15 Important KPIs to Measure in Your Ad Agency

Measuring the right KPIs (key performance indicators) is crucial for creative, ad and marketing agency owners to understand their firm’s performance and find out what areas require attention. There are literally dozens of KPIs to grow and improve your creative agency, but it is important to identify what performance indicators you should evaluate and track on a daily basis.

While many industry thought leaders recommend looking at your balance sheet, financial statements, or adjusted gross income, it’s worthwhile to dig a little deeper to better identify the reasons for strong or poor performance.

Are you making the most of your team? Do you know which projects are earning you a profit? I’ve chosen 15 agency KPIs, easily accessible in Function Point, that address the productivity and efficiency of your people and of your agency as a whole. The KPIs can be divided into 3 categories:

  1. Financial KPIs
  2. Customer KPIs
  3. Project KPIs

Now let’s explore each of them.

Financial KPIs

1. Revenue Growth

Revenue growth represents how much your revenue has increased over time and indicates your agency’s ability to attract and retain clients. It is a critical advertising agency metric for measuring the success of your ad agency. A positive revenue growth pattern means your business is growing and generating more earnings. 

Revenue growth is usually tracked quarterly or annually. In Function Point, you can oversee your revenue growth with our reporting tool.

2. Net Profit / Net Profit Margin

Net profit measures the money you have left after deducting all expenses, including salaries, operating costs, and taxes, while the net profit margin is the percentage of net profit over revenue. 

These 2 marketing agency KPIs inform you of your overall profitability and how effective your cost management is, helping to guide your business decisions. By monitoring these data, you can make necessary improvements in your financial performance and allocate resources or adjust your pricing accordingly. 

3. Monthly Recurring Revenue (MRR)

MRR is the recurring revenue stream of your agency for each month. It is usually measured by the value of monthly retainers or subscription services. MRR provides insight into the stability and predictability of your agency’s revenue streams. Hence, you can determine opportunities for growth and ensure your agency is meeting its revenue goals. 

To calculate MRR, gather all current retainer or subscription contracts and calculate the total revenue they give you monthly. You can also track the recurring revenue stream in Function Point’s reporting tool. 

4. Return on Investment (ROI)

The profitability of your agency’s investments is measured by ROI. This advertising agency metric helps you understand the efficiency of your spending and the return on investment of each project, such as ad campaigns or new hires. ROI data can tell you which investments generate the most revenue so you can optimize your spending accordingly. 

Here’s the formula for ROI calculation: divide the net income by the investment cost and multiply by 100. 

Customers KPIs

1. Client Acquisition Cost

Knowing the cost of acquiring a new client is essential for measuring the profitability of your ad agency. This agency KPI shows the total cost of acquiring new clients, including expenses such as marketing, sales, and advertising. By analyzing this data, you can determine which marketing channels are most effective and make informed decisions about client acquisition strategies. To calculate client acquisition cost, divide the total cost of sales and marketing by the number of new clients acquired.

2. Sales Closing Ratio

The sales closing ratio is the percentage of leads or opportunities converted into clients or customers. For example, if you reach out to 10 prospects and successfully close deals with 3 of them, your sales closing ratio is 30%.

This marketing agency KPI provides a baseline for the number of clients you should be closing. You can also compare the individual performance of your sales reps against the agency’s average. The ratio lets you know how effective your sales team and sales process are, helping you set larger goals for the team and adjust your sales strategies. For instance, if your closing ratio is decreasing, you must study the causes and take action to improve the situation.

3. Customer Lifetime Value (CLV)

CLV measures the total value that a customer brings to your agency throughout their lifetime as a client. This creative agency KPI informs you of the long-term profitability of your agency and the benefit of nurturing customer relationships. By tracking CLV, you can identify the most valuable clients and allocate resources to retain them. 

You can calculate CLV with this formula: 

Customer Lifetime Value = (Average Customer Lifespan * Customer Value). 

Customer Value = Average Purchase Value * Average Number of Purchases.

4. Client Retention Rate (CRR)

Client retention rate measures the percentage of clients who continue to work with your agency over a period of time. A high retention rate indicates that clients are satisfied with your agency’s services, resulting in increased revenue and profitability. This agency KPI helps you better understand what keeps your clients, and recognize opportunities to improve your services and strengthen client relationships. 

To calculate CRR, follow this formula:

CRR = [(E-N)/S] x 100

In which:

  • S is the number of clients  at the beginning of the period
  • E is the number of clients at the end of a period 
  • N is the number of newly acquired clients within the period

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Project KPIs

Project creative agency KPIs can be easily tracked via Function Point’s project management software.

Below is a screenshot of Function Point’s KPI dashboard displaying how your creative advertising or marketing agency performs in a specific time frame.

1. Utilization Summary

A great way to see your staff utilization rates is by creating a dashboard with the utilization summary, which shows the percentage utilization by employee, department, or team. It will help you manage time tracked to billable services in your creative studio versus actuals. Function Point’s utilization summary is a great representation of your staff utilization rate.

The example above shows a 63% utilization rate—calculated by dividing actual billable by target billable hours.

2. Timesheet Summary

Use the timesheet summary to compare billable and non-billable timesheets. Users can adjust the date range for a specific period as well as select a staff member or the entire team. Another critical item in the timesheet summary is the staff target hours for the staff selected.

3. Jobs by Company Summary

Here is an excellent opportunity to pick some of your most important clients and look at the jobs you are completing for them. The “jobs by company summary” KPI shows how many jobs your ad agency is currently working on and, most importantly, if the jobs are on budget or over budget.

I’ve seen many project and traffic managers using this tool on a daily basis, so they know exactly what is going on with each job in their agency.

4. Jobs Summary

The job summary is a quick snapshot of how many jobs you have on the go, the number of jobs that are over budget, late or under budget. If you are an agency owner, a partner or a senior manager, you should definitely have the jobs summary KPI on your dashboard.

5. Project Profitability

Measuring the profitability of your projects is critical for identifying which types of projects are most profitable and which ones may need to be re-evaluated. You can optimize project management workflows and allocate resources more effectively by tracking project profitability. 

To calculate project profitability, simply subtract the total cost of a project from the revenue generated by it. You can create reports for the revenue, cost, and profit of each project with Function Point.

6. Estimated vs. Actual Project Cost

This agency KPI measures the accuracy of your agency’s cost estimation for client projects. By comparing the estimated cost of a project to the actual cost incurred, you can improve your cost estimation process. Pay attention to these factors like the manpower, overheads, and other expenses put into production. In this way, you can better plan the budget for future projects and ensure a good profit margin for the agency.

7. Estimated vs. Actual Project Time

Similarly, this advertising agency metric reflects the accuracy level of your project time estimates compared to the actual time it takes to complete a project. From there, you can identify aspects where your agency underestimates or overestimates project time, allowing you to improve project planning and resource allocation. It also helps you identify which projects are most profitable and which ones may be taking up too much time and resources.

All in One Place

A project management system like Function Point can help keep an accurate track of your agency’s KPIs and can pull performance reports over a customized date range. Real-time data on your agency KPIs and comparisons overestimated and actual job resources can be made visible on FP’s dashboard.

What KPIs do you currently track in your creative agency on a daily basis? Do you use a workflow management system that allows you to see these KPIs in one simple dashboard? For more information, see our blog on how agency KPIs can help your creative agency to thrive.

Looking for a little more insight into how to guarantee your agency’s long-term profitability? Download the Profitability Made Easy guide for helpful tips on how to keep your agency thriving.

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This article was written by former Function Point team member, Leonardo Maia.

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