In order to determine your agency’s financial health and success, it’s critical to identify the major KPIs that matter most to your business. Focusing on your key marketing metrics allows you to discover which marketing channel(s) is generating the most valuable clients and the major tweaks that you should apply to reduce your churn rate.
Below are 7 major KPIs your business should measure in order to maintain your agency’s health:
Monthly Recurring Revenue is one of the most critical metrics that determines your agency’s success.
Simply put, MRR is the revenue that the business receives each month. This KPI determines how well you are retaining your clients and measuring business growth.
Here’s how to calculate it:
MRR = Total number of paying clients x the average amount your users pay each month
For instance, if you have three clients paying a monthly subscription fee of $1000 per month, then the MRR would be $3000.
However, MRR is not only limited to the revenue acquired by new customers. Below are the
aspects you should take into consideration to cover the entire concept of MRR:
The new monthly recurring revenue is the income generated by new customers. For example, if your agency has acquired four clients, each one paying $200 a month and another three clients with a monthly subscription plan for $100, the MRR incurred by all of these new clients each month would be (4 x $200) + (3 x $100) = $1100.
The expansion monthly recurring revenue is the income expanded from your existing customers. Such revenue occurs when your clients upgrade their subscription. For instance, if three of your clients pay $100 per month and upgrade their plans to $200, the expanded revenue is $300.
Unlike New MRR and Expansion MRR, churn revenue is the lost income from your clients that either downgrade or cancel their subscription.
For instance, if two of your clients who were paying $200 per month churned and one out of three who upgraded their plans from $100 to $200 downgraded back to $100, the churn MRR would be (2 x $200) + (1 x $100) = $500
To determine the net growth of your monthly recurring revenue, you need to gather the total income from your new acquired clients, and the expanded revenue minus the churn MRR as follows:
Net New MRR = New MRR + Expansion MRR – Churn MRR
So back to the three examples above; the MRR growth would be $1100 + $300 – $500 = $900 per month.
As MRR determines the recurring revenue generated each month, the Monthly Recurring Profit MRP states how much profit your agency tends to receive monthly.
It is determined by calculating the difference between the revenue and expenses for one-off sales and long term projects.
Examples of expenses include the recurring cost of ads, project operations cost and sales commission fees.
This metric allows you to devise more effective business decisions and implement actionable tactics to reduce your monthly costs.
For your agency to detect whether or not it’s financially healthy and sustainable, it is critical to determine the net margin.
The net profit is calculated by subtracting the total expenses such as overhead costs, marketing costs, advertising costs and taxes from the total income.
Net Profit = Total Revenue – (Expenses + Taxes)
For instance, if your total annual subscription from all your clients is $400000 and your full employee’s cost, advertising fees and taxes are $250000, the net profit would be $150000.
Customer Acquisition Cost is the average cost that your agency spends to acquire a new client.
To calculate the expenses that result from winning a client, you need to divide all your agency’s marketing and sales costs by the total number of acquired clients.
CAC = Total marketing and sales expense / number of acquired clients
For example, if you spent $20000 on sales and marketing in one year and acquired 100 customers, the CAC would be $200.
Determining your Customer Acquisition Cost is essential to your agency because it allows you to discover if your client is valuable or not.
To enhance your CAC, here’s what your agency can do:
Improve conversion metrics
If you need to boost the engagement of your emails, you have to set up some goals either in Google Analytics or via a marketing automation tool to detect how many signups or demo requests have been made from sending that email. You can also A/B test your email content to determine which version leads to higher conversions.
Enhance user value
Identifying what innovations or product adjustments are needed can be beneficial to keep your clients satisfied. For instance, you can make some tweaks to your marketing strategy based on your client’s interests, such as adding a new feature that helps them better generate and nurture leads or cross-sell their customers on different channels.
LTV is the indicator that shows how well you’re able to retain a particular client over a certain period and enables you to determine your client’s value versus your CAC.
You calculate LTV by dividing the total monthly or yearly income you expect to gain from a specific customer over the number of months or years from the same client who stays with your agency.
LTV = Total revenue in period length of client stay / length of client’s stay
Determining the lifetime value of your customers helps you focus on valuable clients while not wasting time on those whose CAC is higher. For instance, if your goal is to achieve a minimum lifetime value of $100000, you should no longer spend time closing deals whose lifetime value is below this target.
Once you identify your Customer Lifetime Value and your Customer Acquisition Cost, you can determine the LTV: CAC ratio, which is the total client’s value versus how much you have spent to acquire that client. The higher the ratio, the more significant ROI that the customer contributes.
MQLs and SQLs
Marketing qualified leads and sales qualified leads are critical metrics involved in determining your agency’s health.
MQLs are the leads acquired by marketing efforts such as email marketing, social media, SEO, paid ads, etc…
SQLs are leads that have been assigned by the marketing team and closed by the sales team.
To find out if your agency is on the right track, you should identify how many qualified leads are in your pipeline and your expected close rate. The higher these numbers, the better the state of your agency’s health.
Net Promoter Score allows you to determine how well your clients are likely to recommend your agency to others. It’s used to measure your client’s satisfaction and loyalty to your brand.
To determine your client’s happiness with your product and the likeliness to recommend others to their friends or colleagues, you can ask them to rate your agency on a scale from 0 to 10.
For the score, there’s a range from -100 to 100. You determine the score based on how much from 0 to 10 scale, your client has rated you. Then, according to the rating, customers are categorized into three groups:
These are clients that are not satisfied with your product and would never recommend it to others. Also, they might damage your reputation as they spread negative word of mouth. Such customers rate your product/service between 0 and 6 and, in turn, would result in an NPS of -100.
These are clients that are satisfied with your product but not enthusiastic enough to recommend it to others. They may easily switch your product and go to competitors. They would rate your product/service a score of 7-8.
These are happy clients who use your brand and are likely to recommend your product to others. They are the most valuable to your business because of their lifetime value. Clients in this category would give you a score of 9-10, which leads to an NPS of 100.
Measuring NPS helps you determine the health of your client’s portfolio and take actionable steps to convert detractors and passives into promoters.
Many marketing professionals fall into the trap of blindly adopting KPIs that have worked for other businesses but that do not represent their specific goals. Don’t just look at numbers and profit. Dig deep into the “how” and “why” rather than just the outcome of a campaign initiative. Monitor your KPIs according to your goals — both short and long-term — and use the information to your advantage.