Running an agency can be a challenging task, especially if you’re not aware of the key benchmark numbers that you need to target. Every agency owner must be familiar with these numbers if they want to make informed decisions and drive profitable growth. In this blog post, we will discuss the four key benchmark numbers that every agency owner should know, and how you can use them to grow your business and stay profitable.
Targeting 20% or greater year over year revenue growth is crucial for the success of your agency. Growth is the lifeblood of any business, and failure to achieve it can lead to stagnation, or even decline. To achieve this growth, your first goal should be to never lose a client due to performance. You then need to invest in an effective sales and marketing infrastructure that allows you to consistently bring in new business.
Gross margin refers to the amount of money you have left after deducting the cost of service from your revenue. As an agency owner, you should target 50% or greater of your revenue as gross margin. With a gross margin of 50% or more, you will have enough money to invest in your business and remain profitable. If your gross margin is between 40% and 50%, you will need to choose between being profitable, or investing in your business. If your gross margin is lower than 40%, you will most likely lose money. Maintaining a healthy gross margin is essential to the long-term success of your agency.
As an agency owner, you should strive to keep your SG&A (selling, general, and admin expenses) below 30% of your revenue. SG&A is broken down into three components. Sales & Marketing should be 8% of your revenue, Operations & Finance should be 15% of your revenue or less, and the Executive Team should be 7% of your revenue or less. Keeping track of your SG&A will help you identify any inefficiencies in your business and make the necessary changes to improve your profitability.
EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It is a measure of your agency’s profitability. As an agency owner, you should target an EBITDA of 20% or greater. Achieving this will help you to reinvest in your business and drive future growth.
Research & Development:
There are 120 thousand agencies in the United States and the vast majority of them do not spend anything on R & D. Investing in research and development is crucial to the long-term success of your agency. Targeting 5% of your revenue towards R&D will help you to differentiate yourself from the competition, improve retention and create new revenue streams. R&D is generally a capital expense and will appear on your balance sheet. Keeping track of your R&D expenses will help you to measure the success of your innovation efforts and identify any areas that require further investment.
As an agency owner, awareness of key benchmark numbers is essential to the success of your business. Revenue growth, gross margin, SG&A, EBITDA, and R&D are all critical metrics that you should be monitoring regularly. Knowing these numbers will help you to make informed decisions, identify areas for improvement, and drive profitable growth. By targeting these benchmarks, you will be well on your way to achieving long-term success for your agency.