Do you know which employees are most profitable? Which marketing campaigns are most successful? Where your most qualified leads are coming from? How many sales you will get next month? And perhaps most importantly, why? Key performance indicators, or KPIs, can give you the necessary insight you need to answer all these questions and more. They can track and measure how well -and how poorly- every aspect of your agency is performing. If you want to grow, sell, or simply maximize your profits then tracking KPIs are non-negotiable.
But the thing about KPI’s is that they often times come with a pesky problem called analysis paralysis. This is being so caught up in tracking and analyzing that the original task never gets accomplished. So how do you track all of the essentials without getting caught up in the numbers?
It starts by monitoring only what matters because while you can track just about everything you really don’t need to. There are also certain KPIs that are more important to digital agencies than they are to other industries. Below you’ll find the most KPIs that your agency needs to be tracking.
Knowing exactly where your money is going will allow you to cut back on unnecessary expenses. Sometimes the simplest thing, like a software subscription you forgot to cancel, can cost your hundreds of dollars. You should break down your expenses into individual line items, then they should be categorized so you can see which areas are costing you the most. If you’re not strictly monitoring where every penny is going you’re probably throwing away a lot more money than you realize.
One of the biggest portions of your expenses will be your payroll but knowing how much you’re shelling out on salaries, taxes, and insurance isn’t enough. How many non-billable hours are your employees accumulating? How efficient is each employee? How many billable days are there in a month?
If you don’t have the answers to these questions then you need to get a program that allows you to track hours and a manager responsible for reporting the necessary KPIs. Monitoring your payroll in great detail can give you the insight you need to make smart decisions. You may learn that your marketing department is doing the work of 2 people even though you’ve got 4 people on staff. You may see that your project managers are spending too many hours doing non-billable work. Once you know where your money is really going you can begin to cut unnecessary expenses, improve productivity, and watch your profit margins grow.
This is deeper than just knowing how much money came into the bank each month because even though that can be an exciting number to look at it doesn’t tell you how well your agency is really performing. Your KPIs should tell you not only how much money came into the bank but where it came from, what it took to get there, and how to do it again (but better).
Your revenue should be broken down so that you know what percentage came from residual income, project work, referral fees, etc. Tracking your residuals and knowing how many clients you need to stay afloat will keep you safe when times get tough. I have seen so many agencies lose one big retainer client, fail to make payroll, and never come back from it. Don’t make this mistake.
On the flip side, you should also know how much of your revenue comes from new sales vs. existing clients so that you don’t take on more new clients than you can handle. If your agency is flooded with new projects your quality of work will suffer and you can kiss those residuals goodbye. Knowing you should make X% of new sales each month will allow you to control your service bandwidth so you can keep employees busy and clients happy.
Customer Acquisition Cost
I keep customer acquisition costs separate from expenses because although you have to spend money to make money the opportunity and insight these KPIs can provide will change the way your agency runs. It’s not just the cost per click, it’s the number of new leads, qualifying those leads, nurturing those leads, moving those leads through the pipeline, closing those leads, keeping them happy, etc.
If you want to grow or sell your agency this should be one of your most important categories. Investors will look for this category and scaling is near impossible without streaming this category. Your success is ultimately determined by how much business you can generate and at what cost.
When a lead finally converts to a paying customer you want to know how they got to that point. You should know where your clients are really coming from, which lead magnets are converting the most and the best leads, which ads are driving the most traffic, which campaigns are generating the most impressions, which landing pages are closing bigger deals, the list goes on. The more you know about what it took to get a lead to convert the better you’ll be able to replicate it. As you perfect the process you’ll be able to close more deals, more quickly, and more easily.
There you have it, the three most important categories of KPIs to track for your digital agency. If you need more information on specific metrics, how to find the data, and reporting tips then be sure to check out our full Agency Performance Indicators online course.
The original version of this article was first published on Agency Management Institute.
- Are You Tracking These Essential KPI’s in Your Agency? - September 24, 2018