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 customers, 6 times more likely to retain them, and 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 project results, improve customer relationships and guarantee long-term success.
Why agency metrics are important in today's competitive landscape (and why some are a little more important)
Imagine this: you’re driving blindfolded, trying to reach a specific destination – you might stumble upon your destination, but it’s more likely that you’ll get lost, have an accident or get lost along the way, isn’t it?
Agency metrics are your agency’s GPS; they light the way forward, showing you where you excel and where you need to fine-tune. They are the key to unlocking your agency’s full potential, guiding you towards greater efficiency, profitability and, ultimately, mastery of your sector.
But not all metrics lead to actionable information! Some metrics hold the key to understanding your agency’s performance, while others simply clutter up the dashboard. It’s not about drowning in a sea of numbers; it’s about focusing on the metrics that give the clearest picture of your progress.
Understanding the impact of agency metrics on sales success
By keeping an eye on these metrics and acting on what they tell you, you’re guiding your agency towards growth and success.
Besides, everyone loves a bit of healthy competition, don’t they? When team members can see how their efforts contribute to the whole, it adds a fun touch to the daily routine. And let’s not forget bragging rights! When you can show customers how their investment is paying off, it’s like shouting “We did it!” from the rooftops and giving them tangible proof that they should work with you again.
How do agency metrics boost profitability and growth?
By tracking metrics such as customer acquisition costs,project efficiency and customer satisfaction, agencies uncover information 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, stimulating long-term success.
With clear benchmarks and ambitious goals, agencies can navigate their way to profitability and growth, using data-driven approaches to stay ahead in the competitive landscape.
Identify the key metrics that each agency must track
After working with over 500 agencies and meticulously examining their performance, we have compiled a comprehensive list of financial and non-financial metrics that we consider essential for success.
What are the main financial KPIs for agencies?
Gross margin
There has been a noticeable shift from the “retainer” model to more “project-based” approaches, a transformation accelerated by the Covid-19 pandemic.
What does this change mean? It has led to the fragmentation of scopes of work into multiple projects, intensifying competition and, paradoxically, reducing budgets. In addition, decision-making power has shifted from marketing teams to purchasing departments, resulting in tougher negotiations and a requirement for accreditation to work with major advertisers.
Inevitably, this scenario puts pressure on the gross margins of traditional agencies, who now face a landscape where advertisers aim to get “more for less”, seeking wider scopes of work for equal or reduced budgets. In this context, gross margin is more crucial than ever.
But what level of gross margin should we aim for? A gross margin target of 35% to 40% is considered a benchmark.
For example, when an advertiser entrusts you with an all-inclusive budget of €200,000 for a competition, you should anticipate revenues of around €70,000 to €80,000, allocating the remainder to production. It’s important to note that this benchmark can vary according to the type of activity and the usual share of purchases. For example, a successful production company will achieve gross margin levels close to 80%.
So, how can you increase your gross margin? Internalizing all or part of production is a viable solution, as isstrategically integrating freelancers to adapt flexibly to specific needs and projects. This approach not only optimizes costs, but also provides tailor-made work that precisely meets customer requirements. You can also try to reduce the scope of work for the same budget, aiming for “less for more”! To do this, it’s essential to master the gross margin formula in order to monitor and optimize your results.
Salary to gross margin ratio
We’re aware – and so are you – of the current ecosystem and the existing tensions around budgets. Consequently, a prudent entrepreneur must keep a tight rein on expenses, with salaries being a critical area to watch closely.
The aim is to strike the right balance between flexibility and adaptability. In a project-based business model, you need to adapt salaries to the duration and, of course, 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 greater flexibility, limits salary expenses between projects, while maintaining a permanent employee base to ensure delivery and operational continuity.
So, what ratio of salaries to gross profit do we recommend to our customers? Between 55% and 65%: this means that you should spend between 55% and 65% of your gross profit on salaries for your team (including yourself). If you stick to this KPI and manage your structural costs properly, you should be able to achieve between 15% and 20% operating profit.
Office costs to gross margin ratio
When we talk about office costs, we’re mainly talking about your rent and leasing costs. Some agencies overestimate their office requirements, resulting in more space than employees. Although in advertising there is often a desire to appear larger, some regret this; once the lease is signed, it becomes more difficult to leave quickly and therefore reduce your costs in this area.
So, what level of office costs should you respect? 7/8% of your gross margin should be allocated to paying for your offices. Okay, you can push it up to 10% if you’re feeling really ambitious, but beyond that you risk unnecessarily overburdening your company’s structural costs.
What can you do if you’ve overestimated what you can handle? Several options are available:
- Sublet unused space to lighten the office burden on your P&L.
- Have you considered coworking? More and more agencies are moving into shared offices, offering greater flexibility.
- Finally, you can also opt for shorter leases and avoid being stuck with a fixed six-year lease (or worse).
Flexibility is always the key!
EBIT
EBIT (Earnings Before Interest and Taxes), aka Résultat d’Exploitation, is a key indicator of your financial performance because, after taking into account almost all your company’s expenses except corporate taxes, it’s the profit you make! This will be affected by the factors mentioned above, namely your gross margin level, your salaries and the cost of your offices.
So, what revenue to gross margin ratio says “I run my agency well”? 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’re around 10%… especially in today’s economy and with the shift to project-based approaches.
Customer Staffing Rate
Let’s look at a more technical KPI, but one that’s just as important in managing your agency: the customer staffing ratio. Quite simply, it allows you to measure the volume of time your team devotes to billable customer hours . This helps you make decisions about increasing or reducing your staff.
So what’s the minimum level of customer staffing you should be aiming for? At least 75% of your team’s time should be devoted to customers and billed through your fees and customer gross margin. Below this level, you’re probably overstaffed relative to the volume of your business. Going much higher also presents a risk, as understaffing leads to dissatisfaction within your team and poorer quality work.
But what should the other 25% of your team’s time be spent on? In agencies, this time is often allocated to business development and tenders, as well as administrative tasks, reports, internal meetings and managing agency processes.
All the financial KPIs we’ve looked at so far are closely related. For example, if you have a staffing rate of around 75% with a gross margin of around 35%, and you maintain the ratio of salaries to gross margin (between 55% and 65%), you’ll be in the ideal range for gross margin per employee (around 150K/year).
Gross margin per employee
This KPI is a financial indicator that helps you determine whether each employee in your agency is making a sufficient contribution to your gross margin. It also helps determine whether your agency is properly staffed, whether your customer staffing level is sufficient, and whether your gross margin level is in line with the size of your organization.
So, what level of gross margin per employee should I aim for? The calculations are relatively simple: you divide your total gross margin by your full-time equivalent (FTE) headcount. If this figure reaches or exceeds €150,000 per employee, good news! Not only do you have a well-calibrated gross margin per employee in relation to your headcount, but you’re also closer to achieving 15% EBIT!
However, be careful; if you’re approaching €200,000 per employee, make sure you’re not understaffed and that your team’s workload remains reasonable.
Staffing dedicated to New Business
The final KPI we’ll explore is the level of staffing dedicated to New Business by your teams. As previously discussed, your teams’ customer staffing rate should be around 75%. So how should the remaining 25% be allocated? There are three main elements to consider:
- Business development
- Administrative tasks and meeting reports
- Internal meetings and agency process management
It’s essential to note that staffing levels for business development evolve throughout the year, but can’t be constantly at a high level; otherwise, it leads toburnout of teams and yourself.
So, what level should you aim for? Given the widely adopted project-based model, the minimum staffing level for business development should be > 10%, and can be as high as 25% during peak bidding periods. Be sure to adjust it according to the bidding seasons, which are traditionally strongest in early spring and late summer!
The role of non-financial metrics in agency project management
Non-financial metrics complement financial indicators in agency project management by providing information on various aspects of project performance, including customer satisfaction, project deadlines, quality of deliverables, team productivity, creativity, employee satisfaction, customer loyalty and risk management. By monitoring and leveraging both financial and non-financial metrics, you can optimize project results, improve customer relationships and ensure that your agency is on track for growth.
Continuous monitoring of metrics throughout projects, rather than at invoicing time, is crucial to proactively identify issues, ensure transparency, mitigate risk, allocate resources efficiently and guarantee high-quality results.
The importance of monitoring project progress: project profitability metrics
Here are the different indicators you should consider:
Projected net profitability :
This indicator measures the real profitability of the project, taking into account all associated costs.
To calculate projected net profitability: Amount of production – (number of days spent * daily cost per employee)
The amount of production corresponds to: the project’s gross margin * percentage of project completion.
Estimated return on sales :
When it is negative: it indicates amissed opportunity (what should have been sold versus what was gained) or vice versa.
When it is positive: it indicates the outperformance achieved in relation to what was sold.
To calculate the estimated return on sales: amount of production – number of days spent * Daily rate (either based on daily rates, or the average daily rate for the business unit, or the default daily rate at global level).
Example: If you have a project worth €10,000 and a €2,000 on this indicator, this means that 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’s very likely that you’ll have a negative estimated return on sales and will have to make 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 customer for work completed up to the current date.
To calculate the invoiced amount: add up all invoices issued to the customer for the project, including partial payments or milestones reached.
Progress indicator :
This indicator quantifies the progress made on the project in relation to its overall scope. It assesses the proportion of tasks or deliverables completed in relation to the overall 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 information on financial health and progress, helping to inform decision-making. With a clear understanding of profitability, cash flow and project progress, teams can navigate the complexities and optimize results effectively.
Using 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 identify growth priorities, adapt tactics and set ambitious but achievable goals. This means using data to make decisions, executing tasks with care and communicating openly to achieve success with precision and flexibility.
Case studies : Successful strategies influenced by agency metrics
Amount invoiced :
Since adopting Furious in early 2020, just a month before the start of global containment, Agence Rebellion CEO David has seen remarkable transformations within his agency. From humble beginnings with just two employees to now a team of sixty, the agency has seen unprecedented growth, particularly in the wake of the COVID-19 pandemic, with a 70% increase in gross margin.
However, with growth comes challenges, and Agence Rebellion was not spared. As margins began to shrink year on year, David recognized the pressing need for a tool capable of effectively managing and structuring their burgeoning operations. Faced with fierce competition for talent and clients tightening their budgets due to economic uncertainties, the agency faced a pivotal moment in its trajectory.
To meet these challenges, David turned to Furious, leveraging its robust project management capabilities not only to track KPIs, 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.
In addition, David works closely with his management team, using monthly metrics to assess margin profitability 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 sustainable growth and success.
David Ait-Ali, CEO of Agence Rebellion
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.
Furious Squad: your future tool for ensuring and visualizing your agency's profitability
Why is Furious the right tool for you?
Instant access to your performance
One of Furious’s key benefits is its ability to provide real-time updates and automatic alerts on the status of budgets and projects. This enables you to stay ahead of potential overruns, take corrective action quickly and ensure that projects remain on track for profitability. We don’t just help you manage projects; we turn raw project data into actionable information. With comprehensive reporting and profitability analysis, you’ll gain in-depth insight into your financial performance, enabling you to discern trends and implement strategic measures to improve 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 neglect a task again, allowing you to concentrate on what really matters: developing your agency. Simplify your workflow by automating the conversion of quotations into scheduled tasks, freeing up valuable time from administrative tasks and allowing you to concentrate more sharply on creating value.
