Key performance indicators (KPIs) are one of the commercial world’s most important terms, and a common query about them is: which KPIs should you be tracking in your business?

To answer that question fully, you need to know what KPIs are, and why choosing them wisely can provide an overview of your agency.

Key performance indicators can highlight an agency’s strengths and weaknesses. They can help to navigate challenging times as well as future-proof against financial problems while retaining customer satisfaction and trust.

Whilst there are many different types of KPIs that you can track in your business, this blog will take a deep dive in two categories – Marketing and Financial. We will reveal how they help business owners keep focus and think about the ‘bigger picture’ when planning for the future. Be sure to check back soon for more content about business KPIs.

Marketing vs Financial KPIs?

There are lots of business KPIs and they can be measured on a weekly, monthly or quarterly basis. These can cover marketing, financial, operational or sales targets, in fact, any area of the business can have KPI applied. In this blog, we’ll look at two specific areas, marketing and finance. As we’ll explain, both are important when it comes to successful business growth.

Marketing KPIs

These KPIs are connected to your digital marketing and sales strategies on social media platforms and other advertising outlets. They are used to measure performance and effectiveness over time.

Financial KPIs

These KPIs are used to analyse and measure the agency’s financial health, and can cover everything from profitability and liquidity to solvency and valuation.

Both sets of KPIs can be very important to agencies, and will intersect and overlap in many cases.

Sales levels, for example, will inform revenues and profitability. Net profits will determine how much can be invested into the business, or to hire new staff.

Evolving with business objectives

As your agency scales, you will find that your KPIs will need to evolve too.

While some KPIs are enduringly central to your marketing and financial strategies and targets, others will change over time to reflect your growing, sustainably successful agency. 

 The KPIs of a small business owner in their first year of trading will be unlike a company that has been established for several years, because their business stage and goals will be different.

Immediate goals versus longer-term aims

For example, a start-up will likely focus on KPIs including cash flow, sales revenue and customer acquisition, because they’re immediate business goals. Achieving them will help the agency scale.

However, KPI examples for a company with a few years trading under its belt will broaden their focus to include metrics such as employee productivity, customer churn rate and how they impact business performance.

So, which KPIs should your agency be tracking?

It’s a good question and, as with so many things in business, the answer isn’t quite as straightforward as you might like.

The key performance indicators KPIs you track will depend on your type of agency, its stage of development and your growth plans. Let’s explore these factors in a little more detail.

What are your business objectives?

Every small business owner wants to make a profit, but as your agency expands into a bigger business, trust us, those key metrics will change.

Successful businesses choose KPIs that help measure what’s important to the company, so initially it may be a robust bottom line and customer acquisition cost.

 Over time, that focus may need to switch to assessing marketing costs or measuring customer satisfaction.

Where is your agency at?

At de Jong Philips, we work closely with agencies at every stage of growth, from start-ups and small businesses with limited resources, to established firms keen to get the most from their business metrics. 

At each phase of business growth, the KPIs will change.

Remember the past when looking to the future

When choosing your KPIs, it’s worth using a blend of leading indicators and lagging indicators: metrics that look to the future as well as back at past results to measure progress.

For example, KPIs measuring profit (a lagging indicator) and customer satisfaction (a leading indicator), could indicate the strength of your business and the potential for it to remain robust in the coming weeks and months.

Financial key performance indicators your agency could track

Sales growth vs cost growth

As a rule, agencies want sales to grow faster than costs (or at least at the same rate). Depending on the scenario, if one is growing faster than the other it could be cause for either concern or celebration.

If your key performance indicator shows that sales have exploded but you can’t keep up with hiring staff, or investing in systems and support functions, then it could negatively impact your staff and clients.

Gross profit margin

This is one of the most important financial metrics, as it will tell you whether you are delivering work at a profit margin that can sustain your business profitably.

Sales could be growing but if the cost of delivering them rises faster, then your agency’s profits will be dented.

A declining gross profit margin can indicate you might need to increase your prices, negotiate subcontractor prices down, or even review how you deliver your work. Could your agency do things differently to save time and boost that gross margin?

Fee income vs staff costs

Another one of the most important metrics is fee income vs staff costs, and our experts think 60% is a reasonable target.

Going above this benchmark can affect profitability, while dipping too far below could affect customer service and employee satisfaction. It’s definitely a balancing act to get it right.

Project costs vs budgeted costs

If your agency isn’t on target with costs or time, profit margins will be eroded. It could also be a signal that perhaps you’re not pricing accurately and the time is right to rethink.

Sales per head

This important KPI indicates if you have the right number of employees in your team – no matter your business type.

It could also form one of your SMART KPIs, as it can also indicate whether you have enough revenue-earning people among your agency. Setting SMART – specific, measurable, assignable, realistic and time-related – goals means more than trying to be clever about what you’re trying to achieve. Applying the acronym can also help build a roadmap for your agency’s growth and success.

Debtor days

On average, how long does it take for your clients to pay you? Ideally, this is one of the measurable values that should be as low as possible, ensuring cash comes into your bank quickly rather than being tied up in a debtor’s balance.

We suggest a target of 40 days or below. Agencies can reduce debtor days by using tools like Chaser to automate outstanding payments.

Gross burn

If all your agency’s sales stopped today, how much total revenue would you have left over to spend on monthly overheads such as wages or rent?

When it comes to tracking KPIs, this one can help determine how much of a cash buffer to hold in your business.

It can also determine if you can afford to add ongoing costs to your agency as part of a growth strategy, such as hiring new employees or moving to bigger premises.

Net assets

Arguably one of the most vital key performance indicators, you want this to be positive! If it goes negative, you can’t take dividends and that can be a scary place to be in.

Monitor this KPI closely so you can respond in an agile fashion if the metrics hint at a downturn.

Staff utilisation rate

Total billable hours/total hours. Your team will never be 100% working on billable work (that can be invoiced to your clients) and you wouldn’t want them to be.

 They need time to do admin, win new business, attend team meetings, training and so on, but the balance between non-billable and billable hours needs to be right.

If your staff utilisation rate isn’t right, your agency will run the risk of poor profit margins if billable hours are too low or staff burnout and increased staff churn if billable hours are too high. 

Customer acquisition vs retention rate

How good are you at retaining customers or winning repeat business from the same client? Do you have to constantly go in search of new customers?

The customer acquisition cost is one of the most important metrics, as it can enhance and effectively target your agency’s marketing strategy.

It goes without saying that keeping existing customers is one of the best ways to grow your agency as it is cost-effective, while also building trust and a good reputation. 

However, if your KPIs indicate you’re not hanging on to repeat customers, it could be time to rethink or overhaul your business offering, pricing or service levels.

Conversion rate

This KPI measures the number of new customers against the number of leads from website visits.  

It helps refine your prospect process, how your sales team goes about winning and converting new customers, and can also underpin your planning.

For example: if you know one in 20 leads results in a new customer, and you know it takes three months to convert that lead into a customer, then you have an idea of how many clients you’re expected to secure in the next three months.

Marketing KPIs for your business

As we said earlier, your KPIs should include marketing metrics as well as financial KPIs. So, let’s run through a few that could be important to your agency.

Social Media Engagement

The mother of all marketing metrics, monitoring customer engagement with your agency via a social media channel is almost a full-time job in itself.

Luckily for the millions of businesses using the likes of Facebook, YouTube, Instagram and Linkedin, the big guns all come with easy-to-use dashboards.  

They enable even a small business owner to dig into their metrics and determine if their marketing efforts are paying off.

Monthly Website Traffic

One of the most visible KPIs to measure is how much traffic and visitors a website attracts each month, using digital marketing tools such as Google Analytics.

It generates unique session data and can provide indications about your agency’s growth that could affect the gross margin.  

Google Analytics also measures other metrics, including bounce rate and average page load time. If these aren’t optimised, it could affect consumer behaviour.  

More visitors means more potential leads and higher conversion rate, as well as opportunities to expand your pool of current customers and boost your company’s income and net profit margin. 

Customer Lifetime Value

Few things are more important to a business than how much clients spend on its products during the length of the relationship between the two. It’s why customer retention is so important to revenue growth rate.

Customer lifetime value can be calculated by subtracting customer lifetime costs from customer lifetime revenue.

Monitoring the lifetime value KPI can help keep you on a successful path with clients, support the development of engaging lead nurturing campaigns, and strengthen valuable relationships.

Net Promoter Score

Communicating with your agency’s customers is vital to the success of your business, and the easiest way to gauge their satisfaction levels is through surveys and requests for feedback.

You can track the results, known as your net promoter score, to get important insights into what customers really think of your businesses – data that can help identify both weaknesses and strengths.

When should your KPIs be measured?

So, we’ve looked at the why and the what, now it’s time to find out how often you should monitor the KPIs you’ve chosen for your agency.

We said earlier you can measure your different KPIs on a weekly, monthly or quarterly basis. Whichever you select, it’s important to consistently track KPIs. The frequency will very much depend on the client’s own particular situation and business model.

As with much in business, there is no one size fits all. Most financial metrics should all be measured at least monthly though. Here are a few examples:

Client-specific revenue

This metric will help determine if actual and projected revenues from client projects match, and provides data about your project completion rate. Monthly tracking may make sense for many businesses.

Agency cash flow

Not quite the same as monitoring revenues, tracking your agency’s cash flow allows it to respond nimbly to challenges and unexpected events. For some agencies, this may mean tracking on a daily basis.

Sales by service type – track monthly

This KPI helps establish which products or services get the most and least engagement from customers.

It can help a business identify and resolve pain points that may be hampering sales growth,  provide insights into customer perceptions of your agency that could boost business growth, as well as provide opportunities for upselling different services.

Benchmarks for customer satisfaction and success

Knowing and understanding the behaviour behind your KPIs can be the difference between success and stagnation, especially when it comes to small business.  

Ignoring the KPI data about how your agency is performing in a particular niche could leave you lagging behind competitors or missing out on potentially lucrative trends.

Consistent, regular monitoring of all your business KPIs, whether they’re linked to social media and digital marketing, or purely financial, tracking KPIs can bolster customer satisfaction, help you achieve your business goals faster and enhance that net profit.

Consider your business competition

It can be worth keeping an eye on what rival companies monitor – are they focused on a high conversion rate, boosting website traffic or want huge total sales?

It’s also valuable to remember that the success of your business doesn’t depend on someone else’s metrics.

Set SMART criteria for your business KPIs. Consider how they will help you increase your revenue growth rate, boost customer retention, improve your business performance and ultimately influence net profit.

Conclusion

It’s important to have the right KPIs for your business, and that choice is determined by many factors, including where you are in your agency journey. 

Our expert team at de Jong Philips can help. We will help select the right KPIs for your company, but we’ll also help you analyse the metrics and make sense of what they mean.

As your business grows, we’ll support you as your agency’s KPIs evolve with your changing requirements.

All the while we will hold you accountable, drilling down into the numbers to ensure you achieve your business goals – no matter how high they are.

Talk to us about your KPIs

For help in choosing and understanding your KPIs, or to support your agency as it scales and thrives, talk to us.

You can call 01372 708090, email us at hello@dejongphillips.co.uk or get in touch via this contact form..