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.
Metrics for 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 businesses 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 the number of new clients (growing market share) or $ of new revenue (growing revenue.)
Metrics for Operation
4. Time spent by team members
I can hear the scream of disapproval from time-sheet trashier 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 mentors 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.
Metrics for 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 sucks 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 has 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, a modification is always easier than creation. And if you ever need help with any of this – we are just an email or call away.