Half as many public relations firms increased revenue or profits this year compared to last year. Those firms became top performers by expanding services, embracing artificial intelligence (AI), nurturing client relationships and focusing on their best and brightest talent. These findings, and others, are presented in Davis+Gilbert's 11th annual Public Relations Industry Trends Report.

Davis+Gilbert's report also provides details on this year's merger and acquisition trends, reflecting an M+A landscape that overwhelmingly focuses on acquisitions of smaller agencies by a more diverse set of buyers.

Generating the most response ever, with 182 global participants, a high percentage of survey respondents describe their firms as "integrated/full service." Interestingly though, it was the specialty firms, such as healthcare, public affairs and corporate/financial, that reported the most financial success this year. Across the board, PR firms showed resilience as they faced economic challenges by adopting a variety of tactics, such as staff right-sizing strategies and client management training, to support business growth.

Click here to access the Davis+Gilbert 2023 Public Relations Industry Trends Report.

The survey shows that firms were nearly evenly divided between increasing and decreasing revenue in the first eight months of 2023. About 42% said they increased revenue during that time, down from 81% in the previous two years. On the profit side, 31% of the firms reported an increase in profit in the first part of the year, down from 61% in 2022 and 67% in 2021. Nearly half said they decreased profit, a nearly two-fold increase from the previous two years.

"Coming after two years of unprecedented growth, it's not surprising that the PR industry needed to readjust this year," said Davis+Gilbert Public Relations practice group Chair Michael Lasky. "Many firms were still able to keep the momentum going by taking proactive measures to push through the strong macroeconomic headwinds. For some firms, 'flat' is the new 'up' in terms of revenue or profit — but many firms ambitiously refused to get caught standing still."

PR industry trends report includes key findings:

• Artificial Intelligence: For the first time, the survey asked firms about AI use. Nearly half the firms said they use AI for written content creation and 37% report using AI for ideation. Most noteworthy is that three quarters of the firms that enviably increased revenue or profit by 10% or more say they are currently using AI for a wide range of tasks.

• Staffing: Just over a third of the firms reported spending more than 60% of net revenue on compensation, a significant increase from 28% both last year and in 2021. More than two-thirds of the firms said they managed out weaker performers to right-size staff. However, firms that increased revenues or profits by more than 10% did so without layoffs.

• DEI: Firms that increased revenue or profit by more than 10% did so without curtailing their DEI programs or practices. In fact, 59% increased the number of employees from historically underrepresented groups this year over last year.

• Service Offering: Earned media was the top revenue-generating client service for the first eight months of 2023. The area of client service that firms plan to expand the most next year is social and content creation.

• Outlook: Not surprisingly, only half the firms felt optimistic about 2024 –- a sharp decline from 2/3 feeling optimistic last year. In addition, the number of firms that felt "anxious" about the year ahead doubled over last year.

PR Industry Mergers & Acquisitions

The PR M&A market witnessed 78 deals completed as of Oct. 31 — 14 more deals than during the same time last year. Different this year is that the increase in PR M&A activity was the result of smaller transactions.

"The data shows us that this was the year of the small deal. This is what we would have expected since smaller transactions tend to be less leveraged and, accordingly, are less affected by higher interest rates," said Davis+Gilbert Corporate + Transactions practice group Co-Chair Brad Schwartzberg.

Smaller and mid-sized firms are attractive to larger firms looking to increase revenue and profits by expanding client service offerings or by gaining key clients or specialties. Indeed, nearly half the survey respondents said they had already acquired another firm at some time. Another significant trend is the increase in the number of buyers, with 65 different buyers involved in the 78 transactions.

Davis+Gilbert's PR industry survey serves as a crucial compass for understanding the industry's prevailing trends and obstacles and identifying solutions. "Above all else, we're seeing that firms are being resilient and strategic. This adaptability shows that there are many paths forward through uncertainty," Lasky added.