As the business world becomes increasingly data-driven, understanding your digital agency’s metrics is often a driving factor between success and failure. Your business metrics are a set of KPIs (key performance indicators) that can showcase business health at a glance and provide more granular data to inform significant decisions or help you allocate resources.
Before you can leverage your business metrics to have a more significant impact throughout your digital agency, you must understand which metrics are integral to business growth and how to calculate them, either manually or with helpful software solutions. Here’s what you should know to hit your agency KPIs consistently.
What are the top agency metrics?
Agency Growth Metrics
While your digital agency's specific goals and targets can vary, affecting your agency KPIs, the most common growth-oriented agency metrics are revenue growth, net profit margin, lifetime value, customer acquisition cost, and employee utilization rate.
Simply put, revenue growth measures your month-over-month increases in revenue, expressed as a percentage. This business metric gives you a quick snapshot of your growth and is easy to calculate.
Revenue Growth = (Current Period Revenue - Prior Period Revenue) / Prior Period Revenue * 100
Net Profit Margin
Your net profit margin helps you quickly measure overall profitability, making it one of the most critical agency metrics you can track. Net profit margin is how much net income or profit your digital agency generates as a percentage of your revenue. A higher net profit margin indicates a more profitable business, as it shows the company is efficient in controlling its costs and generating profit from its sales.
Net Profit Margin = (Net Profit / Total Sales) * 100
Lifetime Value (LTV)
If lifetime value sounds self-explanatory, that’s because it is. This quick calculation shows the estimated revenue a customer will generate throughout their business lifespan.
LTV helps businesses understand the long-term value of each customer and make informed decisions on customer acquisition and retention strategies.
Lifetime Value = Customer Value * Average Customer Lifespan
Customer Acquisition Cost (CAC)
CAC refers to the money your business must spend to attract a new customer or conversion. By calculating the CAC, companies can determine the efficiency of their customer acquisition efforts and make data-driven decisions on marketing and sales investments.
It is also an essential metric for determining the profitability and sustainability of a business, as it allows companies to ensure that their customer lifetime value (LTV) is greater than the cost of acquiring those customers.
Customer Acquisition Cost = Sales & Marketing Expenses / New Customers
LTV to CAC Ratio
In an ideal world, your LTV to CAC should be 3:1, meaning you make three times what you spent acquiring a customer. If your business metrics dip under a 3:1 ratio, it could be a sign of trouble, and you must consider optimizing your marketing & sales strategies or your customer retention efforts.
Conversely, if the ratio is significantly higher than 3:1, you may have opportunities to scale your agency by increasing investment in customer acquisition.
LTV to CAC Ratio = LTV / CAC
Employee Utilization Rate
Utilization rates can show how well you deploy labor in your agency and express the amount of time employees spend doing billable tasks versus administrative work. Agencies can calculate their employee utilization rate using time tracking software, calculating their billable hours.
While there isn't a one-size-fits-all benchmark for employee utilization rate, a common target in professional services industries, including digital marketing agencies, is around 75% to 80%. This allows some non-billable time to be spent on administrative tasks, training, and business development.
Utilization Rate (%) = (Billable Time / Total Available Work Hours) * 100.
Sales and Marketing Metrics
The next type of agency metrics we’ll discuss involves sales and marketing. It’s essential to constantly monitor the following metrics to keep your sales initiatives and advertising spending in balance.
Cost Per Lead
Sometimes, you’ll pay a predetermined price per lead. Cost per lead is an incredibly valuable business metric for every digital agency.
By constantly monitoring your CPL, you can evaluate the performance of different marketing channels and campaigns of your agency and focus on the most cost-effective lead-generation strategies. A lower CPL indicates a more efficient marketing effort, as it costs less to acquire each new lead.
However, balancing CPL with lead quality is essential, as low-cost leads may not always translate into high-quality customers who convert and generate revenue.
Cost Per Lead = Marketing Budget / New Leads Acquired
Your lead-to-customer rate helps you understand how many prospective customers convert to actual clients or buyers. This can help you focus on whether your lead generation and sales funnels produce results.
There isn't a universal benchmark for lead-to-customer rate, as it varies depending on factors like industry, target audience, and the nature of the product or service.
However, a 2% to 5% conversion rate is often considered average across industries, while a rate above 5% is considered good. It's essential to consider your business's specific circumstances and goals when setting targets for the lead-to-customer rate and continuously work to improve your sales and marketing processes to increase conversion rates.
Lead-to-Customer Rate = (New Customers / Leads) * 100
Sales Growth Rate
Like revenue growth, you can calculate this month-over-month or annually to showcase large-scope performance. It helps digital agencies evaluate their performance, understand the effectiveness of their sales strategies, and track their growth over time.
Sales Growth Rate = ((Current Period Sales - Prior Period Sales) / Prior Period Sales) * 100
Sales Closing Rate
This ratio compares the number of prospects your sales team contacts to the number of closed clients. This agency metric helps you identify if your sales efforts are working or failing to close deals.
A closing rate of 20% to 30% is often considered average across industries, while a rate above 30% is considered good. This can vary depending on factors like industry, product or service complexity, pricing, competition, and the quality of leads the marketing team adds to the sales funnel.
Sales Closing Rate = (Closed Deals / Total Sales Opportunities) * 100
Every digital agency needs to monitor individual project metrics closely, ensuring each project is sufficiently profitable.
Estimated vs. Actual Project Time
Your estimated hours are how long you think a project will take, while actual time is how long it takes in practice. Accurate estimates are crucial in helping distribute resources. Elorus time tracking makes tracking your project time and determining performance much simpler.
This comparison helps you evaluate your project management processes, resource allocation, and the accuracy of your estimations. A lower percentage difference (closer to 0%) indicates that your estimations are accurate and your project management processes are efficient.
Estimated vs. Actual Project Time = Total Time Spent - Time Estimated
Estimated vs. Actual Project Cost
Like project time, estimated versus actual project cost takes your estimates and stacks them against real-life money spent. Using the Elorus expense management tool, you can quickly determine your project costs. This comparison will help you evaluate your budgeting and cost management processes, identify potential inefficiencies, and find areas for improvement.
Estimated vs. Actual Project Cost = Money Spent - Money Estimated
Profit per Project
Understanding a project’s profitability can help determine which business efforts are and aren’t worth the time and expenses. Agencies can track each project's revenue, cost, and expenses with Elorus and make informed decisions about future projects and resource allocation.
Profit per Project = Project Revenue - Total Project Cost
Business Finance Metrics
There are also several financial business metrics that are vitally important for digital agencies. Tracking your realization rate and break-even point can help you hit your agency KPIs.
Your realization rate is the percentage of billable work that is actually invoiced and collected from clients. A low realization rate indicates that your revenues are reduced. Conversely, a high realization rate (90% or above) indicates solid performance. Agencies can track the total and billable hours using the Elorus dashboard.
To improve the realization rate, agencies can focus on optimizing their billing processes, enhancing communication with clients about fees and expectations, and ensuring that their pricing strategy is competitive and accurately reflects the value of their services.
Realization Rate = (Actual Billable Amount / Potential Billable Revenue) * 100
The break-even point is when your total revenue and cost are even. This business metric is vital because it can show you when there’s no loss or gain for your agency. The break-even point helps agencies understand their cost structure, evaluate pricing strategies, and assess the viability of new products or ventures.
Break-Even Point = Fixed Costs / (Selling Price of Specific Service - Variable Costs of Specific Service)
Employee Satisfaction Metrics
Any digital agency also needs happy, productive employees to maximize its efficiency. Your employee net promoter score and turnover rates can help you understand whether you have built a healthy team environment or must take immediate action.
Employee Net Promoter Score (eNPS)
eNPS score can help determine employee engagement and satisfaction within your digital agency.
To calculate eNPS, employees are asked to answer the following question on a scale of 0 to 10. "How likely would you recommend this company as a workplace to a friend or colleague?"
A higher eNPS generally suggests better employee satisfaction and loyalty.
Employee turnover is how many employees leave your organization within a given period. Most often, employers use a year when they’re measuring turnover. A high turnover rate could indicate employee dissatisfaction.
To reduce employee turnover, agencies can focus on improving employee engagement, providing competitive compensation, offering opportunities for growth and development, and fostering a positive work environment.
Regularly monitoring employee turnover can help companies identify trends and address potential issues before they escalate, leading to a more stable and satisfied workforce.
Employee Turnover = (Terminations / Total Employees) * 100
Customer Support Metrics
Finally, there’s nothing more important for a digital agency than keeping your clients happy and returning for more. Three core agency metrics can help you track this critical factor.
Customer Satisfaction (CSAT) Score
The CSAT score measures a customer’s happiness or satisfaction with your products, services, or both. Typically, you’ll use customer satisfaction surveys to determine this score, which can act as a quick glimpse into the customer journey and showcase your overall client health.
Customers are usually asked to rate their satisfaction with a specific product or service aspect to calculate the CSAT score. For example, customers could be asked: "How satisfied are you with our product/service on a scale of 1 to 5, where one is very dissatisfied, and five is very satisfied?”
To improve CSAT scores, agencies can focus on understanding customer needs and expectations, enhancing product/service quality, providing excellent customer service, and proactively addressing customer concerns.
Client Retention Rate
A client retention rate is the average number of customers remaining with your business after a certain period. This can be month-to-month or year-over-year for most agencies. Constantly tracking the client retention rate can help companies identify trends, address potential issues, and track the success of initiatives to increase client satisfaction and loyalty.
Client Retention = ((Clients at End of Period - New Clients) / Clients at Start of Period) * 100
Your churn rate is also referred to as the rate of attrition and shows the rate at which customers stop doing business with your agency. A high churn rate indicates problems in your brand that need immediate attention.
Churn Rate = (Lost Customers / Number of Customers at the Beginning of the Period) * 100
Elorus can help you make the most of your agency metrics
To some, this list of business metrics can easily seem overwhelming. In many senses, that’s true; you have to juggle several factors and agency KPIs to ensure your business is growing sustainably and profitably. Luckily, establishing and hitting agency metrics is easier than ever using analytics or business platforms like Elorus.
With expansive toolkits that include invoicing software, time tracking, project monitoring, and expense management features, Elorus empowers agencies to take greater control of their data. Sign up for free today to the Elorus platform and start tracking the most critical metrics of your agency.