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.