If you run a digital marketing agency, you may have found yourself looking at your bank account, wondering how it’s possible that you can be busier than you’ve ever been, and still not have much cash to show for it.
It’s something I’ve seen time and time again in my work as an agency profitability consultant and SaaS CEO, focused on helping agencies improve their profitability.
The truth is, just about every agency I’ve worked with has hit that first critical growth ceiling when they’ve figured out how to get clients, but are still struggling with cash flow and profitability.
In this post, I’m going to walk you through the key KPIs I’ve used to not only lead clients to improved profitability, but to also show their progress and hone their strategy along the way. The six metrics I’m going to cover include:
- Revenue earning efficiency
- Gross margin
- Average billable rate
- Accuracy of scope
- Overhead spending
For each metric, I will explain what it is, why it’s important, and how to measure it; and then provide benchmarks to help you identify what your agency should aim for.
Profitability metric #1: utilization rate
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.
What is utilization rate?
For employees that interface with clients, their working time can be split into billable vs…