Managing your advertising agency with decisions that do not consider indicators can be a mistaken attitude. After all, experience is quite relevant in management, but analyzing financial figures is essential to make decisions based on concrete information.
In this sense, selecting and monitoring your business’s financial metrics becomes essential. Through them, you will know what the agency’s financial results are and will be able to base your decisions.
In this article, you will discover 4 financial metrics to adopt in your advertising agency and understand why this is so important.
Let’s go?
What are financial metrics for advertising agencies?
Before learning about the most relevant financial metrics, it is worth understanding what they are and how important they are for your advertising business. In practice, metrics represent numbers about a company’s financial situation.
When calculated, they generate indicators, which offer solid information that allows for more efficient strategic planning. In other words, financial metrics are the raw data. Indicators are results obtained through the metrics that serve as a basis.
Without these tools, the assessment and diagnosis of the company’s finances are made only with assumptions. This increases the chances of making wrong decisions and, consequently, of developing an inefficient action plan.
For this reason, it is essential to understand which metrics can be useful for your agency and analyze them regularly. It is worth noting that, in order to generate indicators that are true to reality, it is essential to obtain reliable metrics that are appropriate to the company’s needs.
4 Financial Metrics to Adopt in Your Agency
As you have seen, monitoring financial data is essential for the financial management of your agency. Therefore, it is important to select the appropriate tools for your assessment.
Next, check out 4 financial metrics that cannot be missed in your analysis!
1. Recipe
Revenue is all the money that comes into the company and is related to the work performed. Understanding the amount received by the business is important for calculating various indicators, such as gross revenue, net revenue and profitability.
From these numbers, it is possible to understand whether the agency can pay its costs and make a profit , for example. This metric can also help predict what the revenue will be in the coming months, as it allows you to identify recurring revenue.
For this reason, it is important to monitor revenue frequently. Generally, companies usually check their revenue monthly and annually, but it may be necessary to check it at other intervals.
2. Accounts payable and receivable
Accounts payable and receivable are additional financial indicators to look at. The former speaks of the fixed and variable costs of the business. The latter is what your agency must eventually get.
With these metrics, you can calculate cash flow , which is a key indicator for controlling the agency’s financial health. By understanding this index, you can keep track of all the bills for the current month and the coming months.
This way, you can avoid debt, since you can also predict low periods and develop a plan that allows you to maintain a positive cash flow. For example, you can reduce costs or take new actions to gain more customer accounts.
3. Hourly cost of employees
Do you know how much your employees earn per hour? This is an important metric for obtaining various indicators, such as service cost and profit margin. In addition, with this information you can control the hours worked by your teams.
This makes it possible to create a work dynamic with lower costs, reducing the financial impact of payroll. Another essential function of this metric is the appropriate pricing of services per project. This way, you can arrive at a fair price for each job provided.
For example, suppose you have a project that involves the highest-paid employees in the company. If you include the average payroll as an operating cost when calculating the sales price, you may end up losing money because the cost will be higher than expected.
With this specific data, on the other hand, it is possible to make more appropriate planning when pricing services or directing the team that will be responsible for each project.
4. Customers who generate the most and least profit
In addition to the agency’s overall profitability, it is important to know which clients generate the most and least profit. This is necessary because the company that provides the most revenue to your agency is not always the most profitable.
After all, there are projects that involve more costs, such as allocated resources and hours worked, reducing the profit margin. Identifying this metric can help decide which clients need to go through a pricing review or even which contracts may not make sense for the business.
Imagine a situation in which your agency no longer has the capacity to handle new projects. However, a potential client has come up with a great proposal. Knowing which projects are least profitable, you can seek adjustments in the volume of demands with them to make room to accept the new partner.
