Digital Agencies Need a Vision
Managing a digital agency is one of the toughest jobs on planet Earth. At the end of the day, it's about juggling a different set of skills, personalities, and ideals, making sure teams can deliver high-quality work on time. Therefore, CEOs must be talented orchestra-conducting maestros, able to have a vision of the future, analyzing paramount metrics to generate expectations and lead with consummate intelligence.
But what are the most important performance metrics for an agency to focus on in the near future? Start reading this article and get to know the best KPIs for digital agencies to take into account in 2019!
Best KPIs for Digital Agencies
1. Number of Leads
All CEOs know that, in order to find new customers, they need to have a specific number of prospective leads. Indeed, leads are some of the best types of Key Performance Indicators. But the important notion to bear in mind is the following: the game isn't about all leads but only concerns qualified leads.
Knowing the number of qualified leads allows business leaders to predict the number of contracts and future customer relationships they can expect to be building soon. When it comes to leads, it is crucial that teams are aware of how to organize and categorize the leads they get.
Leads can be personal contacts that addressed a company at an expensive event, referrals that have reached a website, people who somehow found out about an interesting industry blog and decided to subscribe to it, folks who were searching for quality agencies on Google and got a SERPs result in which a homepage appeared shining and inviting, etc.
Now, what? When business leaders manage to make sure their team is fully equipped to understand and analyze each specific lead, they can move on to the next stage: focusing on the platforms or digital strategies that are getting them the highest number of leads.
The better job teams do of monitoring the number and quality of leads received, the easier it will be for CEOs to predict sales, revenue, and future endeavors. By watching out for qualified leads, they can be sure to know how many new collaborators they’ll need and calibrate the work accordingly.
2. Lifetime Value
What is lifetime value? It is basically the prediction of the profit that the customer will generate throughout the entire length of the relationship with a business. Leaders want their team to produce remarkable work and deliver pristine products in time so that they can convince their clients to count on their services for future projects. This means lifetime value could be a prediction of years, which makes it something that is quite complex to calculate.
First, leaders need to focus on data from the past, taking past customer relationships as effective barometers of future possible relationships. How to calculate lifetime value? Just take the average value of a specific transaction x average transactions on an annual basis x the average lifespan of a client.
Let's say that a company has gotten a new contract. The value of the said contract in €90,000.
Now, let's pretend that same client signs three other new contracts, remaining a client for 4 extra years.
Their lifetime value will be 90,000 x three per year x 4 years.
LTV = €1.080.000
Now that you know the formula for this digital agency KPI, it’s time to start watching out for lifetime value. Monitoring this specific key performance metric will allow you to understand how much money you need to spend on acquisition costs. Moreover, it can be quite enlightening, allowing CEOs to gauge whether or not their company is able to retain customers for the long haul.
How to make sure to get a higher LTV? All leaders have to do is guarantee their team understands how important this metric is to the whole business. They must also be able to educate all their departments, making sure that all employees get to become salespeople, cross-selling and up-selling clients so that the agency is able to get revenue from multiple sources.
Furthermore, they must ensure their team has extensive customer satisfaction training so that they are able to create a successful customer acquisition and retention strategy that takes the long-term ideal into account.
3. Organic Traffic
There was a time when nobody cared about the powerful web. That was decades ago.
Nowadays, the internet is a multi-trillion dollar business and there’s a reason for it: businesses are either online, or they simply don’t exist. That’s why keeping tabs on organic traffic is more than a choice - it is a necessity that companies can’t live without.
When it comes to inbound marketing, the goal is to make sure most of the traffic reaching the website of a digital agency is coming from organic search.
What does impeccably high organic traffic mean? It means that prospective customers are getting to find a website without any further help. No referrals, no word-of-mouth marketing.
It means the SEO strategy is so remarkably on-point that customers manage to find a homepage just by searching for “digital agencies” or “best digital agencies” on Google. This is relevant because - the higher companies are on the organic ranking - the less money they need to spend on paid advertising, paid traffic, email marketing, content marketing, etc.
They can get brand awareness and meet new clients just by having a website that manages to stay on top of the ever-capricious SERPs. Business owners must make sure to monitor the power of their organic traffic, the keywords they have used on their homepage and other pages, and ensure their SEO strategy is finely calibrated to get as many organic clients as humanly possible.
Don’t know how to monitor a page’s organic traffic? Go ahead and use Google Analytics!
Just follow these steps:
- Sign up for Google Analytics
- Click the main “Reporting” tab
- Click “Acquisition” and then “Overview”
Now, analyze the subpage. It lists traffic by medium, which means it shows the “Organic Search” traffic.
4. Utilization Rate
It may seem Orwellian to track the amount of time employees are spending working. However, this really is one of the most crucial KPIs for digital agencies to master as well as one of the Key Performance Indicators for employees.
This is a time business: employees take care of a specific project for a particular amount of time, and business leaders will then bill clients accordingly.
The key? Leaders must ensure their team is well-acquainted with competent time management tools which have timesheet integrations.
Employees will probably continue to perceive time-tracking as something negative since it may be seen as a waste of their valuable time. However, it is fundamental that leaders go through this step, in order to make sure their establishment is sharp and to eventually fine-tune and correct any failures connected to time optimization.
On that topic, they should consider educating their team, ensuring they get to use the best time management tools around to optimize their work and become more productive. Remember that all employees have a specific utilization rate, which is the percentage of their precious time which is considered as billable.
How to calculate the utilization rate of an amazing employee? Just go ahead, take their billable hours, and get to divide them by the week's 40 working hours (add extra hours accordingly, to guarantee you get the correct number.)
Let's say employee A has recorded 40 hours on their timesheet. They’ll get a 40/40, which means they should be proud to have a 100% utilization rate.
What to do next for massive optimization? Get the average utilization rate of all employees. This is how leaders can be sure to determine appropriate billing targets.
This really is a major KPI for any digital agency, since it allows team leaders to know the average power of their team as a whole, congratulate the team members who are working extra hard to deliver great products, and help the under-performers gain a better understanding of the importance of adequate time management.
5. Cost of Client Acquisition
The Cost of Client Acquisition is one of the most accurate metrics for digital agencies. This is a KPI for sales, and it basically allows business owners to understand how much money they’re actually spending to acquire specific clients. That means it can be essential to pay attention to since it can effectively become a red flag.
Let’s say a company has spent €150.000 to acquire customer B. However, the lifetime value of customer B is €148.000. The Client Acquisition Cost surpasses the eventual revenue the company can expect to make, ensuring a whole team has worked long hours for no revenue whatsoever.
How to calculate the Acquisition Cost of a specific client? Total all the marketing and sales costs for a particular period of time. Then, divide that number by the number of clients gotten in the same exact length of time.
That will allow decision makers to gauge how much work - and money - they’re putting in. Ultimately, the math is supreme and it will tell business owners whether or not the investment they’ve made in that client was worth it.
Why should they keep analyzing their Client Acquisition Costs on a regular basis? Because it allows them to effectively predict what their sales are going to look like in a month or two. In addition, they will also get to focus on the essential marketing platforms that are getting them the revenue they need.
6. Profit Margins
This is the king. It is one of the most relevant Key Performance Indicators for team leaders to know about. At the end of the day, business leaders either manage to create a super profitable, industry-shaping agency, or they have failed.
And what are the metrics that rule above all others, like an eagle soaring, looking at CEOs with attentive eyes? The all-encompassing profit margins. These are the simplest and most popular ever financial ratios available to humankind.
But how to get to know a company’s profit margin?
Ponder upon three different levels:
- Gross Profit
- Operating Profit
- Net Profit
Let’s see what each one is all about in order to get a clear idea about profit margins.
What is Gross Profit?
Gross profit is a profitability metric and it defines profit as all the income that’s left after accounting for the actual cost of goods sold.
The gross profit margin actually compares total revenue to gross profit, and it effectively reflects the percentage of each specific revenue currency that is held as profit after business leaders have paid the cost of producing digital agency products.
What is Operating Profit?
This is quite the complex metric. Operating profit takes into account all the overhead, sales, administrative, and operating expenses that are needed to run an agency every single day.
This profitability margin divides operating profit by revenue, reflecting the percentage of money that remains upon the payment of all the expenses that business owners need to incur in order to run a digital business.
What is Net Profit?
Net profit - or net income - reflects the total amount of actual revenue left after deducting all the expenses and income streams that must be taken into account. Net profit takes every single detail into account: from operational expenses to taxes, from debt payments to one-time expenses - everything and anything comes into play to reach the real-deal value.
This metric is probably the most crucial metric CEOs need to focus on to make sure their business stays the course. It effectively reflects an agency’s ability to make sure acquired income becomes ultimate profit.
The KPIs That Matter
There are a plethora of different KPIs that digital agencies should always bear in mind. From organic traffic to utilization rate, not forgetting the cost of customer acquisition and the incredibly important lifetime value, it’s crucial that agencies analyze these metrics on a regular basis.
The objective? To be able to learn and improve every single day, based on concrete performance metrics that can actually provide value to businesses and maximize the power of digital agencies.