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Reply To: What financial metrics are important?

Chip Griffin
March 27, 2022 at 4:35 pm #16107

I’m glad you asked this question because too often agency owners end up focusing on vanity financial metrics (like total revenue) rather than things that actually help them achieve the results that they want from the business.

The metrics you watch will depend upon the stage of growth that you are in as well as your personal objectives.

That said, there are a few things that are often worth tracking:

* Project profitability. Don’t get misled by just looking at agency-wide numbers. You need to track the profitability of each client and project. This will help you get better at scoping and pricing. In addition, it helps you better define an ideal client.

* Revenue concentration. You need to know what percentage of your agency’s revenue each client represents. Typically, I like to see this between 4 and 20 percent each. Less than that and they typically end up being a distraction and you don’t give them enough attention. More than that and they represent a material risk to the business if they go away — which often leads to over-servicing and other poor decision-making.

* Your own compensation. It’s not a financial metric in a classical business sense, but how much you take home has a direct impact on how you perceive the business. I don’t care whether you take money as a salary or a draw or something else. How much are you putting in your own pocket? How does that amount compare to what you need and want to make from the business?

* Cash on hand. If all of your clients disappeared at once, how long can you keep the lights on in your agency without resorting to debt or your own savings? This should include payroll, rent, and other fixed expenses that don’t fluctuate based simply on client activity. You should have the ability to last at least 3 months covering all of your business expenses to enable you to make rational decisions in times of crisis.

Of course, there are a lot more numbers that you can (and probably should) track. But these will get you started. And the work that you do to calculate these numbers will serve you well by helping you to better understand your agency and the levers that you can pull to improve your success.

Chip Griffin founded the Small Agency Growth Alliance (SAGA) to help PR and marketing agency owners achieve their goals.

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