Data analysis is the future, and the future is now!
Organizations that harness the power of data aren’t just a little better off—they’re in a league of their own: 23 times more likely to win over customers, 6 times more adept at keeping them around, and a whopping 19 times more likely to be profitable (according to the McKinsey Global Institute).
From understanding the impact of agency metrics on business success to identifying key indicators for tracking performance, this guide will give you the tools you need to thrive. Through strategic decision-making and the use of innovative tools, discover how to harness the power of metrics to optimize your project outcomes, enhance client relationships, and ensure long-term success.
Why Agency Metrics Matter in Today's Competitive Landscape (and why some matter a little bit more)
Picture this : you’re driving blindfolded, trying to reach a specific destination – you might stumble upon your destination by chance, but you’ll most likely veer off course, crash, or at least get lost along the way. Right?
Agency metrics are your agency’s GPS; they illuminate the path ahead, showing you where you’re excelling and where you need to course-correct. They’re the key to unlocking your agency’s full potential, guiding you towards greater efficiency, profitability, and ultimately, mastery in your industry.
Not every metric leads to actionable insights! Some metrics hold the key to understanding your agency’s performance, while others simply clutter the dashboard. It’s not about drowning in a sea of numbers; it’s about honing in on the metrics that paint the clearest picture of your progress.
Understanding the Impact of Agency Metrics on Business Success
By keeping an eye on these metrics, and by acting on what they are telling you, you’re steering your agency towards growth and success.
Plus, doesn’t everyone love a bit of healthy competition ? When team members can see how their efforts contribute to the bigger picture, it adds a fun twist to the daily grind. And let’s not forget the bragging rights! When you can show clients how their investment is paying off you’re basically shouting, “We nailed it!” from the rooftops and giving them tangible proof that they should work with you again.
How Do Agency Metrics Drive Profitability and Growth?
By tracking metrics like client acquisition cost, project efficiency, and client satisfaction, agencies uncover insights to optimize strategies, reduce costs, and improve service quality. These metrics not only inform proactive decision-making but also enable agile adaptation to market trends, driving long-term success.
With clear benchmarks and ambitious goals, agencies can navigate towards profitability and growth, leveraging data-driven approaches to stay ahead in the competitive landscape.
Identifying the Key Metrics Every Agency Should Track
After collaborating with more than 500 agencies and meticulously scrutinizing their performance, we’ve curated a comprehensive list of both financial and non-financial metrics that we believe are essential for success.
What Are the Top Financial KPIs for Agencies?
Gross Margin
There has been a notable shift from the “retainer” model towards more “project based” approaches, a transformation that was accelerated by the Covid-19 pandemic.
What does this shift entail? It has led to the fragmentation of scopes of work into multiple projects, intensifying competition, and paradoxically, shrinking budgets. Additionally, decision-making power has shifted from marketing teams to purchasing departments, resulting in tougher negotiations and a requirement for accreditation to collaborate with major advertisers.
Inevitably, this scenario puts pressure on the gross margins of traditional agencies, now facing a landscape where advertisers aim for “more for less”, seeking larger scopes of work for equal or reduced budgets. In this context, gross margin proves to be more crucial than ever.
But what level of gross margin should we aim for? A target of 35% to 40% gross margin is considered a benchmark.
For example, when an advertiser entrusts you with an all-inclusive budget of €200K for a competition, you should anticipate revenues of around €70K to €80K, allocating the rest to production. It’s important to note that this benchmark may vary depending on the type of activity and the usual share of purchases within it. For instance, a high-performing production company will achieve gross margin levels close to 80%.
So, how can you increase your gross margin? Internalizing all or part of the production presents itself as a viable solution, as well as strategically integrating freelancers to flexibly adapt to specific needs and projects. This approach not only optimizes costs but also provides tailored work that precisely meets client requirements. You can also try to reduce the scope of work for the same budget, aiming for “less for more”!
Payroll / Gross Margin Ratio
We’re aware – and so are you – of the current ecosystem and existing tensions around budgets. Therefore, a prudent entrepreneur must maintain control over expenses, with payroll being a critical area to monitor closely.
The objective is to find the optimal balance between flexibility and adaptability. In a project-based business model, you must tailor the payroll to the length and, obviously, the budgets of your projects. Many agencies opt for this hybrid system with a ratio of 3/4 employees to 1/4 freelancers. This balance allows for greater flexibility, limits salary expenses between projects, while retaining a base of permanent employees to ensure delivery and operational continuity.
So, what ratio of payroll to gross margin do we recommend to our clients? Between 55% and 65%: meaning you should spend between 55% and 65% of your gross margin on your team’s salaries (including yourself). If you adhere to this KPI and manage your structural costs correctly, you should be able to achieve between 15% and 20% operating profit.
Office Costs / Gross Margin Ratio
When we talk about office costs, we’re mostly talking about your rent and rental fees. Some agencies overestimate their office needs, resulting in more office space than employees. Even though in advertising there’s often a desire to appear larger, some regret it; once the lease is signed, it becomes more challenging to leave quickly and thus reduce your costs in this area.
So, what level of office costs should you adhere to? 7/8% of your gross margin should be allocated to paying for your offices. Okay, you can push to 10% if you’re feeling really ambitious, but beyond that, you risk unnecessarily burdening your company’s structural costs.
What can you do if you’ve overestimated what you can handle? Several options are available:
- Sublet unused spaces to lighten the burden of offices in your P&L.
- Have you considered coworking? More and more agencies are moving into shared offices, offering more flexibility.
- Lastly, you also have the option of opting for shorter leases and avoiding being stuck with a fixed six-year lease (or worse).
Flexibility is always key!
EBIT %
EBIT (Earnings Before Interest and Taxes) aka Operating Income, is a key indicator of your financial performance since, after accounting for almost all the expenses of your company except for corporate taxes, it’s the profit you make! This will be affected by the aforementioned factors, namely your level of gross margin, your payroll, and the cost of your offices.
So, what ratio of income to gross margin says “I’m doing a good job managing my agency”? 15% means you’re doing well and 20% means you’re doing exceptionally well. Don’t worry, you’re not a bad manager if you find yourself around 10%… especially in the current economy and with the shift to project-based approaches.
Client Staffing Rate
Let’s examine a more technical KPI, that is equally important in managing your agency: the client staffing rate ratio. Quite simply, it allows you to measure the volume of time your team spends on client billable hours. This helps you make decisions to increase or reduce your payroll.
So, what minimum level of client staffing rate should you aim for? At least 75% of your team’s time should be spent on clients and billed back to them through your fees and client gross margin. Below that, you’re probably overstaffed compared to the volume of your business. Going much higher is also a risk, as understaffing leads to discontent among your team and lower quality work.
But what should the remaining 25% of your team’s time be dedicated to?
In agencies, this time is often allocated to new business and pitching, as well as administrative tasks, reporting, internal meetings, and agency process management.
All the financial KPIs that we’ve looked at so far are closely linked. For example, if you have a staffing rate around 75% with a gross margin around 35%, and you maintain the payroll-to-gross-margin ratio (between 55% and 65%), you’ll be within the range of the ideal gross margin per collaborator (around 150K/year).
Gross Margin per Employee
This KPI is a financial indicator to determine if each of your agency’s employees contributes sufficiently to your gross margin. It also helps ascertain if your agency is adequately staffed, if your client staffing level is sufficient, and if your gross margin level is in line with your organizational size.
So, what level of gross margin per employee should I aim for? The math is relatively simple: you should divide your total gross margin by your full-time equivalent staff (FTE). If this figure reaches or exceeds €150,000 per employee, great news ! Not only do you have a well-calibrated gross margin per employee relative to your workforce, but you’re closer to achieving a 15% EBIT!
However, be cautious; if you’re approaching €200,000 per employee, make sure you’re not understaffed and that your team’s workload remains reasonable.
New Business Staffing
The last KPI we’ll explore is the level of staffing dedicated to New Business by your teams. As discussed earlier, the client staffing rate of your teams should be around 75%. So, how should the remaining 25% be allocated?
There are three main elements to take into consideration:
- New business
- Administrative tasks and meeting reports
- Internal meetings and agency process management
It’s essential to note that the level of staffing for new business evolves throughout the year but cannot be constantly at a high level; otherwise, it leads to exhaustion among the teams and yourself.
So what level should you aim for? Given the widely adopted project-based model, the minimum staffing level for new business should be > 10% and can go up to 25% during peak pitching periods. Make sure to adjust it according to the pitching seasons, which are traditionally stronger in early spring and late summer!
The Role of Non-Financial Metrics in Agency projects Management
Non-financial metrics complement financial indicators in agency project management by providing insights into various aspects of project performance, including client satisfaction, project timelines, deliverable quality, team productivity, creativity, employee satisfaction, client retention, and risk management. By monitoring and leveraging both financial and non-financial metrics, you can optimize project outcomes, enhance your client relationships, and make sure your agency is on the right track for growth.
Continuous tracking of metrics throughout projects, rather than just at invoicing, is crucial for proactive issue identification, transparency, risk mitigation, efficient resource allocation, and ensuring high-quality outcomes.
The importance of tracking project progress: project profitability metrics
Here are the different indicators you should take into account:
Projected Net Profitability:
This measures the actual profitability of the project, taking into account all associated costs.
To calculate the projected net profitability: Production amount – (number of days spent * Daily Cost per Employee)
The production amount corresponds to: the gross margin of the project * percentage of project completion
Estimated Sold Profitability:
When it’s negative: indicates the missed opportunity (what should have been sold compared to what was earned) or conversely
When it’s positive: indicates the overperformance achieved compared to what was sold
To calculate the estimated sold profitability: production amount – number of days spent * Daily Rate (either based on daily rate tariffs, or the average Daily Rate of the Business Unit, or the default Daily Rate globally on the instance)
Example: If you have a project worth 10,000 € and a -2,000 € on this indicator, it means there is a missed opportunity in relation to the number of days spent of 2,000 €
In other words, if your progress is less advanced than your workload, it is highly likely that you have a negative Estimated Sold Profitability and that you need to make some adjustments!
Invoiced Amount:
This indicator reflects the financial transactions completed for the project. It measures the total amount of money that has been invoiced and received from the client for the work performed up to the current date.
To calculate the invoiced amount: Sum up all the invoices issued to the client for the project, including any partial payments or milestones reached.
Advancement Stage Indicator:
This indicator quantifies the progress made on the project relative to its total scope. It assesses the proportion of tasks or deliverables completed compared to the entire project plan.
To calculate the percentage of project completion: Divide the total number of tasks completed by the total number of tasks planned for the project, then multiply by 100 to express the result as a percentage.
These metrics provide insights into financial health and progress, aiding informed decision-making. With a clear understanding of profitability, cash flow, and project advancement, teams can navigate complexities and optimize outcomes effectively.
Utilizing Metrics for Strategic Decision Making
From Data to Decision: How to Use Metrics to Guide Agency Strategy
To guarantee success, use your metrics strategically to pinpoint growth priorities, adapt tactics, and set ambitious yet attainable objectives. This involves using data to make decisions, executing tasks carefully, and communicating openly to achieve success with accuracy and flexibility.
Case Studies: Successful Strategies Influenced by Agency Metrics
Since adopting Furious in early 2020, just a month before the onset of the global lockdown, David, the CEO of Agence Rebellion, has seen remarkable transformations within his agency. From its humble beginnings with only two employees to now boasting a team of sixty, the agency has experienced unprecedented growth, particularly in the wake of the COVID-19 pandemic, with a staggering 70% increase in gross margin.
However, with growth comes challenges, and Agence Rebellion was not exempt. As margins began to shrink year by year, David recognized the pressing need for a tool that could effectively manage and structure their burgeoning operations. Amidst fierce competition for talent and clients tightening their budgets due to economic uncertainties, the agency faced a pivotal moment in its trajectory.
To navigate these challenges, David turned to Furious, leveraging its robust project management capabilities to not only track key performance indicators but also to gain actionable insights into the agency’s financial health and workforce balance. Every Monday morning, he dives into KPIs such as gross margin and revenue, receiving a concise summary of new project signings, setting the tone for the week ahead.
Additionally, David closely collaborates with his executive team, utilizing monthly indicators to assess the profitability of margins and conducting comprehensive monthly reviews to analyze performance and make informed decisions. With a keen eye on financial stability and talent retention, Furious has become more than just a software tool for Agence Rebellion—it’s a strategic ally in their journey towards sustained growth and success.
“The most useful aspect of a tool like Furious is that it’s designed to accompany us every step of the way, from start to finish – and that’s something we struggled to find with competitors.” David Ait-Ali, CEO of Agence Rebellion
Furious Squad: your future tool for ensuring and visualizing your agency's profitability
So why is Furious the right tool for you?
Instant access to your performance
One of the key benefits of Furious is its ability to provide real-time updates and automatic alerts on the status of budgets and projects. This allows you to stay ahead of potential overruns, take corrective actions swiftly, and ensure projects remain on track for profitability. We don’t just help you manage projects; we transform raw project data into actionable insights. Through comprehensive reports and profitability analysis, you’ll gain deep insights into your financial performance, enabling you to discern trends and implement strategic measures to boost future profitability at all organizational levels.
Automate daily tasks
Say goodbye to wasting time on mundane daily tasks! With our automated system, you’ll never overlook a task again, giving you the freedom to concentrate on what truly matters: expanding your agency. Simplify your workflow by automating the conversion of quotes into scheduled tasks, liberating precious time from administrative duties and enabling a sharper focus on value creation.
Manage all your flows and data in a single tool
Furious provides a seamless platform that consolidates all project management functions—from initial planning and budgeting to invoicing and performance tracking. By harmonizing financial data, time tracking, and project management in a single interface, Furious simplifies workflows, enhances data precision, and empowers informed decision-making.
