One of the main targets of any business is to earn profit. Whether it is services that you are offering or giving out consultations in general, being profitable is crucial for your growth. To measure your profit and the growth of your agency and freelancers, you need to measure a few key metrics that tell you just that.
It is often said that the more proposals you send out for a new business, the better your chances of getting work. While that may be true in some cases, more times than not, it can be counterproductive as well. Unless there is a real problem and an addressable market for the problem, the agency is already set to fail.
Why Measure Key Metrics?
While you may have the essential bases covered for driving sales, there are other metrics that can help you gain momentum in your agency. The majority of problems arise when you do not have the finer details on point.
Having key performance indicators (KPIs) will reflect and support various strategies that you might need to run all kinds of operations in your agency. Aspects like finance, standards, customer requirements, marketing, expectations, etc., can play an important role in providing a window on performance and ethos.
Hence, it is important to track your agency’s KPIs to judge your business’s current (and future) state. You might find that one channel generates the best clients or that a simple tweak to your campaign could better customer engagement.
Here are some of the key metrics you should track for agency growth & all-round profitability:
Proposals Sent Out
Once you have identified the market and the opportunity, you can start sending out proposals. If the target audience is narrowed down appropriately, and the requirement is being answered in the proposal, the conversions increase. You need to keep track of how many proposals you send out to calculate the acceptance/rejection rate.
Proposal Acceptance Rate
The proposal acceptance rate is the proposal’s success rate. In most cases, about an 8% to 15% acceptance rate is a standard norm. Anything above that figure is often regarded as extraordinary.
So, measuring your acceptance rate and then improvising your rejected proposals is a great way to judge your profitability.
Sometimes, some leads are garnered due to inquiries and not because of proposals. Judging the quality of those leads and accepting them also play a crucial role in driving the business and increasing profitability. Thus, keep track of the leads that have come from sources apart from the ones received via proposals.
Client Acquisition Cost
Whether we like it or not, acquiring a client is never easy. A lot of costs are involved. Whether it is logistics, or operational, or symbolic, or just time as a resource, all of it is an incurred cost. If the client acquisition costs are high, then the other costs increase accordingly. And hence, the profitability starts to drop.
Measure the cost of acquiring a new client and evaluate how you can cut down that cost to maximize your profit. This is one of the important business metrics that every company should know about.
Client Engagement Cost
The client engagement cost is the cost of keeping the client using your services for a particular tenure. Whether it is consultation or sending out newsletters or providing customer service, everything comes under client engagement cost. If the client acquisition cost is high, the engagement cost automatically increases, and in some cases, it may skyrocket and agency profitability can go down.
Track how much you spend on engaging with the client (not just monetary) and try to find a way to minimize that cost without compromising the quality of your services.
Client Retention Costs
Once you have a client engaged, the chances are that they will come back later. Retaining clients can sometimes be burdensome and can even run profitability to the ground. That being said, to maintain clients, offer some loyalty bonuses or rather give them discounts.
According to ethical standards, a happy individual refers 6/10 times, but only when he /she is asked. However, they will be discouraged from opting for that service 9/10 times without instigation. Hence, strive to retain clients with good deals.
Revenue Earning Efficiency
In some cases, the agency might provide great services but still would not generate revenue. This is a direct reflection of poor income-earning efficiency. A revenue generation plan, which includes a walkthrough of each checkpoint, must be drawn and followed.
Revenue earning efficiency can be how well each operation can generate income and drive sales for added profitability.
To drive profitability, the operational costs on any/every operation should be minimized where it reaches a certain threshold after retaining the standard that you use at the bare minimum.
Once the client has concluded business, the net revenue earned determines how much you have gained from that client. Measuring this metric is important as it helps you understand how to move your resources from one client to another to help you gain the maximum profit margin.
These are the few metrics that every starting an agency should measure to increase its revenue. With the above KPIs in place, your agency will be well on the path to profitability.
Furthermore, it increases credibility when you deliver on your promises and take it one step further by making the business lucrative for both parties involved.