You don't need to be an accountant to run a successful agency. But you do need to understand a handful of key metrics that tell you whether your business is healthy, growing, or heading for trouble. Here's what actually matters.
1. Gross Profit Margin
What it is: Revenue minus direct costs (like team salaries and contractor fees), expressed as a percentage of revenue.
Why it matters: This tells you how much money you have left after delivering your services to cover overheads and profit. For agencies, aim for 40-60%.
Red flag: If your gross margin is below 30%, you're either underpricing, overstaffing, or both.
2. Net Profit Margin
What it is: What's left after all expenses (including overheads, marketing, and admin), expressed as a percentage of revenue.
Why it matters: This is your actual profitability. For healthy agencies, aim for 15-25%.
Red flag: If you're consistently below 10%, you're not building a sustainable business.
3. Cash Runway
What it is: How many months you can operate with your current cash balance if revenue stopped tomorrow.
Why it matters: This is your safety net. Aim for at least 2-3 months of operating expenses in the bank.
Red flag: If you're living month-to-month, you're one bad month away from serious trouble.
4. Utilization Rate
What it is: The percentage of your team's time that's actually billable to clients.
Why it matters: Low utilization means you're paying people to sit idle. High utilization means you're at capacity and need to hire or turn away work.
Target: 70-80% is healthy. Below 60% is a problem. Above 85% means you're burning people out.
5. Client Concentration
What it is: The percentage of revenue that comes from your biggest client(s).
Why it matters: If one client represents more than 30% of your revenue, you're vulnerable. Lose them, and you're in crisis mode.
Red flag: Any single client over 40% of revenue is a major risk.
6. Average Payment Terms
What it is: How long it takes clients to pay you after you invoice them.
Why it matters: Long payment terms kill cash flow. If clients are taking 60+ days to pay, you're essentially giving them an interest-free loan.
Target: Aim for 14-30 days. Anything over 45 days is a problem.
7. Revenue Per Employee
What it is: Total revenue divided by number of employees.
Why it matters: This tells you how efficiently you're using your team. For UK agencies, aim for £80-120k per employee.
Red flag: Below £60k per employee suggests you're overstaffed or underpricing.
How to Track These Metrics
You don't need fancy software. Start with a simple monthly dashboard that tracks these seven metrics. Review them every month, and you'll spot problems before they become crises.
The key is consistency. Track the same metrics the same way every month, and you'll start to see patterns and trends that help you make better decisions.
The Bottom Line
You don't need to understand every line of your P&L or balance sheet. But these seven metrics will tell you 90% of what you need to know about the health of your agency. Track them monthly, and you'll make better decisions.
Once you're tracking these numbers, combine them with a simple forecasting framework to predict future performance. And if you're wondering when to get professional help, here's how to know it's time.
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