Agency metrics for sustainable growth and profitability
What does good management look like in an agency? Here are key performance metrics.
I founded Wadds Inc. to help entrepreneurs to build and grow sustainable agencies. We’ve built a small portfolio of owner managed agencies.
I’ve started to build a performance dashboard to help understand the health of a business and and as an aide to planning.
Reporting on key performance indicators helps raise standards. Transparency on metrics such as financial performance, diversity, staff wellbeing and societal contribution would improve the standing of PR practice.
I’ve been fortunate to learn the business and financal acumen needed to run and grow an agency during my career from smart people including Steve Earl, Bill Jones, David Brain, Iain Johnston, David Gallagher, and the team at Ketchum.
Neil Backworth’s book Managing Professional Communication Agencies (PRCA, 2007) and Grow, Build, Sell, Live (Emerald Publishing, 2019) by Crispin Manners and Richard Houghton are useful reads.
This blog is a summary of key metrics. I’ve included ballparks where relevant. I’d be interested to hear how you think this could be developed.
Financial metrics
Turnover – headline revenue number typically made up of fee or project income
Staff costs – the most significant cost in operating an agency. It includes salaries, national insurance, and pension (50-55%)
Fixed or operating costs – office space, IT and tools
Variable costs – marketing, business development, subscriptions and staff welfare
Profit – The most important agency metric along with debtor days. Turnover minus staff costs, fixed costs, and variable costs (20-30%)
Debtor days – a measure how quickly cash is collected from clients once it has been billed (30-60 days)
Reserves – cash to cover costs in the event of a change in the operating environment (three-six months)
Performance metrics
Fee income per head – the revenue generated per fee earner (£100k)
Billable hours – the percentage of time that a fee earner is earning revenue (75-80%)
Over service – don’t give away work for free. Recovering billable hours is the most significant contribution to profit after staff/cost ratio
Planning ratios
Staff turnover – turnover of team can be an indicator of stagnation or rapid growth
New business growth – growth needs to exceed client losses in a sustainable agency (20-30%). SME agencies, growth markets and investment are levers to outperform norms
Client losses – client attrition both planned and unplanned (10%)
Billable staff/non billable – ratio of fee earning staff to support staff
Billable staff profile: director/manager/executive – the organisational profile is dependent on the business model ranging from flat senior practice to a pyramid
Sustainable growth
Pipeline value – measuring monthly, quarterly, and annual pipeline value alongside win rate provides a forecast for growth
Win/loss ratio – success rate for winning news business
Average client income: top 20% and bottom 20% - developing top 20% clients and cutting off bottom 20% is an important lever for growth
Environment, society and governance
Staff development and welfare – investment in learning, development, and training. The ratio of lowest to highest salary is also a good indicator
Societal contribution – agencies talk a good marketing game on charitable contribution and pro bono work but rarely report on data
Diversity – BAME, gender and socio-economic supplier, leadership and team is rightly getting increased attention
Environment – decarbonising agencies is an emerging issue driven by the UN Framework Convention on Climate Change
