9 Metrics to Jump Start a Metrics-Driven Agency

June 23rd, 2016

My buddy who owns a digital agency wanted to jump start a metrics-driven culture but wasn’t sure where to start. We sat down over some good Scotch and cigars to chat about it. Here are the 9 metrics that I’ve suggested as an easy place to start and covers all 3 aspects of an agency infrastructure.

Sales & Marketing

1. How many people know us?
Most agency owners are familiar with the various forms this metric comes in; it could be page views, visitors, or likes. This is the top of our funnel – they know us, but we don’t know them.

2. How many conversations are we having for agency new business?
Here’s a metric that we can control 50% of the time – so our prospects know us and we know them, but how many of them actually need what we sell and do we do a good job of conversing with them? This is the end of our marketing efforts and the beginning of our sales efforts.

3. How many actual new business are we closing each month?
This is the output metric of our entire sales & marketing effort – where the rubber meets the road. Depending on where your agency is at – this could come in the form of number of new clients (growing market share) or $ of new revenue (growing revenue.)

Operations

4. Time spent by team members
I can hear the scream of disapproval from time-sheet trasher whom many are my friends. Hear me out – time is a constraint that is created equal for everyone. By peeking into the efforts, we can often identify the tell-tale sign of why something isn’t working. As one of my mentor once told me, “Don’t tell me your strategy. Show me your calendar and I’ll tell you what your strategy is.”

5. Project milestones and On-or-Before Ratio (OOB)
This is a super cool metric that we use often among agency clients. The idea is that our clients don’t care how long something takes you (what timesheet tracks) but they do care about the duration it took (deadline.) Track all the tasks in your projects that are completed on-or-before the due date, and you can see your top performers from the guys who need coaching. As a bonus, charge more for things that are done faster (think next-day shipping vs. 10-day shipping.)

6. Labor Effectiveness Ratio (LER)
LER is one of our favorite metric – it measures the dollar of margin we bring in per dollar of salary we spend. Most agencies measure their employee productivity using timesheet which have been proven to be inaccurate AND ineffective (not to mention demoralizing.) This is a different and much more telling metric to see how we can improve.

Financial

7. Profit over “X”
Rule number 1 for being a business is to be a business – and you are not a business if you don’t make a profit. Profit / “X” is an easy way to try and identify the different issues and/or opportunities to work on in your agency. If you have absolutely no clue where to start – profit / “revenue” is always a great place. 10% is the minimum you should be aiming for after agency owner’s salary have been accounted for.

8. Deposits vs. Receivable Balance
9 out of 10 agencies we come across have issues with their deposits and receivables. Not your fault – it is because most accounting software absolutely suck at tracking it, and agency bookkeepers always botch it up because they don’t know the accounting beyond the clicks. If you don’t have an absolute understanding of how much $ each of your client owes you vs. how much deposits are on hand – get help. We’ve seen agencies overstate their revenue, delete invoices where they shouldn’t have, and issue credit refunds to clients where it isn’t due.

9. Next 30 Days Cashflow Projection
Revenue is vanity, profit is reality, and cash is king. Time and time again I’ve seen profitable agencies grow themselves out of business because they don’t have enough cash to fund their operations. Get your accountant to spreadsheet the cash you have on hand + expected cash inflow from sales or debt – expected cash outflow from bills that are due. It doesn’t have to be hard, it just have to be done.

There you have it. It doesn’t take much to get started with a metric-driven agency and we’ve already seen how by diving into the numbers, we are able to achieve amazing growth. These 9 metrics should be readily available to you with little to no extra efforts and they should be able to help you establish a baseline that we can then adjust from. Remember, modification is always easier than creation. And if you ever need help with any of this – we are just an email or call away.

Input Metrics vs. Output Metrics

June 15th, 2016

metrics

There are two types of metrics, input metrics (behaviors) and output metrics (results.) By understanding their differences and being able to identify them in our day to day activity, we can significantly increase our effectiveness in achieving our goals.

Output Metrics (Results)

Goals. Most of our goals are set around output metrics: $5 million in sales, $500k in profit, customer NPS score at 10, etc. Furthermore, our entire financial statements are completed with output metrics (revenue, expenses, cash, all of it.) Output metrics are fantastic at measuring where we are, getting a baseline of our reality, and allowing us to set goals against. What it doesn’t do; however, is help us with our day-to-day behaviors.

Input Metrics (Behaviors)

Input metrics are the less popular brother of output metrics. Some input metrics are: number of phone calls made, number of blog posts written, and number of hours spent. A good way to look at input metrics are behaviors that you have 100% control over. Since input metrics are 100% dependent on us, these are great metrics to focus on when attempting to move the needles of our output metrics. (ie. We can wake up in the morning and set a goal to make 5 phone calls (input / behavior) and the only factor between achieving it or not is ourselves. As opposed to waking up and setting a goal of closing 1 sale (output / result,) which is dependent on a whole lot more: making the phone call, someone else actually picking up, listening, then agreeing to buy.

Bonus: Drivers

Drivers are exactly what the name suggests: they either cause or influence another metric. Being able to identify drivers is probably the most important technique to learn when deciding what to measure and what to focus on. When we set goals we want to accomplish, we want to identify its drivers down to the smallest actionable increment. By doing so, we will be able to make small behavior changes and see big impact.

In practice:

We were working with a customer on their profit goals and came up with the following (super simplified):

Goal: increase profit by 500k
>>Driver: Revenue / at 30% profit margin, we needed roughtly $1.6m in new revenue
>>>>Driver: Sales Won / at avg. ticket of 50k, we needed 32 new clients
>>>>>>Driver: Sales Conversation / at close rate of 1 in 5, we needed 160 conversations
>>>>>>>>Driver: Web Visits /1% visit turns into conversation, we needed 16,000 visits
>>>>>>>>>>Driver: # of Blogs Written /we didn’t actually have a metric to know how our posts drives visits, but it didn’t matter at the moment

After we were able to identify the life cycle and the relevant metrics for each stage. We chose to focused our efforts on the conversion between number of sales conversation and number of sales won. Because we found out we WERE having >160 conversations but they weren’t converting 1 in 5. So the company decided to focus effort on sales training. We set a budget, metrics to measure, timeframe, and now we are monitoring this new behavior and trying to see its impact.

What do you think? Do you have similar use case in your business where you can hone in on where you can spend your time and money on? What was the result of it?

Update 6/16/2016: Interestingly, here’s an awesome blog by Pipedrive about activity based selling that touches on the same general idea of input metrics.

How a CEO Grew his Revenue 45000% by Digging Deep into his Key Metrics

June 1st, 2016

Three years ago my buddy with an already successful company wanted to start a new e-commerce business. He shared the thought in our CEO group but it wasn’t well received. After all, at $400 in monthly revenue, the new idea appeared to be little more than a distraction from his “real” company. Fast forward to today where this new “distraction” consistently shattered their six-figure monthly sales figures – I caught up with him last week and asked him how he grew his company using metrics.

We talked about how everything is about building systems, measuring its performance, and then making necessary changes based off of the information we have. We talked about sales and revenue metrics in specific. He started out with top line (revenue) – a financial metric that should be readily available to any serious CEOs. His goal was to grow it – so they back tracked it to the number of sales and set a goal against it. The goal was 200 orders in a given month.

Funny how if you set a clear goal and get your entire team to buy in to it – you end up hitting it. He didn’t stop at 200 orders though. He dove deeper into the data and discovered something interesting; while their total order numbers increased, most of it were coming from repeat orders and not new customers. In fact, they were losing new sales to competitors! (Things weren’t as rosy as it appeared.) So they honed in their focus on getting new customers and aligned their efforts on that – promotions that targeted first time buyers, internal celebrations built around new acquisition metrics, the whole nine yard. Two months later, while they grew their revenue from new customers, they also blew their original goal of 200 orders per month completely out of the water.

Here are my takeaways:
1. Start at the top – you want to start measuring and hacking your business? Just pick an output metric that’s already available to you, see how you’ve been doing, then set a goal against it. Don’t overthink.
2. Identify the drivers to your output metrics – in our case, the number of orders was what drove our revenue. Set a goal there then align the team behind it. Make it a theme, create a strategy, turn it into a game – you’d be surprised how your team can help drive their inputs if you just show them how. If they know how they can succeed, they will do it.
3. Dig deeper. Now that you have a good handle from the 10,000-feet view – what else is interesting? Ask the right questions (new order vs. old order) and see what else we can hack to move the needle. Set goals, measure, act, then iterate as needed.

What do you think? Is there an output metric that you’d like to drive? What other tips have you found to be helpful in your business to move the needle. Let us know in the comments below.

Why One Person Accounting Team Never Works in Agency

July 2nd, 2014

When an agency gets past $1 million in revenue, it gets harder for agency owners to ignore some of the back office operations that are starting to come apart. The agency’s accounting bookkeeping operations is among the first to go and probably the least favorite problem for entrepreneurs to deal with – clients fighting about credit balances, your tax CPA giving you a hard time about your books every April, and you aren’t quite sure if you are enjoying the growth or if the growth is secretly killing you.

So an agency owner do what all entrepreneurs would do – hire someone to help – but the problem doesn’t go away, it gets managed, pushed around, and worsen over time.

That’s because an effective accounting operation often consist of four general roles that fall on different areas of the skill curve. A bit of a generalization here, but in my experience working with agencies between $1 million to $20 million in revenue, here’s a rough break down of the skills and efforts required:

A CFO a couple of hours a quarter, a controller a day or two a month, an accounting manager a day a week, and an accountant one to few days a week depending on operations. Each role delivering its skill sets to the agency at the frequency it is required. Which is exactly not what an agency typically does.

A typical entrepreneur turns to a single individual who is (best case scenario) costing the agency unnecessary payroll delivering his skill set as a CFO / controller 10% of the time and working down value 90% of the time. Worse, (and typically what we see) the person brought on board is priced like an accountant but work as a bookkeeper; failing to work up the skill curve because they simply lack the knowledge to do so. Costing the agency owners unnecessary grief, time, and money along the way.

All hope is not lost though. The outsourced accounting industry had matured a lot since we started five years ago and there are options in building your all-star accounting team:

  1. If you are adamant about hiring someone in-house and can only afford one, hire the best person you can afford one year from now. An overqualified person working down the skill curve is always going to cost you less than a person failing to work up.
  2. Outsource the entire accounting team (not just the bookkeeping.) There are a ton of outsourced “bookkeeping” firms out there and without the top down direction / strategy of accounting – they are practically worthless. You are better off getting help from your tax CPA for now and save up for the right solution later. If you don’t understand the difference between accounting and bookkeeping – we need to solve that first.
  3. A hybrid approach where you bring on board a firm to help you set up your own team over time and cover the basis right now. The goal of this approach is to “lease” the expertise you need to help build up the machine your team can run. Always communicate this up front so both you and the experts you bring on board have a clear understanding of where things are going. Avoid any firms that do consulting only who will not eat their own dog food by operating what they’ve built. Most things are easier said (designed) than done.

What do you think? How are you tackling your financial issues and what are your results?

DeepSky is the Entrepreneur’s Accounting Department – helping agency entrepreneurs turn goals into numbers so we may track our progress and improve accordingly. While we actually run 95% of the accounting systems we built – we’d be more than happy to chat with you to help you figure out how to move forward from where you are at. We’d love to help you get a strong accounting team in place, even if the solution doesn’t involve us.

Soccer Metrics & Why USA Advanced

June 26th, 2014

Like many of my fellow Los Angelinos, I am a fan of futbol soccer every 4 years when my world (both real and Facebook) is drowned in chants of “I believe that we will win! I believe that we will win!” So you can imagine my surprise today when the TV screen showed that USA is advancing despite our loss to Germany. I didn’t get it and had to understand why, so I turned to soccer metrics.

It’s not the first time I’ve related business metrics to fitness/sports metrics – drawing comparisons on how the financial metrics in a business are like the score boards of a basketball or real American football games. It turns out, soccer scoring system is a ton more complex and interesting than the sports that us Americans are more familiar with. Here’s a quick break down of what I learned today and why USA advanced despite losing to Germany and “tying” with Portugal.

1st. Definition of each key metric.

USA FIFA Standing

A quick google search for “USA FIFA standing” will bring up a dashboard of soccer metrics you see here. At first, I had thought the team with the most WINs move on – like basketball or hockey. So it made sense that Germany is moving on, but why is USA moving on while Portugal is left behind? They both won 1 game, tied 1, and lost 1. (I won’t even go into ties in this post.) I had to find out what the other metrics are and how they played a role. Here’s what I learned:

GP = Games Played
W = Win
D = Draw
L = Loss
so far so good even with the “daw”… here’s where things get interesting
GF = “goals for”
GA = “goals against”
GD = “goal difference” which is GF – GA
PTS = “points” which I had thought (and it looked like at first glance) was the total points scored between all 3 games, but that didn’t make sense for Ghana. Further understanding showed this was a tally for the W/D/L combination. The team gets 3 pts for a win, 1 pts for a draw, and 0 pts for a loss. The math worked out beautifully.

That is a TON of numbers for a sports game! and this is where my inner nerd giggled a little.

2nd. Hierarchy of metrics.

I am still not sure if the WIN count is factored in at all or does it not matter since it gets converted into PTS anyway. Can a team have more WINs but less PTS than another team? In that case, does the WIN count trump the PTS?

Either way, for the sake of team USA, it doesn’t matter. What mattered for us was that even though it looks like we tied with Portugal in terms of W/D/L count and PTS, the next metric on the hierarchy that comes into play was the Goal Difference. In which case we have 0 (we scored as many times as we were scored on) while Portugal’s GD was -3. Fascinating.

So now that I learned why team USA is moving on – I am left wondering how each soccer team (futbol club) views and strategizes each game using these metrics like a business would. I wouldn’t be surprised if there’s someone on the team dedicated to crunching the numbers in figuring out what the target outcome of each match should be throughout the playoff. Factoring in the strength/weaknesses of the opponents, next match up, and the current standing of the team. It’s not hard to imagine that the team with a sound insight to all this have an additional advantage to simply having the best team in the world.

What do you think? Did you draw the same conclusion that soccer teams use these metrics to influence their play strategy? If so, do you have a set of business metrics that drive your business strategy? What does it look like and how is it similar / different?

 

entrepreneur accountant

Daily Habits of an Entrepreneur: Devote Time to Business Development

November 19th, 2013

In part one of the my series on daily habits of an entrepreneur, I talked about maintaining focus. The second step is to devote more time to actually developing business. Your daily schedule needs to include at least one element tied to revenue-generation, no matter how profitable your business may be. These can include:

  • Calling a client to see how things are going and suggesting what kinds of additional services are needed
  • Following up on prospects or strategic allies who can provide you referrals
  • Attending a networking event
  • Sending a promotional email
  • Teaching or speaking
  • And, of course, blogging!

Frequently, businesses seem to be in feast or famine time periods. Devoting time each day to some kind of business development activity bring with it valuable rewards.

How do you make sure you are always developing business?

3 Numbers That Drive Your Career in an Agency

November 12th, 2013

There is a direct correlation between the work you do in an agency and what you get in return that drives your career.  And it all revolves around numbers… yes, numbers.

These numbers are broken down into 3 categories represented by the value you create, the money you want to make, and your productivity.

The Ignition Group recently featured “3 Numbers That Drive Your Career in an Agency,” a blog I wrote that is posted on the Thought Legion blog. Many thanks to Tim Williams of The Ignition Group for my guest post!

Difference Between Top Line, Bottom Line, and Cash Flow

February 28th, 2012

I recently came across this old saying, “The top line is vanity; the bottom line is sanity; but cash flow is reality,” and thought – wow – what wise words for entrepreneurs to live by.

Entrepreneurs are too often caught up by the vanity of the top line (revenue) – after all – it is what most people from the outside looking in judge you by. It is also easy to understand (and the first line on your profit and loss statement) – your revenue is what others have paid (or promised to pay) you for all the goods and services that you’ve provided. Bottom line (profit) on the other hand is typically much more important than your revenue.

I’ve seen my share of 1 million dollar businesses with a net loss of $250,000. Not something to be proud of – but something that is a little less obvious and easier to hide from the judgmental eye of the public. By understanding the different shapes and sizes a profit can assume (gross, net, by department, by project, by region, by service line, etc.) an entrepreneur can identify the culprit of a less-than-desired profit and perhaps do something about it.

Cash flow is what most entrepreneurs (and, embarrassingly, many accountants) have a shaky understanding of. In fact, I’d argue that too many people are afraid of it and thus choose to look the other way. Bad idea. If your accountant tells you that you don’t need to understand your cash flow (or does a wishy washy lousy job at explaining it.) Fire them now. Focus constantly on your cash flow. If you keep your cash flow healthy then you have a great chance at success.

Next time, we’ll talk about how not to confuse profitability (bottom line) issues with cash flow problems and how to address each.

The Entrepreneur's Accountant

2012. Year of the BPO (Business Process Outsourcing).

January 20th, 2012

Let’s be honest, when I founded DeepSky, I had no idea what a BPO is.

All I knew was that the accounting department of the world is broken and I wanted to build one that is not.

The idea was simple – one, take accounting back to its root of helping entrepreneurs make the world a better place. And two, utilize the technology we have available to make life easier. But it looks like the whole thing has caught on in the industry and they call it BPO, or rather, business process outsourcing.

Make sense.

The AICPA (the folks that govern and educate us accountants) is making a huge push at every industry event talking about outsourced accounting. We know, because I’ve been invited to speak at a few of them. Accenture, the biggest BPO dudes for the Fortune 500, says that mainstream BPO spending will hit $300 million this year. Cool.

Though I would disagree with some of the reasons that others are moving towards an outsourced accounting solution – other benefits are obvious and hard to disagree with. Reasons such as better system, actionable insights, more security, easier life are just a few to start. But frankly, entrepreneurs are just sick and tired of the old way of having an in-house accounting department.

Alas, here’s to 2012 – the year of BPO – the year where entrepreneurs from around the world are freed from the burden of an in-house accounting department.

What is an Outsourced Accounting Department Model? And Why It Matters

October 11th, 2011

Good day to all the readers of our humble blog.

I can’t believe I haven’t done this sooner (since this is what I talk about everyday.) But today we are going to talk about what the outsourced accounting department model is. In fact, we are going to break it down to two parts:

part 1, we will talk about how accounting used to be done and what we saw as being broken. And in part 2, we will talk about how we are not just patching or tweaking but revamping the entire process/structure of a new generation accounting department to fix what was broken.

As far as we are concerned, an outsourced accounting department model is the only way to do things in 3-5 years time. So here we go.

Part 1 – Entrepreneur & the Accounting Department – What was then…

Part 2 – Entrepreneur & the Outsourced Accounting Department – What is now…

So what do you think? We’d love a good conversation on why you think (or think not) the outsourced accounting department model is the way of the future for entrepreneurs. Few things to keep in mind though: Outsourcing does not equal offshoring. We are defining entrepreneurs and small business as companies that do between $1 to $100 million revenue a year with most of them weighing in at the $2 to $25 million range. Update: 6/20/2014: We’ve since laser focused our efforts on servicing only entrepreneurs who happen to own a digital agency or a law firm. Don’t be shy.