Returns, Social Media Engagement, Customer Churn Rate, Monthly Website Traffic. A customer’s Facebook ad with a CTR of 15%? Fantastic. Is a 100% year-on-year increase in revenue for your client’s website as a result of your SEO strategy? Even Better. Decreasing your AR days is the easiest way to free up cash in your agency.

Mark Probert, Managing Director of Cact, us and Co-author of Agencynomics, advises that 45 days or less is a competitive target for digital agencies. This is echoed by NetSuite’s Brainyard. Matt is the Head of Operations for Fathom’s UK office. With a background in legal services, Matt also has tech experience, having consulted clients ranging from sole traders to FTSE 100 companies before joining Fathom.

Customer lifetime value is the total amount of revenue a customer generates throughout their relationship with a business. Tracking CLV is essential for evaluating the potential and future success of the business. Until you know how much money you can generate from an average customer, it will be much more difficult to know how much to spend on acquiring a new customer. Once you know what you can gain from a typical customer, you can increase or decrease spending to ensure you maximize profitability and continue to attract the right types of customers.

An increasing CLV highlights that you are keeping your clients’ customers happy, reducing customer churn and connecting with leads the right way. Net profit margin is one of the most important marketing KPIs. Net profit margin helps you measure the profits that your marketing agency has made after paying for all the expenses including material and labor costs, operating expenses, taxes and overhead expenses. If you have an internal team that delivers work to clients, utilization rate will be the first and most foundational metric to start paying attention to in terms of profitability.

Utilization is defined as the percent of your employees’ total time that is billable. What this means is, in order to increase your agency’s profitability, you need to make sure your team has enough work to do for clients to keep a threshold of billable hours. Understanding your utilization rate helps you avoid situations where you’re paying a salary to the team, but not earning any revenue in return. If the team isn’t busy, there’s not much point in optimizing for profitability, because the increased efficiency can’t be transferred to other revenue-earning opportunities.

On a week-to-week basis, you generally want your “pure” producers (designers, developers, copywriters, etc.. On an annual basis, you should aim to have your production team hit a utilization rate of between 65% and 80%. With utilization above 65%, you should be putting yourself in a position to achieve healthy margins as a business, so long as you’re earning your revenue efficiently (more on that next). Once you’ve started consistently hitting utilization targets, this is the next highest priority metric to familiarize yourself with in order to build a scalable agency that can cash flow its own growth.

As mentioned above, gross margin is one of two metrics you can use to help track your revenue earning efficiency. Gross margin is a tried and true method to getting a handle on your production profitability. Simply put, it means calculating the profit margin on a per-client or per-project basis by subtracting time %26 material costs from whatever the client has paid you. Being able to consistently hit gross margins in this range means your delivery systems are efficient enough to scale profitably, thereby allowing you to cash-flow your agency’s growth.

To run a highly profitable, scalable agency, you’ll want to aim for a gross margin of 50-70% on a per-client or per-project basis. The target for average billable rate is the same as for gross margin. When we look at our average cost per hour for our production labor, we want to land in the 50-70% margin range. Once you’ve gotten a grip on utilization, earning efficiency, and scoping accuracy, you should already be head and shoulders above the competition.

Your agency will feel more stable, you won’t find yourself worried about cash flow, and planning ahead for growth won’t feel so obscure. The last piece of the puzzle for really dialing in your agency’s profitability is paying attention to your overhead spending making sure it’s balanced relative to your income. Overhead costs are expenses that support your agency but are not directly tied to the creation of a specific product or service. They are the ongoing and necessary expenses of running your business that don’t generate revenue..

The three main categories of overhead spending that we’ll talk about in this post are administrative, facilities, and sales %26 marketing. The percentages of overhead spending for each of the different areas below may shift depending on your accountant’s guidance on where to place expenditures that fall into “grey areas”. It’s important to track KPIs for your marketing agency to judge the current (and future) state of your business. Net Promoter Score is among those few digital marketing measurement metrics that measure customers’ perception of the brands that your marketing agency works with.

You can evaluate a marketing agency by measuring various business, financial, and sales and marketing metrics. When you have an omni-channel marketing strategy, you have to be judicious about how much resources you spend for your marketing efforts through every channel. The primary objectives of a marketing agency would be to build brands, create visibility for those brands, inspire audiences to reach out, generate leads for the clients, communicate with the leads through various channels and push them towards sales conversion. But when it comes to keeping your eyes on the figures, it’s easy to put your clients first and leave your marketing agency to fall behind.

In line with these priorities, marketing agencies track many different marketing metrics to improve marketing ROI (return on investment) and ensure that their marketing campaigns are effective. In a highly competitive marketing agency landscape, you need to have an undeterred focus on finances, effectiveness of the campaigns, performance and profitability in order to succeed and grow. The effectiveness of your marketing initiatives to generate leads can be measured by calculating the amount the agency spends on bringing every lead. Marketing agencies spend on digital ads, sponsored social media posts, SEO to bring organic traffic, and various other channels to bring quality leads to clients.

Whether you’re an established agency or just getting started, here are five strategies you can use to grow your digital marketing agency this year. Marketing metrics are the quantitative measures with which marketing agencies track, measure, and analyze their business performance and the effectiveness of their marketing activities. However, unlike marketing qualified leads that merely show interest in your marketing communication, the brand and the products that you are marketing, sales qualified leads also show interest in purchasing the products. Engagement rate is one of the most important marketing KPIs for measuring the impact of your social media marketing initiatives.

Marketing metrics also let agencies make data-driven decisions that can have a significant impact on profitability.



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