Successful agencies keep track of their Key Performance Indicators (KPIs) and report on them on a monthly basis. There are many KPI’s an agency can report on, and although there are industry averages, every agency is unique and different. You need to implement and track the right KPIs for your business to help you achieve your business goals.
Here are useful KPIs you can implement in your agency, but avoid analysis paralysis. Track the ones that are relevant to your businesses definition of Key performance Indicators.
Revenue per head - net revenue (revenue less procurement costs borne on behalf of clients) divided by the number of staff. This is a good indicator of employee productivity and efficiency
Revenue growth - this is the percentage of revenue growth year on year. This should be more than inflation but should be targeted at the 20% range
Net profit margin - net profit divided by your net revenue. This shows what percentage of your revenue generated is actual profit and top performing agencies generally achieve a 20%+ margin
Accounts receivable days - receivables divided by revenue, times by the number of days in the year. This shows how long it takes for clients to pay you, after raising the invoice and the number one reason for cash flow issues. You would want to keep this below 30 days
Quick ratio - current assets divided by current liabilities. This shows how well you can cover your current liabilities with your current assets and should be a minimum of 1:1. It's a very good indication of the liquidity of your business
Other measures you may also want to consider are overhead analysis, capacity analysis, staff utilisation, client profitability, service profitability and profit per employee.
You should be using the results from your KPIs to compare against your budget/forecast and industry average to get meaningful analysis.
Click here if you would like a template of all the above KPI calculations so you can start tracking your business performance.
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