The 5 Agency Metrics You Should Be Tracking
Why I Love Metrics
I love metrics because they are cut and dry. No beating around the bush, no dawdling around what might be the best option. It’s like ordering pizza for dinner in my household... there is never anything to debate. 😋
A metric is telling you one of three things: where you’ve been, where you’re going, or where you might want to go.
A real life example of a metric that you have likely encountered is going to the doctor and having your blood pressure taken. You may know that anything from 90/60 to 120/80 is a normal range. Imagine your doctor takes off the blood pressure cuff, gives you a concerned look, and tells you your blood pressure is 140/90. 😩
You may not know exactly what to do next but I bet your doctor has a target they’d like to see that number drop down to. The great part about having a goal is you can work with the smart people around you to identify the best path toward that goal.
That’s exactly how you can think of metrics in your business. They are numbers that tell you the health of your agency. If you review a metric and you realize you’re going off course, you can make adjustments to your business to get you back on track.
Where to Start
The thing about metrics is they can be really overwhelming. If you’ve ever googled all the different metrics or KPIs (key performance indicators, aka just another fancy way of saying metrics) that you might want to track for your business, it can leave your head spinning. I found this article that has 136 different KPIs to track!!
No need to start from scratch. Here are the 5 metrics geared toward agencies that I like to look at when I’m working with clients.
#1 - Net Percent Profit: This is the money you have left over after taking what you’ve earned in revenue and subtracting all expenses. This is the number you’re likely checking when you run a P&L to get a sense of how the business is performing.
The Ideal Range: A healthy range for net profit is somewhere between 10-25% and fluctuates based on what you’re currently doing in your business. If you’re investing in scaling and doing things like hiring key employees, investing in a new website, etc., you can expect your net profit will likely be toward the lower range.
#2 - Cash on Hand: This is the amount of liquid cash you have in your bank account and does not include lines of credit or non-liquid assets.
The Ideal Range: Depending on your company’s goals, it’s recommended that you keep 3-6 months of cash on hand. If you know you need to invest in some internal initiatives, or do a large hiring push, you’ll want to be on the higher end of the range.
#3 - Standard Bill Rate: This is the hourly rate that you’re charging clients for your company’s services. Even if you’re an agency that bills based on value, you can (and should) track this. If you are value based, do the simple math to crunch your standard bill rate by taking the total project fees / hours you’ve estimated the project will take.
The Ideal Range: Normally this will range anywhere from $125-$250/hour, however there are many agencies outside this range. This rate is going to vary based on the type of work you’re providing / type of clients you’re serving. Important thing is to make sure you’re able to meet your net percent profit goal.
#4 - Actual Bill Rate: If you’re in the agency world, you know that just because you bill a certain amount, it doesn’t mean that a project always ends up taking that many hours to finish. Unless you’re billing T&M (time and materials), the actual bill rate can fluctuate depending on how well the project is scoped / how well your team can finish within the estimated projections.
An example of this is when you pitch a $100k project that you estimate will take 500 hours (so a standard bill rate of $200/hour), but in reality it takes you 800 hours to finish. As you can see, you’ve now ended the project at an actual bill rate of $125/hour ($100k/800 hours).
The Ideal Range: This metric is largely dependent on your standard bill rate. You want to try to get as close to your standard bill rate as possible but know that small variances are okay. Ideally you don’t want to dip past 10-15% of your standard bill rate. If you find yourself regularly missing this target, you likely have an issue with your scoping process.
#5 - Average Utilization Rate: This is the amount of time each team member is being utilized out of their full time capacity. Most agencies are tracking on a weekly basis as well as a monthly basis.
For example, if a full time employee is working 40 hours/week and is expected to bill 32 hours out of their 40 hour week, their weekly utilization rate is 80% (32 / 40). You can then calculate and measure the monthly average by also factoring time off for holidays, vacations/sick time, company events/retreats, etc.
The Ideal Range: Most agencies set a goal of 30-35 billable hours/week or 75%-87.5% weekly utilization. Monthly utilization rates are lower at 60-70% since you’re taking into account additional time the employee won’t be working.
Knowing which metrics to track and what they will tell you about your business can make the difference between sinking or floating. While it may be tempting to just cross our fingers and hope for the best, I believe that knowledge truly is power!
If it feels overwhelming to implement all of these right away, choose one or two and get started. It can take some initial setup to capture these metrics, but once you do, it’ll provide you with the insights to make important decisions for your business.
