What gets measured, gets managed – or so the saying goes. But with such a wide range of performance indicators to choose from, are you choosing to measure the right things for your agency?
Every business needs a way to rate their achievements. Call them KPIs, OKRs, WIGs*, or any other acronym you like, these measures allow agencies to benchmark their performance against their goals, and communicate successes to their people and the market. The performance indicators chosen by any individual agency say a lot about what is valued there. While there are some KPIs all commercial businesses need to use – bottom line profit being the most obvious – measuring the health of your agency should go far beyond this, to take in hard and soft measures, and look at the picture both now, and where possible in the months or years coming.
Wondering whether the KPIs you use are the best choice for your business? Here’s a run through of some of the most commonly used measures in agency land – and when, and why they matter.
Measures to live and die by
There are some measures that every stakeholder will look at. Your employees will hear and know them. Your customers will take note. And most of all, your shareholders, partners and board will care very deeply about these results.
Bottom line profit
It’s not the only measure – but it is certainly the one that shareholders and controllers will be interested in. You can see the mechanics of reporting revenue, which then leads to measures of margin and growth, with this Annual Report from Publicis as an example.
As agency profitability links to share price, bonus schemes and the future health of the company, teams from across the business will also be very close to this KPI.
You’ll notice in the example report linked above, that organic growth is highlighted and given centre stage. The ability to grow organically rather than through M&A activities is a good indicator of the health of the underlying organisation.
Recent years have been tough for agency land, and have led to a degree of soul searching about the best way to operate in terms of pricing, employee compensation and profitability. The world will be watching the bottom line results of big players and new challengers alike as we sail into 2019. While the narrative behind any results statement can be used to explain why a business has taken a hit here and there, the bottom line is the one that’s hard to hide from.
Cost per lead, close rate and cost per acquisition
Some would argue that this is the next most important indicator of the health of your agency business right now – although different agencies choose to examine different specific metrics.
Measurements which look at the efficiency of your own client processes can be a great way to look for blockages and identify areas for improvement. When looking at client leads, you’ll want to see the pre-qualified leads that are coming in, rather than the pure volume, so having a way to classify lead quality is essential. You may then choose to measure the number of sent proposals – but the more important indicator really is the close rate. Scatter gun proposals are a waste of time – and the downside of measures is that they can drive poor behaviour if they are poorly thought out.
Ultimately, the key indicator to show the efficiency of your client onboarding is cost per acquisition. If it costs you more than you’ll make from the job, either in time to scope and propose, or in presenting such a lean proposal it is unlikely to be feasible, then it is not worth your while. While this sounds obvious, the only way you can be sure of the cost/value ratio here is by designing and implementing a measure.
Time taken Vs price quoted
Scoping a project incorrectly can be the difference between turning a profit and making a loss. Or it may result in your team being unable to deliver the goods for a client, which, in this competitive environment can prove disastrous. Agencies benefit from measuring time taken for a job on an ongoing basis, which can be done with timesheets but can be made more efficient by using the right tools for the job.
Recent research from analyst Seth Lippincott, of Nucleus, found that agencies benefit enormously from using a specialised system – in this case WorkBook – to improve project quoting and planning, and bring resource planning, financial management, CRM services, accounting, and billing all into one place.
“Nucleus found that agencies were able to consolidate their disparate systems by replacing them with WorkBook, simplifying their technology environment and streamlining processes, saving businesses between five and 12 percent on project Management.”
Lead measures to show future health
KPIs work best when they feature a mix of lead and lag results – that is, measurements which show how the company has done so far, paired with indicators of how the business can reasonably be expected to perform in the coming months and years. Lead results might give an idea of the health of the organisation in terms of talent and morale, or the pipeline of work coming your way. Here are some examples:
Repeat and incremental business from clients, including pipeline projects
One way to predict and make reasonable assumptions about the health of your agency in the longer term, is by looking at the pipeline, and drawing some conclusions based on past performance in winning repeat and incremental business from clients. Clients are seldom worth the first project alone – do a good job and you might build a relationship that lasts for years.
If you have a structure and a team which excels at nurturing your clients and offering further value adding services, this is a great sign of what’s to come.
HR and engagement measures
Some of the key lead measures available to businesses are based around their people. Given the importance of having the right team in the right roles, setting targets and actively working to improve quality of recruitment and employee satisfaction seem like a natural step. This isn’t a job for HR alone, although the measuring and targeting might see HR taking a lead on these areas. Instead, every line manager in the business needs to take ownership of these people focused areas to make sure the team are able to perform to their fullest.
Other people measures include utilisation rate, to ensure that people are being used to their fullest, and industry recognition, to make sure that the team you are at pains to build are getting the applause they deserve from their peers elsewhere in agency land.
A final but crucial measure which may be overlooked. You want to grow. But can you take on new clients without needing to massively increase your team? Do you have an agile and cross functional workforce? Can you find economies of scale which mean that incremental business growth can produce profits which increase exponentially? Measures such as the number of team members skilled in multiple crafts within your organisation, and the rate of cross functional cooperation and movement can give insight into these issues.
Customer-centric KPI setting
Of course, as an agency business, you need to have a set of metrics you can show clients to demonstrate your impact on their company, too. A potential client isn’t interested in your employee satisfaction, per se – they want to know how their business will flourish if they bring you on board. Customer focused KPIs can vary but must relate to the things the customer really values. Conversion is key, with loyalty and brand recognition the best way to get the most lifetime value from a newly won customer. Here are some ideas of how to show them what you can do:
Regardless of the business type, your clients will want to see numbers, to bring a sense of scale and impact to the work you’re doing. Return on investment is the simplest measure – do clients get back more than they spend on advertising? A recent survey found that sales uplift was the most important measure of success for companies – but interestingly, company and agency respondents did not always rank measures as having the same importance.
Proving ROI in the proper sense relies on agencies being able to attribute conversion and from that the cost of customer acquisition. Helping companies understand the value agencies add to their business can be a full time job in itself, and depends a lot on the company type and the work you’re engaged in. The closer your relationship with the business, the easier this should be.
This is a tricky measure which can be interpreted in different ways, but means the world to businesses. Agencies can add value to their clients by encouraging a one off interaction. Or make such an impact that the customer becomes brand loyal – making her worth far more than the regular swing voter who might simply head elsewhere. Take Dove’s ‘Campaign for real Beauty’, for example, recently voted as AdAge’s most successful campaign of the 21st Century so far. As AdAge points out, this wasn’t a campaign about selling soap. It was about changing the conversation. By positioning Dove as a brand championing women of all types, customers associate the company with much more than the products they sell – although Dove’s sales did get a lift from $2.5 billion to $4 billion during the campaign. The real win of the campaign, though, might be the long term boost given to the brand from the awareness generated and their placement as game changers within the beauty industry.
Proving the value add in terms of brand awareness can be done in many different ways, depending on the type of company you’re dealing with, and their priorities. Hit the nail on the head and you will convert a browser to a loyal customer, although their lifetime value is hard to prove. To get a feel for this, agencies use established measures like the number of website visitors, social media followers, and customer interaction with promotions.
While clients are mainly interested in the job you can do for them, they also want an agency which is held in good standing in general. That means an agency which is seen to be a member of the global community, practise great corporate social responsibility – and give back in whatever way suits their mission.
This isn’t a low key point to be buried at the back of a financial statement – your clients need to know about your social agenda. WPP split their annual report into several sections, including one titled ‘how we behave’. There is a whole separate report to cover pro bono work. And right up there with the financials, you’ll find the annual pro bono value (nearly £50m last year), alongside the reduction achieved in carbon footprint.
This is a sure marker that WPP have recognised the value of goodwill, and know that potential clients are looking for an agency which can do well, while doing good. In a similar way, Omnicom’s CSR Report highlights data including reductions in electricity usage, and gender and diversity measures to show how they reflect their clients and audiences.
Give the climate of mistrust, with claims of “non-transparent” practices at media agencies, and clients in some quarters doubting agency transparency, this is a great way to engage currency and potential clients in a battle for hearts and minds.
Taking a holistic view of performance is clearly important. As an agency, you’re proving your worth to your shareholders, team, customers and community. This can’t be done with one measure – or even a selection of financials. Taking into account the bigger picture, is a better way to truly capture the state of the organisation, and celebrate the successes in every area.
For more information on making the pieces of your business work better together, contact us