Do You Have a Handle on Your Marketing Agency Financials?
Do you use your bank balance to gauge how well your agency is doing? Do you know and understand your key marketing agency financials? Or are you making business decisions blindly? A solid handle on financials and forecasting is one of the best things you can do not only to see where your agency is at but also to make decisions for the future.
In today’s episode, we’ll cover:
- Does your agency make proactive decisions?
- 5 financial benchmarks every agency should maintain.
- How to use benchmarks to plan for the future.
Today I sat down for an informative discussion with two men who really have a handle on agency financials. Adam Stoker is the president and CEO of Relic and EKR. Nate Jenson is partner at an outsourced CFO agency and the founder of Agency Dad. Agency Dad is an accounting solution focused on helping marketing agencies make better decisions based on their financials. They’re here to talk about the key numbers your agency should be looking at and how you can use this data to help your agency grow.
Does Your Agency Make Proactive Decisions?
When Nate started working with Adam, his agency was struggling. He had a revolving door of bookkeepers who could barely keep the books straight, let alone help him plan for the future. Nate says one of the biggest flaws agency owners have is making reactive decisions instead of being proactive. He says when you understand finances and what you are actually looking at, you can make better decisions. You have to establish benchmarks. This way you know what you should be spending, where you are actually spending, and where you have room to make cuts.
In the same line, you need to stop making decisions with your gut. Say, for example, you notice one of your teams is running a little ragged — they’re obviously stretched thin. The gut-jerk reaction is to hire more people to take on some of the extra work. But is this the right choice? With metrics, you can see whether your team is busy because you’re not charging enough, people are misusing their time, or if you really do need to hire more.
5 Financial Benchmarks Every Agency Should Maintain
Nate says having cash on hand is an important metric to look at, but it only tells you where you are at this exact moment. Benchmarks and KPI’s within your agency financials help you plan for the future. In general, there are certain benchmarks all agencies should work towards. If you are way off, it’s time to make a change. According to Nate, these are the percentages you should be hitting in each business expense category.
- 25% profit (EBITDA)
- 55% compensation
- 5% marketing
- 5% rent
- 10% other general admin costs
Sure, there’s a little wiggle room. But you really want to stay as close to these numbers as possible. This is why having a good bookkeeper is really important. These numbers mean nothing if the data entry is not accurate. Don’t skimp in this area.
How to Use Benchmarks to Plan for the Future
A lot of the time, agencies think they are at a certain level. When, in reality, they have no idea what will happen tomorrow. When COVID hit in March 2020, Adam and Nate sat down and looked at where they had room to cut. The sudden change in economic conditions greatly affected the agency’s clients. They made the decision to cut employee wages (and their own) by 10%. But because they had this foresight and were able to track their metrics, at the end of the year, the employees got all this money back, plus profit sharing. Proper forecasting helps agencies make proactive decisions, rather than reactive ones.
Without planning, you can’t make good decisions. Sit down, look at your metrics, and see how close you are. And don’t be afraid to invest in a good accountant. Knowing where your money’s going is the best way to help your agency grow.
Ready to See How Your Agency Financials Stack Up?
Agency Dad is the accounting and forecasting solution designed specifically for agencies. And for a limited time, Smart Agency listeners can get a FREE AUDIT so you can compare your agency’s financials to the industry benchmarks.
When you know your numbers you can make smart decisions in order to grow your agency. Agency Dad will take you to the next level with bookkeeping, financial dashboarding, and forecasting built specifically for agencies.
Head over to AgencyDad.money/freeaudit/ to receive a free audit on your agency’s financials.
What’s Next For Your Agency
Now that you have a better insight into your agency financials and the steps you need to take moving forward, where do you need to focus on to make improvements? During the lifetime of your agency, you will without a doubt come across other challenges — this is where I can step in.
I have advice for agency obstacles such as recognising common agency mistakes, how to keep great agency employees in your team as well as fostering the connections made with clients. If it’s challenging growing your business, I have agency growth hacks, the best ways to improve management of your business as well as why building a remote team can be beneficial in the long run.
You can learn more from my experience from my Ask Swenk series and my videos on my Youtube channel. Check out advice and learn even more from other successful agency experts featured on Smart Agency podcast twice every week.