Understanding the crucial business metrics is the key element in creating a functional and profitable agency. Here are the most important aspects of data tracking you should know about.
Working with enterprise-size clients can lead to very long sales cycles. In those situations, the sales pipeline can dry up entirely if no one's watching and monitoring sales activities.
This is exactly what happened to one of our clients before they started working with us.
Unfortunately, the consequences of this oversight were severe. And by the time the agency in question realized where the problem was, it was too late to do something about it.
They had to lay off team members and invest a massive amount of money to keep their business going. Worse yet, the money invested came from the owner's personal funds, wiping out their retirement accounts.
We sought to determine the underlying cause of everything that happened and it turned out to be an issue with data tracking. The agency simply didn't pay attention to monitoring and measuring empirical data, nor were they comparing it against their baseline.
This example shows just how necessary data is for any business. Not only can tracking data improve an agency to a great extent, but it can save it from going under the ice. And if the creative agency mentioned above was effective in tracking data, it could've avoided the disastrous situation altogether.
If you want to make sure that your agency keeps track of data in the most efficient way, it’s best to understand some of the key aspects of data tracking. This article will explain just that
What You Need to Know About Your Agency's Data
1. Understand the Latency of Data
Data often doesn't come in real-time. By the time you look at it, it might be several weeks old. This is something you should take into account, as the latency can be quite considerable.
When you have a financial report 15 or 20 days after the month closes, that data is relevant to the first transaction that occurred at the beginning of the month. In other words, you see data with a latency of about 45 days.
The latency doesn't mean that the data is useless. As historical financial information, it can be quite important and inform you about the direction of your agency. However, it's crucial to understand that this data doesn't reflect what's happening right now.
When you get real-time information, it enables you to make quick changes to ensure profitability, success, and hitting all of your agency's metrics and needs. In other words, all of the data you receive has its value if you understand the latency with which it comes through.
2. Know the Difference Between Input and Output Data
Differentiating between input and output data is vital to understanding what actions within your agency produce which results.
Your input data refers to the actions your agency is performing. Some examples would be the number of outgoing emails, meetings with prospects, or calls going out.
In contrast, the output data describes the results of those actions. This data shows the number of new clients and leads, as well as other results generated by your agency's activities.
Making the distinction between input and output data will create a clear picture of what your agency is doing to achieve a particular goal. When you start looking at the information within your agency this way, you'll be able to measure the pulse of your business every day.
Knowing how your input data relates to output will also allow you to change the course of your agency's activities at a moment's notice. This creates a much better dynamic in your agency, as you won't have to wait for information from the previous month or quarter to adjust your process.
3. Track the Key Metrics
Tracking various KPIs is one of the essential aspects of data measuring. And having the key metrics always in sight means that you'll have a detailed understanding of your agency's performance.
One of the universally useful metrics is the average hourly earnings.
You can calculate it by dividing your revenue from a project by the number of hours it took to complete it. Note that when talking about work hours, these should include all of the billable time that team members spent working on client deliverables.
The best thing about this metric is that you can break it down by individual clients, services, as well as team members. This will be a great indicator of which projects are the most profitable.
Tracking your average hourly earnings allows you to replicate the aspects that are producing good results and eliminate those that aren't.
Another important metric is billings by team members.
Many agencies try to improve on their processes by hiring more and more team members or increasing their resources. However, the reason why their profitability's dropping is more likely that they aren't billing enough.
As an agency owner, you'll need to change how you think about making your business efficient. Instead of creating a bloated team, you might want to resolve any issues with billing, which is what this metric allows you to do.
Finally, tracking the closure rates of your team is extremely informative. If you send 100 proposals every year, for example, it would be useful to know how many of them generate a sale. Ideally, your agency should be closing about 80% of proposals.
While this metric seems rather elementary, many businesses don't pay enough attention to it. But when you understand what your closure rate is, you'll be able to make adjustments to start getting near that number.
Data Tracking Can Lead Your Agency to Success
A thorough understanding of data often makes the difference between a successful agency and one that's barely staying afloat.
If you track the most important metrics and know precisely what the data means, your decisions will be much better informed. At the same time, your agency will manage to avoid the common pitfalls that result from improper data tracking.
If you can’t do it alone, or if you need more guidance, let us know. Contact us to book your profitability accelerator call and see how we can work together to optimize your business.