A New Year has just begun, and if you’re looking to level up your marketing or creative agency in 2023, we know just the metrics you’ll need to track! These key performance indicators (KPIs) will help you determine what’s working in your agency, what needs to change, and where more expiration is needed.
Before we get started, let’s start with the basics. What are KPIs for marketing agencies?
A lot of marketers and creatives are familiar with KPIs because they provide them to their clients. Metrics like ROI, click through rate, cost per lead, and customer acquisition costs are all examples of KPIs that marketers provide to their clients. These marketing KPIs help their clients understand their performance of the work that they provide. Today, we’re sharing some KPIs that will help you understand your internal performance instead. These metrics will help you understand whether your internal systems are effective at gaining clients, maintaining clients, and more. Let’s dive in.
The most basic and important metric to track is your net profit margin, which is calculated by dividing your net income by your total revenue. The reason why this metric is important is that it’s really easy for agency owners to get caught up in revenue without considering how much they’re actually taking home at the end of the day. Net profit margin helps you assess your financial health by telling you how much is left over after all your bills and expenses are paid. If not enough is left over to fund your growth, it’s a sign that you may need to change your business model or reduce costs in order to keep your agency in a position to scale.
Monthly Recurring Revenue
Monthly Recurring Revenue (MRR) is the amount of money your agency makes from recurring clients. For example, if your agency works with clients to provide social media services on a monthly basis, the money you make from these clients would be included in your MRR. However, money you make from one-time projects would not be included. Having MRR whenever possible is a great way to build stable income within your business. Knowing your MRR is especially important when considering hiring decisions since you can count on this income stream as a pretty consistent form of revenue.
One of the biggest mistakes agency owners make is to price their services without regard to the profits they’re making once costs have been evaluated. Project profitability is a metric that considers each project you take on – or a category of projects – and how much money you made from it once costs had been paid. For example, if you manage social media accounts and pay for scheduling software, you would subtract that cost and any others associated with that service (such as any subcontractor costs) from your social media revenue. This would help you understand how profitable the social media branch of your business really is. You might find that while you’re charging more for one service, your profits are actually higher for another. A smart strategy is to identify which projects are truly most profitable and focus on building out your sales pipeline to sell more of those services instead of those that cost you more to provide.
Client Lifetime Value
A central growth strategy for many creative agencies is to become the agency that serves many of your clients’ various marketing needs. That’s why Client Lifetime Value (CLV) is such an essential metric for growing creative agencies. This metric measures how much you can expect to earn from a new client signing on to your firm by telling you how much money you make, on average, in the amount of time you work with a client. Not only can this metric help you understand whether or not clients are turning to you for more and more services over time, but it can also help you better understand what a good client acquisition cost is for you and project your growth more accurately.
This metric is traditionally considered helpful for startups, but the truth is, anyone can benefit from knowing their burn rate. This is the amount of money your business needs in a certain period to cover all expenses. The point of this metric is to tell you exactly how much you need to keep your business up and running, and you can even set goals around your burn rate to boost the sustainability of your business. For example, setting a goal to reach a lower burn rate so that if you go through a lower-revenue period, your business will still be profitable during that time.
Do you want to know these KPIs for your business and understand whether or not your agency is meeting benchmarks? Terrain Bookkeeping can help! Sign up for a free discovery call today to learn more.