Think about it. Isn’t the most important part of a marketing campaign what comes after the launch? From split testing to monitoring bounce rates, each metric has a story to tell.
Similarly, every agency needs to track certain financial key performance indicators (KPIs) to grow in a sustainable manner.
Small business financial KPIs: Why track and when?
Small business financial KPIs shouldn’t be unidimensional, that is, they should generate data points other than the current state of the business as well as clearly indicate areas of improvement. In essence, the financial KPIs your agency needs to track should reveal its strengths and weaknesses. This is to ensure that your agency keeps doing what clients consider favorable while scrutinizing what needs to scrapped, modified, or improved. Lastly, these KPIs should be aligned with the growth objectives of your agency.
Now you must be thinking “When should I track my agency’s financial KPIs?“
The most straightforward answer to this would be: consistently.
Each KPI is relevant within a certain time frame. For example, you can choose to track your expenses monthly or biweekly to ensure you’re toeing the budget. Other things like job summary reports can be tracked weekly to keep a close eye on project progress and invoice schedule.
5 Financial KPIs your agency needs to track in 2020
Here are the 5 financial metrics your agency should track to untangle itself from financial mishaps, understand in-house productivity, price services efficiently, and manage small business debt without a hiccup[SSG1] .
1. WIP or Job Summary Report (Track weekly)
Job summary (JS) reports or work-in-progress (WIP) reports can give a fair idea of your pricing strategy and help you stay within budget.
A good approach to organizing and analyzing a JS or WIP report is to first record data according to client, projects, and project duration (long term or short term). The next things to track would be the following:
- Estimated time vs. actual time taken
- Estimated peripheral expenses vs. actual peripheral expenses (for example, buying graphics or templates)
- Individual productivity of project assignees
You can consider this a hybrid productivity metric but this KPI is an important one as it will provide clear insights about how to scale your business. This KPI can also help you determine your value-add to client projects and consequently develop a great pricing strategy.
2. Client-specific revenue (Track monthly)
Client-specific revenue is an important financial metric to track because it not only gives you a fair idea of how much each client is paying as well as your project completion rate. It also helps you determine whether the actual revenue is synonymous with the projected revenue from a client.
Client-specific revenue tracking also reveals some other data points seminal to the growth of your business:
- Detailed background about your target audience or niche
- Success rate with your current clientele or in your niche
- Potential for future work with current clientele
- Potential to branch out in similar niches
A business stagnates if it chooses to ignore the valuable insights regarding its success rate in a certain niche because this small business financial KPI reveals that you’re not catering to customer pain points effectively.
3. Your agency’s cash flow (Track biweekly)
While cash flow is similar to revenue, there are minor differences between the two metrics. The cash flow of your agency reveals the relationship between your agency’s business costs, profits, and revenue.
Tracking your cash flow efficiently is a great way to practice good debt management, which ensures that your business can respond to financial distress without closing shop. The first step to ensure this would be to track accounts receivable aging, a financial report that monitors unpaid invoices according to date ranges.
Monitoring business expenses is also an important part of keeping a tab on your cash flow as this can share some valuable insights:
- Whether you need to take a business loan
- Whether you have scope to expand
- Whether you need to fine tune your pricing
- Whether you need to improve your project management efforts
High cash flow of an agency doesn’t always indicate high profitability as the costs of running a specific agency or small business can also be high. The sign of a healthy and growing agency is essentially both high revenue and high cash flow.
4. Product or service turnover (Track monthly)
Product turnover indicates how long a particular item is sitting on a shelf. For your agency, these would be the products that receive the least click throughs or enquiries.
Why is monitoring this metric important?
This KPI gives you a clear picture about how your services are perceived by your clients. If clients do not see clear benefits from a particular service that you offer on your website or has deemed yours as less useful when compared with a similar service, they’re less likely to enquire about it. As a result you can take the service features apart, examine what’s causing it to sit on its digital shelf, and repackage it with solutions that actually address customer pain points.
Ignoring this aspect in your business still stunt its growth because this shows your agency is not flexible enough to evolve with changing customer requirements as well as the market.
5. Marketing effectiveness (Track biweekly)
As a digital agency you’re no stranger to tracking CTRs and landing page effectiveness for clients. However, you need to keep tracking your agency’s marketing effectiveness and client acquisition costs to scale in a timely and efficient manner.
Understand which channels are driving traffic to your website or whether brand awareness needs improvement. Accordingly, you may alter your advertising costs and efforts for a certain platform and bolster efforts to position your brand more prominently among your target audience.
Final Thoughts
Efficiently tracking these financial KPIs can pave a path of steady growth for your agency. As a result, you’ll find that your business is better equipped to deal with the changing market, can bounce back from financial problems, and will continue to offer more value to clients through your services.
Wondering whether you’re tracking the right metrics for your agency? Get expert advice to scale your business by shooting an email to saira@ssyaccounting.com.
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