Key performance indicators are relevant metrics that align with your agency's future goals. Tracking KPIs will allow you to measure your marketing agency's success over time. It is essential to track these performance indicators because they will help you determine the current state of your business and the direction you are headed.
KPIs are defined based on goals for your future projects or campaigns and based on this information, you can focus on what metrics are relevant for your agency. You can also identify other metrics to help you reach specific goals or improve and develop your overall business.
Some of the most important KPIs to track your marketing agency’s growth are:
1. Monthly Recurring Revenue
If your agency charges clients a retainer fee, that is monthly recurring revenue (MRR). This revenue is predictable and ongoing.
It is important to track because it is a good indication of your agency’s overall profitability and monthly cash flow. To improve upon this figure, you’ll want to acquire more clients with bigger deal sizes.
2. Customer Retention Rate
Customer retention rate is a KPI that measures how well your business is doing at retaining its customers.
It is important because it is usually cheaper to retain a customer than to acquire a new customer. A low retention rate means that your agency’s services are not meeting your client’s needs or expectations. To improve this rate, look at methods to build loyalty with your clients and develop programs that will entice them to continue to use your services well into the future.
3. Churn Rate
Measuring churn rate will determine how many customers you have lost over a certain period of time.
This is important because it can help you determine strategies to increase customer retention. You can decrease your churn rate by looking into why your clients are leaving and finding different methods to entice them to stay.
4. AR Turnover Ratio
Accounts receivable turnover measures how effective your agency is at converting your accounts receivables into cash. If your agency is unable to collect payments on time, your cash flow will get impacted, affecting your ability to meet payroll and other obligations.
A higher AR turnover ratio means that your agency is efficient at collecting its payments due. Whereas a lower AR turnover ratio indicates that your agency has inefficient collections, poor credit policies or has clients that are not creditworthy. To improve your AR turnover ratio, you can send out payment reminders, follow-up on accounts receivables frequently, or use automated debit to receive payments in a more timely manner.
5. Days Sales Outstanding (DSO)
Your Days Sales Outstanding will show the average number of days that it takes your marketing agency to receive payment for a sale.
The higher the DSO, the longer it takes your company to receive compensation, negatively affecting your cash flow. To improve your day's sales outstanding, you should look into ways to make your account receivables process more efficient.
6. Operating Cash Flow
This KPI measures the amount of money generated by your business on a daily basis.
This metric is important because it shows you how stable and healthy your business is and how well it is growing. You can improve your operating cash flow by reducing your expenses and overhead costs, and increasing your revenue or improving your collections.
7. Net Profit/Net Margin
Your net profit figure is the amount of revenue remaining after your operating costs and expenses are subtracted. If this number is lower than you would like it to be, try reducing your costs as much as possible or finding different ways to increase your revenue.
Calculating your net margin will determine how much profit your agency has generated as a percentage of your total revenue. This may give you a better idea of how well your business is performing.
8. Customer Acquisition Cost (CAC)
Your Customer Acquisition Cost is important because it measures how much it costs your agency to obtain one new client. Your CAC is crucial to analyzing your marketing return on investment.
Ideally, you want to use the most cost-effective way to acquire new clients. A lower CAC is better as that means you are more efficient in acquiring new clients, and your business should see higher profits as a result. You can reduce your CAC by creating more powerful marketing strategies and reducing unnecessary marketing expenses.
9. Customer LTV
Customer Lifetime Value looks at the average amount that a customer spends on your products or services over their entire relationship with you. There are many ways to calculate your Customer Lifetime Value but this formula is a simple way to measure it.
Your Customer LTV is an important metric because it usually costs less to retain a customer than to acquire a new one. Therefore, increasing the LTV of your existing customers is a great way to grow your business. Knowing what this value is can help you find ways to increase customer retention and create more loyalty among your clients.
10. Return on Investment (ROI)
Calculating ROI is vital to determine how profitable each marketing campaign was for your business. Knowing this figure can allow you to be more profitable in the future, ensure your team is working efficiently and will enable you to find methods to improve on your advertising efforts.
By monitoring these eleven key performance indicators, you will see where your business is succeeding and where there is room for improvement. You will be better able to reach your goals and devise sound strategic plans for the future.
You need accurate bookkeeping to be able to measure your KPIs. At Enkel, we can provide your marketing agency with the reliable bookkeeping it needs to track its growth metrics. Contact us today to learn how we can help you keep your books in order.