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The Top Five Creative Agency KPIs

The Top Five Creative Agency KPIs

Hey, guys. Welcome to this vlog
where we’re going to talk about the top
five key performance indicators, or KPIs,
to track performance in your creative
business or agency. So firstly, what’s a KPI? A key performance indicator is
something that you can track. And if it moves up, stays
the same, goes down, it actually affects a whole host
of things within your business. So they’re kind of like levers. If you move them,
you make them better, it will improve more than
one area of the business. Tracking those allows busy
business owners and directors to actually, if they’re
short time, still understand the performance
of the business. So you can look at a dashboard
with five key performance indicators on it,
and you don’t have to trawl through pages and
pages of profit and loss balance sheet tables, cash flow, et
cetera, and get bored to death. So we’re going to
recommend the top five KPIs that every creative agency
or business should be tracking. These are not
necessarily the top five. They’re the five that I feel are
the most important right now. Once you’re tracking these,
you’ve got affective systems, and you’ve got these
up to where you want them to be, you can
bring in other key performance indicators. But one mistake that
people often make is say, hey, great,
KPIs, this is brilliant, and start tracking
50 different KPIs. And there’s no way you can
run 50 different activities to move those numbers. So I would focus on
five to start with. So the first one
that we’re going to focus on and talk about today
is the average hourly rate. What that means is how many
hours have you got available for your whole team,
typically 1900 hours, roughly, per person. How many people have you
got, and how many sales– or what was the pound value of
the sales for that week, month, quarter, year? Divide that by the number
of hours you’ve got, and you get the average
hourly rate for your business. We call that the all hours rate. Then look at the number of
client hours that were worked. Take, again, same
total sales number, divide that by the
client hours, and you’ll get a slightly higher number. Now, this is your number one
key performance indicator, but it’s only useful
if you’ve got targets, if you’ve got benchmarks. So what’s a really good agency? What do they do? What’s the average hourly rate? What are the good
ones, the best ones? What’s the average? You need some benchmark
data, and then you can set your targets. Your rate is here; you
want it to get to here. So you need a
system for tracking. That might just be a
simple spreadsheet, but it needs to have
some sort of graph which will show you how the average
hourly rate is tracking. Is it going up? Is it going down? Where is it against your
ideal or your expectation or your goal, and where is it
against the industry average? So there should be three
lines on that graph. So that’s the first one,
average hourly rate. The second key performance
indicator, and super important, is net profit or net profit
margin, so either/or– potentially both. Don’t focus on sales
and revenue and forget about the net profitability as
you’re growing the business. It’s still really important. It’s important to
prove that you can run a profitable creative business. We see creative agencies
with 60% net profit margins. Fair enough if you’re then
spending all of that cost on growing the business. Prepare two sets of
management accounts, one with extraordinary costs– so extra marketing, extra
spend, hiring people ahead of the curve. Run another one with those costs
removed, and have a look what the real net margin would be. Once that growth phase
has been removed, you can understand whether
you have got a good business or not, because you
can strip out what we would call extraordinary costs. So have a look at the
margin, and again, compare it to the industry. Compare it to the
best businesses. Now, I’ve just told you that
some of the best businesses we see, who are doing things
like value pricing, have got a 60%
net profit margin. If you’re not there,
if you’re much lower, you need to be tracking
this on a regular basis. And the third one would
be cash flow, specifically free cash flow. We can’t just look at net profit
and not look at cash flow. Giving example, if
you’re an agency that does a lot of
development and you’re doing research and development
tax relief claims, which you should be, you’ll be
putting a lot of those costs onto the balance sheet. So they won’t be going
through your profit and loss account, so your net profit
will be artificially high. And you may make strategic
decisions– investment, spend growth decisions– based
on the artificial net profit, but actually, your cash
flow may be a lot lower. So you need to look
at both and understand the differences
between net profit and the profit and loss
account and cash flow. How much cash is the
business generating? How much have you got to spend? What does the next
three months look like in terms of cash flow? So tracking actual cash
flow, third most important. Number four is the
profit by client. So if you haven’t done, this I
would suggest dump into a list all of your clients. Have a look at how many hours
are worked on those clients. Have a look at the
total sales revenue. One divided by the other gives
you the average hourly rate for each client. And then start to work
as a team to understand why are some of these clients
massively higher than others. And if you’ve never
done this before, some of the clients that you
think are your best clients, you’ve got great
relationships with, actually could be
the worst in terms of the average hourly rate. And what are you going
to do about that? Are you going to take the
bottom 20% and fire them? Are you going to go back
and re-propose them? Whatever you do,
keep tracking this, and try and learn
from the best clients and apply that to
the worst ones. And the last key
performance indicator is the profit per project. So same thing. List out all the projects. Get the time spent,
get the revenue, work out the profitability. If there are actual
costs against that, put those in as well. So you can take into account
of any subcontracted time or just add the time
of that subcontractor. So whatever you decide,
however you decide to do it, doesn’t really matter. Work out the average
hourly rate per project, and put in place a system so
that when every project ends, there’s a debrief. You compare the average
hourly rate of that project to the profit on that
project against your goals. You debrief, you
write learnings, you share that across
the whole team. And then next time you
send a proposal out, it will be different as
a result of that debrief. Otherwise, there’s no
continuous improvement. So just to run through
that list again– average hourly rate across the
whole business, total hours and client hours, net profit and
net profit margin, cash flow, specifically free
cash flow, profit per client in the form
of average hourly rate, profit per project in the
form of average hourly rate. If you’ve got any questions,
please put comments. Ask away as much as you like. Go away, create
yourself a dashboard, start tracking these items. And one little extra bonus
hint or tip, if you like, is put the numbers in
of each of these five. Put where you’d like them
to get to in 90 days’ time. Just put this on
a one-page sheet. Here’s my number. My net margin is 15%. I’d like to get it to
17 and 1/2% in 90 days. Pick from a list of projects
that you’ve brainstormed or you’ve worked with your
accountant or your coach that would increase your
net profit margin. Pick your number one most
important project and put that underneath. So you’ve got current net
profit margin, future net profit margin, the name of
the project that you’re going to work on for 90 days,
who’s responsible for it, and then put that
person in charge. So they might be raising
the prices across the board. They might be debriefing
every single job. Whatever it might be,
they’re responsible for it. Get your five key
performance indicators, get your five targets,
get your five projects. At the end of the 90
days, come together as a team, book out half a day,
and get everyone to stand up and report back on what they
did, what’s the number now, how has it moved, and reset
the goals for the next 90 days. And that’s massive,
because people track KPIs. But what system do they
actually have to improve them? Usually not much. Hope you found this useful. Hope that helps you
improve the growth rates and the profitability
of your creative business, and see you guys soon.

2 thoughts on “The Top Five Creative Agency KPIs

  1. Agree on the five. But how about weighted leads in your pipeline (value adjusted by likelihood), and conversion rate from proposals to business won?

  2. Thanks for your response.

    Our weighted leads includes potential work from existing clients. I agree it’s best to keep the number of KPIs down, otherwise they’re meaningless.

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