When Tyto launched with a fully remote model in 2017 ahead of other agency leaders seeing the merits of remote models it wasn’t about economics. It was because we believed location shouldn’t determine your career prospects, and we wanted to build an entirely new pan-European agency model with a team working as one across borders. Now four and a half years into our life, we have not only addressed these original goals but we’re also able to shed light on how our remote model is allowing us to reimagine PR agency economics.
We’ve always been the kind of people who want to have their cake and eat it. In business it’s no different. We want to provide our team with industry leading rewards and the best tech and infrastructure to do their jobs, but we also want our business to be among the highest performing in the industry. Being a high performing business underlines the value you are creating for clients and it gives you the platform to out invest the competition in your team, infrastructure and social enterprise activities like the Tyto Foundation. It also safeguards you against economic shocks.
Before outlining how we have evolved the agency financial model, we want to provide a bit of context on the business we’ve built since launching October 2017. Having grown revenue at 50%+ for four years we’re currently trending at £4m in annual revenues. We had 99% client retention in 2021 (the client we parted with in November 2021 actually came back to us in 2022 making up the missing 1%) and have retained 83% of all the employees we have ever hired since launching four and a half years ago.
In terms of the bottom line, we deliver a pre-tax profit margin of around 30% despite paying a quarterly profit share to every member of our team of over £5,000 per annum. This level of across-the-board bonus equates to 13% of average salary compared to the PRCA benchmark for the PR industry of 4% of salary. We’ve hired over 42 people since launch and we’ve only needed to hire one via an external recruiter such is the appeal of our differentiated pan-European remote model. We’ve also managed to maintain a new client win rate of over 50% such is the quality of the team we’ve built and our differentiated model. All of our employees are contractual employees rather than being freelancers and our employees are spread across six countries.
So how does Tyto’s financial model compare to traditional agencies. Let’s start by looking at what constitutes a traditional view of what a good, average and poor financial performance looks like. For this we’ll turn to Neil Backwith who has literally written the book on how to best manage a PR agency for an optimum financial return.
Neil helpfully provides some useful guidelines for what constitutes good, average and poor financial performance. A good PR agency performance will deliver a circa 30% (+/-5%) profit margin. It will achieve this by containing staff costs to just over 50% of revenues and operating costs to around 17.5% of revenues. As you move down the performance charts to an average financial performance you see staff costs rise to just over 60% and operating costs to over 20%. In Neil’s view an average pre-tax profit margin will be 15% (+/-5%). Finally a poor financial performance will see staff costs creep up further to close to 70% and the business will huff and puff to a 10% pre-tax profit margin (+/-5%).
We’ve always believed that sustainable financial success is only achievable if staff are properly recognised, rewarded and supported. At Tyto, we make this happen in two ways. Firstly, we believe in making employees partners in our success which is why we have a quarterly profit share scheme that all employees participate in equally regardless of seniority. To strengthen this sense of partnership we also provide share options to every employee. Second, we believe in mindful approach to growth so we always aim to recruit ahead of client demand even if this means carrying excess capacity in the short term. Both of these things mean that we make a conscious decision to invest a higher amount in our staff than what might be considered optimum in the traditional good agency financial model.
Tyto is able to over invest in our team, while also delivering what Neil would call a good profit margin for two main reasons.
First, we have built a unique pan-European agency model that is both a premium agency offering and a means by which clients can access 25-30% more value than they can access through atraditional hub and spoke agency model. This unique premium offering which we call PRWithoutBorders™ allows us to create a win-win situation for clients, the team and the agency. PRWithoutBorders™ delivers this by enabling clients to roll our fully integrated campaigns across multiple European countries without the silos, inflexibility, and coordination costs of traditional international agency models or having to work with several different agencies. Just like a finely tuned sports car, by shedding excess weight and hierarchy in our model, we’re able to provide clients with a service that is faster, more agile, and more connected with local trends.
Second, our remote model means we’ve been able to manage our operating costs to close to 10% of revenues. We are able to achieve this by not having a permanent office in any of the countries we operate although we do provide co working memberships to all our employees. Working as one team across borders also means that we are able to be very centralised and efficient in how we manage all of our supplier relationships and maximise all of the investments we make in infrastructure despite operating across several European countries.
What we are seeing today in terms of the benefits of the remote model has taken us time to realise. There have been a number of obstacles and learnings that we have had to overcome to get to this point.
First, scaling a business across multiple countries takes a lot of upfront investment both in terms of time and money. Although Tyto might be nimble and fleet of foot, national bureaucracies are not and we have had to establish legal entities and financial infrastructure in multiple countries.
Second, some of the benefits we are seeing in terms of lower operating costs only really kick-in once you reach a certain scale. When starting out our operating costs actually exceeded what Neil would consider to be of a poor level, but there are real economies of scale once you reach a certain size.
Third, a lot of business and public relations tools are designed for national needs rather than pan-European needs so finding ones that will work for you across multiple countries can sometimes be difficult and costly.
Finally, the remote model is not for everyone. Although our team is 100% opt-in, and we’ve retained 83% of those who have ver joined us, one employee opted-out pretty quickly as they simply wanted to have a team around them everyday. Fortunately we have found a seam of gold in terms of people who love the opportunity to combine a high performing career, a multinational environment and location flexibility.
None of these challenges put us off as we always saw the bigger opportunity for our team and our clients with a glaring gap in the pan-European agency market for a disruptive alternative. Tyto’s value added PRWithoutBorders™ model, aligned to our highly efficient operating model, alongside a focus on using the very best tech, have together allowed us to reimagine the agency economic model. All of which is allowing us to cut waste and increase our investments in our clients and our employees, all while building a financially successful agency model.