Melanie is an expert in agency operations, known for transforming the day-to-day activities of digital agencies into streamlined, profitable processes. With a focus on finances & metrics, people & growth, and workflows & documentation, Melanie helps agencies run more efficiently.
With over 13 years of experience, Melanie simplifies the complex and frequently asked questions around agency operations, enabling agency leaders to regain control and drive their businesses forward.
Today, we’re excited to welcome Melanie to discuss how agencies can use financial and performance metrics to guide the health of their operations. Melanie will share her insights on leveraging these metrics to enhance agency performance and achieve remarkable business results.
Let’s get started…
1. Can you introduce yourself and share your experience helping agencies use financial and performance metrics to improve their operations?
Hi, I’m Melanie. I’ve been in agency operations for the past 13+ years, both in-house and as an independent consultant / Fractional COO. I specialize in helping founders scale their agencies through operational improvements.
In my experience of working with agencies, I believe that any kind of operational improvement needs to start with the financial metrics. Metrics are the health scorecard for an agency. If the numbers are off or “unhealthy”, I then dig into the associated operational infrastructure to find out what needs to be tweaked in order to improve the numbers.
Being that there are so many moving pieces of an agency, it’s extremely helpful for owners and leadership to have metrics to lean on to keep a pulse on things.
2. Which agencies have you mentored in the past, and who are the founders of these agencies?
To name a few of my most recent clients, I’ve worked with Jen Frazier of Firefly Partners, Jamin Warren of Twofivesix, Allison Sall and Thomas DiNatale of Everyday Industries, and Stefan Jensen of Motionstrand.
3. What are the key financial metrics that agencies should track to assess their health?
There are 8 metrics that I recommend agencies track, and a 9th component that will tie all the information together.
1 – Revenue capacity
2- Project gross profit margins
3 – Agency-wide gross profit margins
4 – Cash on hand
5 – Average bill rate or projects
6 – Utilization rates
7 – Revenue per FTE
8 – Salaries to revenue
9th Component – Having a financial feedback loop in place. This means there are workflows and organizational communication in place to ensure this critical information gets distributed to the correct team members to take action.
4. How can agencies identify the most relevant performance metrics for their specific goals and operations?
This is a tricky question because there isn’t a way to identify which metrics to track until they start tracking the 8 that I recommended. They may find that, over time, they are doing well in certain areas and may decide to stop tracking those. This comes with a huge caveat: the numbers stay healthy, but you won’t know that unless you’re checking in on the health of that metric at least periodically.
If the recommended list seems overwhelming, I would start with making sure you can at least track agency-wide gross profit margins, utilization rates, and revenue per FTE.
5. What tools or software do you recommend for agencies to effectively track and analyze their financial and performance metrics?
Depending on the size of the agency, there are going to be different tools that agencies can lean on. For small agencies, your best friend is going to be spreadsheets. I know that’s not an answer that owners want to hear, but the cost to adopt a software for tracking metrics can be costly, and the ROI just isn’t there for small shops.
For medium to large agencies, some more options start to open up however, there isn’t one tool that will capture it all. Some agencies lean on their accounting/CFO firms for their dashboards and some are building their own through API Connector tools.
This is still a big problem that I’d love to see solved for agencies!
6. How often should agencies review their financial and performance metrics to ensure they stay on track?
My recommendation is to review and analyze them on a monthly basis. There are workflows that need to be in place in order to maintain the ongoing data (i.e., hours for utilization rates) on a weekly basis however, it wouldn’t necessarily be a metric that would be reported on.
7. What strategies can agencies employ to act on insights gained from their financial and performance metrics?
Having a financial feedback loop in place is going to be the first strategy in making sure the right people receive financial information, at the right time. Having the data isn’t useful unless people on the team, who understand the agency’s goals, are able to see the data and make necessary changes to move the needle.
Another important piece is ensuring the team understands each metric and know what a “healthy” number means for their agency. Take utilization for example, an agency’s leadership team should know that utilization rates tell us how much billable time the firm is clocking out of total available time. They should have a goal rate and know what to do if they are outside of the goal rate.
8. In what ways can agency partnership programs, such as the Cloudways Agency Partnership Program, support agencies in tracking and optimizing their metrics?
I think education is the biggest way Cloudways can support agencies. Operations in agencies have come a long way in the past few years and it’s been really amazing to see agencies understand that it’s something to invest in if they want to improve and scale. However, many firms still don’t have or understand the basic knowledge of what it takes to become a financially successful agency so educating on the metrics is key.
9. How can agencies ensure that their entire team understands and contributes to key performance metrics?
I think it’s crucial for team members to understand how agencies operate, generate revenue, and generate profit. I’m amazed at how little those at an individual contributor level (or worse at a leadership level) understand in regard to revenue and generating profits.
Another strategy is to borrow from the Entrepreneurial Operating System and “give everyone a number”. This is the concept of giving each person a number they are responsible for which indicates whether they’re hitting the mark for their particular role.
10. What advice would you give to agency owners looking to start using financial and performance metrics to guide their operations?
First and foremost, it’s important to educate yourself on the actual metrics and how they impact your business. Next is educating the team so they understand WHY you might be headed toward the path of capturing metrics (and therefore asking them to step up accordingly).
Employees, particularly in the creative field, don’t always enjoy the concept of more processes, so educating them on why something is important to the business (and them) is important to get buy-in.
Also, it’s okay to take one step at a time. Know that operational change isn’t a quick fix. It can sometimes feel like a lengthy process to even get the agency to a point where tracking certain data is possible. However, in the long run, tracking metrics is a really big investment in your agency.
Abdul Rehman
Abdul is a tech-savvy, coffee-fueled, and creatively driven marketer who loves keeping up with the latest software updates and tech gadgets. He’s also a skilled technical writer who can explain complex concepts simply for a broad audience. Abdul enjoys sharing his knowledge of the Cloud industry through user manuals, documentation, and blog posts.