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Transcript

So this is going to be a quick hit where I'm going to show you the agency performance KPIs that ServiceCrowd likes to see our clients reporting on, on a monthly cadence.

This is our agency operations management model for an example client:

What would have happened in order for us to get to a place where this spreadsheet was populated in a way that allows us to very clearly walk through what we see as efficiency and inefficiency in the business with our clients is that as your operations partner, ServiceCrowd would have worked with the agency to get revenue numbers out of their invoicing tool (like QuickBooks). We also would have worked with them to understand what their total delivery costs are, which is going to be the cost of the staff that's servicing clients. That's going to be out of a payroll tool like Gusto, it's going to be potentially be out of Harvest. And it may be out of platforms like Fiverr and Upwork.

So, that's how we got to a delivery cost number. We also would have worked with the client to ensure that their operating expenses are clearly delineated from their delivery costs.

In this example, all of that has taken place prior to us being able to populate these actuals for the prior month, and we've worked - theoretically - with the bookkeeper to make sure that these numbers match what's in the financial tools.

Now that all of this is populated, we are ready to provide monthly reporting and analysis to this client. Here is a closer look at the actuals populated for the previous month:

So the first thing I'm going to zero in on is that bottom line. Our operating profit margin is 31%.

Wow, that's very high! Good job, everyone. Pat's on the back all around. 

31% operating margin is very, very good. Our benchmark is about 20% as a floor and anything above that is great. Note that 20% is our floor unless the agency is making clear choices to invest in something specific. A+ on operating margin for this agency.

Many agencies might stop there and just say "Our operating margin is great!" But one of the things that this management model and monthly reporting allows you to do is to take a look at all of these KPIs and figure out if there's something that may cause problems later. So the thing that sticks out to me is in these numbers is the delivery margin.

We like to see a delivery margin closer to 60%, so this is a little low, especially for having such a high operating margin. The combination of these numbers together means that our operating expenses are pretty low compared to our delivery cost in terms of proportion of revenue. Now, 50% is not bad, but closer to 60% is going to be a better, healthier, long-term goal for most agencies.

So what do we say overall to this client during this monthly readout?

Again, great job on the operating margin, but let's zero in on this delivery margin, and let's have a conversation about what could be going on here.

That's going to require us deep diving into additional numbers, and we can talk about that in subsequent videos as well, but if your delivery margins are low, it's one of three problems:

• Our price is too low. You are not selling your services for a high enough price to cover your costs at the right margin.That's a simple but not easy fix. 
• Maybe our staff isn't fully utilized. We are paying for time that they are not producing revenue. What should we be doing about that?
• Maybe we have the wrong staff mix. Maybe we have senior people doing junior level work, or we have a full-time contractor who really should be converted into a full-time employee that would be a lower overall cost.

Obviously, there's a number of levers that you can pull there. As we make our way through these next couple of months where we're forecasting slightly less revenue, we have more levers to pull to get to a better delivery margin and ensure that we're protecting that high operating margin going forward.

Want help getting the right metrics to focus on in the operations of your marketing agency? Contact us for a Profitability Consultation!