What Are the Most Important KPIs To Watch To Keep Your Agency Profitable?
Running an agency means wearing multiple hats. Whether it be preparing for a pitch, sending out proposals, communicating with clients, reporting to Management, or simply keeping your employees satisfied—all those activities are just what’s visible on the outside.
While managing all of the above, you need to constantly pay attention to keeping your agency in the black. Because workflows may vary, but in the end, what matters most is constantly increasing profitability.
How will you do that? In short, you need to keep a close eye on the metrics that keep your agency profitable. But knowing whether or not your agency is profitable isn’t something you’ll feel in your gut. Profitability is based on actual numbers and many different factors will influence those numbers.
Below, we’ve chosen and covered the seven key performance indicators that you can monitor in Productive. We believe these KPIs are essential to watch to keep your agency profitable.
KPI #1: Number of Pre-qualified Leads In Your Sales Funnel
We’re sure you have a system of attracting new leads and converting them into clients. The question here, though, is: how do you measure your number of pre-qualified leads? Knowing that number gives you a starting point for predicting where your sales will be in the next quarter. The key here is to focus on qualified leads.
KPI #2: Number of Sent Proposals
Now that the leads are in your sales pipeline, you want to close them as quickly as you can. The next step in your sales process is sending out proposals. Many agencies face the challenge of proposals sitting in their funnel for over a month, sometimes even a few—without getting any closer to closing the deal. This is something that you have to focus on and dig into the reports. Maybe the leads in your funnel aren’t qualified to become new business? Perhaps your sales team needs a different approach in following up on them? Whatever the method, you should look at your number of pre-qualified leads and number of sent proposals together.
KPI #3: Value of Your Sales Funnel
The value of your sales funnel will help you forecast the near future for your agency’s resource planning, utilization, revenue and profit. But none of that forecasting matters if you aren’t closing those deals. Ideally, you’ll need both a high close rate and a high value of your sales funnel. Still, out of the two, having a higher close rate is more important.
Having all your sales metrics under one umbrella will help you visualize your sales pipeline and make more informed decisions. It’s essential to have an end-to-end agency management tool to cover all of the above.
KPI #4: Client Acquisition Cost
Your client acquisition cost (CAC), basically defined as the cost you need to pay to acquire a new client, is a key agency metric that will influence your profit at the end of the day. Your CAC will answer how much money you have to spend as a business to acquire new clients and can be an indicator of how much you need to charge for certain types of projects or services in the future.
KPI #5: Lifetime Value of Clients
Another important KPI for agencies is the lifetime value of clients (LAC). Your LAC is the total revenue you’ll receive from clients averaged across all your clients for as long as they are your clients.
By knowing both your average client acquisition cost and lifetime value of clients, you’ll know exactly how much you spend to acquire a customer, how much you’ll make from an average customer, and how long it will take to reach profitability on a client-by-client basis.
KPI #6: Agency Utilization Rate
Utilization is a KPI that most agencies look at on a daily basis. Depending on who’s monitoring this KPI and to what extent—each agency owner, project, account or operations manager needs to ask themselves how effectively their employees are working. Agency utilization metrics will answer that question.
Your agency utilization rate is a percentage that indicates the amount of time that a teammate is spending on billable or non-billable work. So, in terms of utilization, time that your teammates track will either be spent on internal projects or clients for projects. Some teammates like those working in office management or marketing will not be utilized on client work at all, just because they aren’t directly delivering work for your clients. That’s why it’s important to look at billable utilization, because the “billable” teammates are the ones that will cover salaries, overhead and nother non-billable staff or expenses.
You can monitor your utilization with agency management tools and in just a few clicks, and get a complete overview of how you’re standing regarding these metrics.
KPI #7: Agency Profit Margin
Essentially, your gross profit margin (GPM) is your total cost of sales dedicated from your total revenue. The healthier this figure is, the more likely your agency will achieve a good net income. To understand what profit margins you should be aiming for, first you need to monitor all your agency’s expenses: people costs, overhead, plus any additional expenses that you generate.
Using One Tool To Monitor KPIs and Increase Agency Profitability
Keeping track of your agency KPIs will help you grow your business. Having a single point of trust for your agency helps you increase your profit margins. So, let’s explore our selection of the best agency management software to find yourself “the one”!
Using an agency management tool helps you manage project delivery from start to finish and keep track of all your KPIs and streamline your agency’s processes.