn’t it?

[0:09:11] Rachael Marshall: Yes, and it’s one of the biggest challenges. Overheads are consistently quite low at the minute across a lot of agencies. Many people have tried to squeeze those down as much as they can to allow for higher staff costs.

A lot of people are struggling to hit that 50–60% staff cost ratio because the reality is people want more money: cost of living has gone up, wages have gone up, and it’s a struggle.

But people aren’t necessarily increasing their pricing with their clients. They’re increasing salaries every year—everyone needs a pay increase—but they might have a retainer with a client that’s been going on for more than two years and they still haven’t increased their prices. So it’s always making sure that you’re increasing your fees with inflation when your costs are increasing as well.

[0:10:04] Ben Smith: Interesting thought, as you were talking there. Recently, the government in the UK has put a lot more costs on employing people, hasn’t it? National Insurance and so on. Are you including that sort of tax in your staff costs?

[0:10:24] Rachael Marshall: Yes, we include it, and it has increased. For clients with a big wage bill, that percentage going up has an impact in one stroke.

[0:10:35] Ben Smith: If you’re a PR firm, the biggest cost is employees, isn’t it? I can’t remember off the top of my head exactly what National Insurance went up by last year, but it was a significant amount.

So employing 100 people, to keep the maths easy, is going to cost you X more. In one stroke that’s going to damage the profitability of any PR agency business.

[0:11:00] Rachael Marshall: Yeah, absolutely.

The important thing to note on staff cost ratio is: if you run your numbers and it comes below 50%, at that point your staff cost ratio is too low. You might be making quite a bit of profit, but your team is probably feeling pretty stretched and close to burnout, and as a result you’re probably going to lose some clients.

So if your staff cost ratio is low, you’re making enough profit to be able to hire, which is a signal that something’s not right and you need additional support.

On the other hand, if it’s on the higher end—above 60%—you’re not going to be making much profit for overheads or dividends. Usually that signals you’re not pricing properly or you’ve got an inefficient structure: too many senior heads, for example.

So if that ratio is above 60% or below 50%, you really want to be asking yourself those questions and working out how to get it right.

[0:12:16] Ben Smith: I was going to talk about that sort of stuff at the end, but that’s interesting.

We’re talking about these KPIs that people should keep an eye on, look at, monitor within their businesses. How often, how regularly, how obsessive should PR agency owners be about these stats? Are they looking at them monthly, weekly, quarterly? What would you recommend?

[0:12:41] Rachael Marshall: Never quarterly. I just don’t agree with quarterly accounts. Too much can be missed in that period, and all you’re doing is reacting to something that’s already happened.

We do monthly for most of my clients. That’s enough for many agencies.

However, if you are growing and you want to grow quite fast, you want to be checking some of these a couple more times a month. You’ll still have your monthly P&L update—you can’t do a full close weekly because you need all the figures closed in the month—but you should have some constant check‑ins on movements.

Hiring can change in a month; within two weeks you might win a new project. You should have an active spreadsheet / plan where you can drop in live salaries and scenarios whenever you need to. Reviewing in detail monthly is more than enough, but you should have a live tracker.

[0:13:48] Ben Smith: And the thing is, if you do that regularly, there are so many fewer surprises. You know what’s coming; you know what you’ve got going on. You can keep on top of it and often respond before things happen, if you’re doing that stuff right.

[0:14:10] Rachael Marshall: Even if things are going badly, there’s still some security in knowing and knowing that you’re doing something about it, rather than just turning a blind eye.

I’ve noticed when people turn a blind eye, that’s when things start falling apart. People who know their numbers are bad but are taking control over them are the ones who are still going to survive.

[0:14:36] Ben Smith: That’s interesting, isn’t it? People tend to wait too long, and are not aggressive enough in the changes they need to make.

[0:14:48] Rachael Marshall: Sometimes, yeah. They don’t want to face it. If they do, getting someone else to do it—hire an accountant to present those figures—means you’ve got no choice but to confront the reality.

[0:15:00] Ben Smith: Okay.

Gross profit—one that we’re all familiar with, but I probably look at net profit much more than I do gross profit. So that’s interesting. Why do you highlight that one?

[0:15:15] Rachael Marshall: Gross profit is important because if you’ve got a healthy gross profit, it means you’re managing your staff costs and your cost of sale really well, and you’ve got enough room to play with.

[0:15:25] Ben Smith: Just go back a step. Talk to us about gross profit compared to net profit, for anyone out there who is less familiar.

[0:15:32] Rachael Marshall:

• Gross profit is basically the profit you make after:
  • your sales
  • minus your cost of sale
  • minus your staff salaries.
• That’s your gross profit.
• Net profit is after your overheads, corporation tax, and depreciation have been deducted. That’s what you’re left with.

Net profit is the main number, because that’s the real health of the business. But gross profit is important because it’s the number you’re trying to get to in order to be able to spend on overheads and dividends, and still leave enough to reach your desired net profit.

By having a 40–50% gross profit, which is the target, you allow yourself to reach a 20% net profit—which we’ll get to in a minute.

[0:16:25] Ben Smith: I think I’ve heard you describe gross profit as your oxygen as a business. What do you mean by that?

[0:16:32] Rachael Marshall: Everything’s easier; you breathe easier. If you’ve got a healthy gross profit, everything is less stressful.

If it’s low, everything is harder: it’s harder to breathe, harder to make decisions, everything is more stressful. If you can get your gross profit up, everything becomes just a little bit easier.

[0:16:56] Ben Smith: That’s easier said than done, right? If I’m sitting here thinking, “Rachael, I’d like to improve my gross profit”—which, clearly, everybody wants to do—what are the levers for doing that within a PR firm?

[0:17:16] Rachael Marshall: It’s mainly what we’ve just spoken about.

You want to be looking at:

• Pricing – ensuring you’re making enough profit on all of your jobs.
• Project reconciliations – checking you’re not overspending on anything.
• Making savings where you can.
• Proactively managing budgets for everything.
• Having the right structure for who’s working on what.

You don’t want your most senior people working on an account that’s paying you pennies. Getting that structure right is going to help you make better profit margins and a higher gross profit.

[0:17:59] Ben Smith: Brilliant, which brings us to overheads, doesn’t it?

What’s your target for overheads? And from a financial perspective, what costs are you putting into the overheads bucket?

[0:18:11] Rachael Marshall: As long as the net profit figure at the bottom is a certain percentage, it doesn’t really matter exactly what all the other percentages are.

But if I was to give a “dream” set of accounts, this is how I’d set it up:

• Overheads at 20% of turnover.

We don’t really want you spending more than that. If you are, then your staff costs and everything else need to be lower to allow for a decent profit at the end.

[0:18:39] Ben Smith: You mentioned it already, but just to refresh people’s memory: what are you including in your overheads bucket?

[0:18:45] Rachael Marshall: Overheads are everything like:

• Rent
• Software
• Admin costs
• Office expenditure
• Small IT equipment
• Subscriptions

All of those bits that you need to have the business running smoothly.

[0:18:58] Ben Smith: Right. I would have thought overheads within PR teams are going up because they’re spending more on software, more on freelancers—but that goes against what you were saying earlier. I’m quite surprised by that tension.

[0:19:20] Rachael Marshall: Honestly, I’m seeing overheads really squeezed. I think it’s because staff costs are going up and are getting harder to control.

It’s not that people don’t want overheads to be more; it’s that some are finding the only way to make the net profit they want is to squeeze something else—and overheads are getting squeezed.

But I don’t think that’s a good thing. It’s why I think this balance of percentages that I’m talking about really works for a good agency structure.

[0:19:51] Ben Smith: You have a bit more flexibility then, right?

[0:19:55] Rachael Marshall: And a bit more fun. Everyone wants a budget for staff parties, or a nice office space, or snacks in the office.

You want your team to be happy. If you’ve got a happy team, they’ll deliver a good service, retain clients, and do upsells. It all plays a part.

If you’re not allowing enough budget in your overheads for that stuff, the business isn’t really a business. You want to have a business where people want to come to work and enjoy themselves. Running an agency is hard work; you want to have a bit of fun while you’re doing it as well.

So allow yourself a budget for that—but you’re not allowed over 20%.

[0:20:46] Ben Smith: Yeah, that’s interesting. As you were talking, I was thinking: your rent as an overhead is relatively inflexible. Every now and again you might tweak it, but broadly it’s fixed.

Software—I’d have thought that’s on the up. But maybe there’s a twist there.

[0:21:03] Rachael Marshall: You can re‑charge some of the software. If it’s software you’re able to incorporate into your costs to clients, it’s actually not really going to be much of a cost to you.

[0:21:15] Ben Smith: So the target overhead, just to refresh people’s memory?

[0:21:19] Rachael Marshall: 20%.

But as I say, it’s being squeezed. We have agencies running at 10% or below, which makes me say, “Go on, spend some extra money!” It doesn’t allow for much else.

It’s often because staff costs are high.

To keep overheads efficient, you want to be:

• Reviewing your subscriptions monthly – what are you paying for, and what’s the variance?

There are so many subscriptions I see just ongoing that don’t get cancelled.

[0:21:56] Ben Smith: I cancelled a subscription earlier this week having spoken to you last week. I thought, “I don’t use that anymore.” So you saved me £11 a month, Rachael—thank you very much.

[0:22:04] Rachael Marshall: I’ve got to do it for myself as well, to be honest.

Hands up: I run an accountancy agency, and I’m great at everyone else’s, but I need to look at my own subscriptions. It’s time‑consuming; it’s a job people don’t really want to do. So get someone to do it for you.

[0:22:18] Ben Smith: There is something therapeutic about it as well—cancelling these things you never have to worry about again.

So, what has been coming, right? We knew it was coming: net profit. It’s probably the most important one, isn’t it?

[0:22:33] Rachael Marshall: Oh yeah, net profit is what you’re left with; it’s your profit.

Too many people talk about “What was your turnover?” You might have had a really good turnover, but did you make any profit last year? That’s the important number. It’s how profitable the business was.

People don’t share that, and of course they don’t—it’s confidential. But that’s how healthy your business is. You can make all the money in the world, but if you’re not managing your costs, you’re not making any money.

[0:23:07] Ben Smith: It takes me back to my A‑level business studies. Define net profit for anyone out there, because it’s one of those KPIs that’s thrown about a lot, but it’s important that people actually understand what it is—maybe just do it relative to gross profit, to remind people.

[0:23:28] Rachael Marshall:

If I was to lay out a P&L, you’d have:

1. Turnover
2. Minus cost of sale
3. Minus staff cost
   • Equals gross profit
4. Minus overheads
   • Gives you your EBITDA (profit before tax)
5. Minus corporation tax and depreciation
   • At the very bottom is your net profit.

That’s what you’re left with after every single cost has been deducted from that turnover figure at the top.

[0:23:55] Ben Smith: So, that’s after corporation tax, folks.

You mentioned EBITDA. Why is that important? Most founders of PR firms have got their eye on an exit at some point, and that’s probably the most important number when it comes to selling a business, isn’t it?

[0:24:14] Rachael Marshall: Yes. EBITDA is before corporation tax, so that’s the one potential buyers are going to look at.

But your net profit is still what you’re left with after corporation tax, so it’s important for you as the owner to pay attention to that figure.

In terms of selling the business, you want to be looking at your EBITDA, but I always say for net profit: if you can, 20% is the dream scenario for a really healthy net profit.

The reality is, not many people I know right now are making 20% net profit. Some are, and they are performing exceptionally well. One of the reasons is because they’re sticking to all of these other margins we’ve spoken about to enable them to get there.

What that means is cash, growth, and security. Everything’s easier when you’re making a 20% net profit—but it’s not easy to do.

As much as I say that’s the target—the dream target—the reality is most people are making somewhere between 5–15% net profit.

You need to establish what you want for your agency. What are you happy with? As long as you’re making a profit you’re comfortable with and it’s allowing enough cash to build up in the bank account, that’s good enough.

But in terms of a ceiling for growth and security, 20% is the dream number.

[0:25:44] Ben Smith: Which brings us on to cash flow, right?

Any business is so much less stressful if you’ve got cash in that business. All of the other things you’ve mentioned lead to this, don’t they?

What about debtor days and cash flow, which is your final KPI that you think is really important?

[0:26:06] Rachael Marshall: I’ll kind of combine it into one.

First: How many cash reserves do you have?

We always say:

• Three months’ cash reserves plus your next corporation tax bill.

Stick it in a high‑interest savings account. There are a couple of decent ones out there—still not amazing, but better than nothing. That’s the dream cash‑flow number.

In terms of debtor days, you want that to be somewhere between 30 and 45 days. It’d be ideal if everyone paid you in 30 days, but the reality is that’s not really a thing. I think 45 days is more realistic.

The problem is, agencies work with bigger brands now; they’re on 60–90‑day payment terms, so that debtor‑days metric goes out the window a little bit.

So I say: don’t allow any of your invoices to be more than 15 days overdue, if you can, for cash‑flow purposes.

[0:27:03] Ben Smith: That cash‑flow point is really relevant, because if you’ve got cash in the business, the 60–90‑day debtor‑days thing—no one’s going to say that’s fair, but it happens—there’s not much point worrying about it. They’re going to pay you at 60 days, or sometimes 90 days.

If you’ve got cash in the business, you just go, “Right, fair enough.”

[0:27:24] Rachael Marshall: Exactly. If you’ve got three months’ reserves, then you’re going to get through that period, as long as your other clients are paying you on time.

Another really important point is to ensure that no client on those long terms is more than 20% of your revenue. If they are, you’re relying on that one client to pay you on time, and you’ve probably built a lot of your cost base around that one client.

So it’s really important that any client on such terms is 20% or less of your revenue. If that’s not the case and they are a higher percentage, then:

1. You need a staff‑cost model that’s not fixed entirely around them.
2. You need to look at ways to get through that period if you don’t have the cash in the bank.

You can look at invoice factoring—I don’t recommend it; I hate invoice factoring—but it is a tool.

You can also look at projects. For anything more experiential where you’re paying suppliers upfront, can you invoice that portion sooner? Can you agree different terms to maybe invoice that element on zero days and the rest later?

Every little helps: working with suppliers on better payment terms, for example. But if you don’t have the reserves and you’re on 60‑day terms, it’s always going to feel like that.

[0:28:55] Ben Smith: And that cash‑flow forecast—how often should people be interacting with that as a document?

[0:29:02] Rachael Marshall: If you’ve got someone in‑house doing finance and they’re employed, there’s no reason they can’t be doing that daily.

For a lot of people, finance is outsourced, so the reality is that’s probably not going to happen daily. If that’s the case, monthly is fine if you’ve got three months’ reserves in your bank.

However, I always recommend, where possible, that you do a weekly cash‑flow forecast. That’s going to bring the best benefits. We do weekly with quite a few of our clients and we always see really good results from managing cash flow when it’s done weekly.

[0:29:35] Ben Smith: Right, and you had a line: “Profit doesn’t equal cash.” Just talk us through what you mean by that.

[0:29:45] Rachael Marshall: That’s a really important one.

Profit doesn’t equal cash because your P&L might show you making a profit—so you think, “This is great, no worries, everything’s fine.” But then your clients aren’t paying you on time, so your cash balance deteriorates