Posts

What is your Agency’s most important KPI?

The business world is not short of key performance indicators. I have books with hundreds of them in to measure every part of every business. In the Agency world we probably have more than our fair share.

However this blog isn’t about a list of useful KPIs and how to use them. It’s about a realisation I had when talking to a couple of Agency heads recently that usually there is one KPI that resonates; one which affects the performance of the Agency in a direct and profound way. This KPI either has a clear connection to the profit margin or can touch every aspect of how the business operates. Focussing on and managing this single KPI can provide a long term path to sustained profitability.

Sounds fine in theory but what how does that apply in real life? Well, this will depend on the nature of your agency (and the strength of your management team).

If you have a high volume, low(er) margin business then you need to monitor your compensation to revenue ratio very carefully; set your team a strict budget based on accurate short term forecasts.

If, however, you have a low volume, high margin project based Agency (and yes, there are still a few around) then I would make sure you manage your pipeline very carefully.It’s easy to get caught up in delivery of a large, profitable project and forget to look for the next one.

More likely you fit somewhere in between these two extremes. In this case the one KPI that might be most useful is revenue per head. Now I’ll admit this is a slight cheat as there are a lot of operational and commercial factors which go into this particular KPI. How accurately you estimate a project, how efficiently you deliver and how well you manage client’s expectations and demands will all affect your revenue per head.

Whether you’re an Agency FD failing to get traction with your numbers or a CEO looking for an effective way of using numbers to galvanise your business it’s worth thinking about the one KPI that resonates most and how it can improve your Agency’s profitability and it’s long term value.

If you’d like my help to improve the long term performance of your Agency please contact me for an initial chat about your business.

The value of a Pre-acquisition performance review

Selling your Agency is a very big deal. For most people it’s a once in a lifetime opportunity to realise the value of their business.

By the time the due diligence process has started though you’ll be hurtling, possibly a little uncomfortably, towards a sale. You will have little time to do anything more than cope with the demands of the process and look after business as usual as best as you can do.

This is why, if you’re thinking of selling, a well-timed Pre-acquisition review can help make the process easier and maximise the attractiveness, and therefore the value, of your business.

Your potential buyer is going to be excited by the business you’ve grown but also wary that, after they sign the cheque, something could go wrong.

Knowing what worries potential buyers and, more importantly, how to reassure them is vital if you want to maximise the value of that cheque.

Their worries are likely to centre around a few key topics. The good news is that a well-timed review will help you develop answers to these worries.

The topics that potential acquirers will be interested in are;

People

If you’re buying a company you want to know the main people are going to around and motivated over the earn out. If you are the main or substantial share holder then there is naturally going to be a big incentive but you will need to tie in the 2nd tier management. It’s enlightened selfishness. Your agency is more valuable and more attractive if there is a wider ownership. It’s more sustainable and more robust. Do it in advance through a tax efficient vehicle and you tick two boxes.

Clients

If one client has more than 20% of your business there is the potential for most of your profit to disappear in one painful conversation.

Developing a broad client base with a mixture of retained and project income is one way to minimise this risk. As is making sure your client contracts are up to date with sensible IP, termination and change of ownership clauses.

Positioning

Being able to explain, simple and confidently, why clients should choose you rather than your competitors is vital. Understanding and articulating the value you add to your clients business will help win and retain business.

Financial Performance

A broad topic but having a consistent financial record is important to maximise value. Ideally you will have a (normalised) profit of over £500k and good margins across clients and disciplines. If you don’t have the margins an in depth analysis of the causes can help you address this vital issue. Systems for monitoring and managing profitability are important too; the earlier the problem is found the earlier action can be taken.

Growth Strategy

A strong financial record is good but there will need to be some future growth on the horizon to tempt a buyer. Having a robust plan to support future growth will help enormously. This could be growth from existing clients, new services or geographies. Or a mixture. Making sure this growth plan is well thought through and researched with sensible forecasts will make them more credible and attractive.

A Pre-acquisition review will enable you to plan and implement a strategy that will make your business more attractive and more valuable. Building a strategy that focuses on  retaining and rewarding key employees, building a solid client base, developing a positioning and growth strategy that delivers a consistent financial performance is the goal.  It’s also a good idea whether you are thinking of a future exit strategy or not.

If you’re thinking about an exit strategy and would like to maximise the value of your agency by addressing these issues then please contact me.