In a digital world, where everything is driven by technology, verifying the effectiveness of marketing initiatives with numbers as proof of success is the foremost priority of any marketing agency.
To succeed and grow in the highly competitive marketing agency landscape, you need to have an undeterred focus on finances, on the effectiveness of your campaigns, and on performance and profitability.
This article uncovers the Top 5 marketing agency metrics that you should measure to improve profitability, including which metrics can be tracked and how to calculate them.
1. Cost per Lead (CPL)
One of the most important goals of marketing is to bring in high-quality leads. To do that, marketing agencies spend on digital ads, sponsored social media posts, SEO to drive organic traffic, and various other paid and organic channels.
The effectiveness of marketing initiatives in generating leads can be measured by calculating the amount the agency spends on generating every lead. The more leads you generate within a given budget, the less cost per lead you achieve. Ideally, the cost per lead should be less than the gross profit you make per sale.
Measuring CPL helps you...
- Keep track of your spending on lead generation in relation to the results that you are producing
- Determine whether the spending is justified and sustainable
- Paint a bigger picture over a longer period, identify the trends, and allocate resources accordingly and proactively for lead generation at any given period of time
Calculate CPL by dividing the total marketing spend by the total number of leads generated.
For example, if your marketing spend for one month is $500 and the number of leads generated during that month is 20, then CPL = $500/20 = $25.
2. Revenue per Client (RPC)
One of the foremost metrics that any business should be measuring is revenue. Ultimately, every profit-making business strives to bring in as much revenue as possible. Keeping track of revenue is therefore indispensable.
For marketing agencies, success can be measured by how much revenue each client brings to your agency for the amount of resources you spend working for them. So, it is crucial to periodically measure revenue per client RPC.
- Gives you insights on the value that every client brings to your marketing agency
- Allows you track the highs and lows in revenue from every client over a period of time and find out if you are over- or under-servicing your clients
- Provides you with the insights with which you can make decisive changes to your marketing strategy and business model and find ways to increase your total revenue
- Enables you to set more accurate business goals and targets
You can calculate RPC by dividing the total revenue by the number of clients you have:
RPC = Total revenue/No. of clients
For instance, if your total annual revenue is $1M and you have 20 clients, then RPC = $1,000,000/20 = $50,000 per annum.
3. Gross Margin
When you are running a marketing agency, you have to make sure that your pricing is perfect. That is crucial for your profitability. Gross margin is one of those crucial marketing agency KPIs that helps track your profitability.
Measuring gross margin helps you...
- Fix the right rates for your services
- Track profitability over time
- Identify how much profit you gain from every job you take on from every client
- Determine which services you offer provide you with the most and least profits
- Make data-driven decisions on cutting costs and achieving profitability
You can calculate gross margin by subtracting your cost of goods sold and labor costs from your gross income, which is the revenue that is obtained after paying for pass-through expenditures incurred (such as the advertising slots in a newspaper, sponsored posts on social media, etc.):
Gross Margin = Gross Income - Cost of goods and labor costs
For instance, if your gross income over a month is $100,000 and the cost of goods sold and labor costs amounts to $45,000, then Gross Margin = $100,000 - $45,000 = $55,000, or Gross Margin % = $55,000/$100,000 x 100 = 55%.
4. Net Profit Margin
Net profit margin is one of the most important marketing KPIs. It helps you measure the profits that your marketing agency has made after paying for all the expenses, including material and labor costs, operating expenses, taxes, and overhead expenses.
By measuring net profit margin, you can...
- Ensure efficiency and profitability
- Make sure that your pricing strategy is right
- Improve your bottom line in the long term
- Benchmark against industry standards
- Give your investors and other stakeholders key insights on the performance of your marketing business so they can make informed decisions
You can calculate net profit margin by dividing the net profit, which is the difference between total revenue and total expenses, by the total revenue.
Net Profit Margin = (Total revenue - total expenses)/total revenue
For instance, if your total revenue per month is $100,000 and your total expenses per month is $75,000, then Net Profit Margin percentage = ($100,000 - $75,000)/$100,000 x 100 = 25%.
5. Marketing-Qualified Leads (MQLs)
In the digital world, achieving sales conversion is a challenge. Generating leads, nurturing them, and leading them to the sales funnel requires constant effort and marketing communication in the form of sharing knowledge resources, product recommendations, reviews, offers, etc. through various channels.
At the same time, marketing efforts need to be targeted and precise. Sending emails to contacts that are not interested in even opening the email costs resources without bringing any tangible benefit to your business. That's where one of the important digital marketing metrics comes into play: Marketing-qualified leads.
Marketing-qualified leads are the contacts, leads, and potential customers who consistently engage with your marketing initiatives and show interest in the products you are marketing.
MQL is a metric that helps tell you...
- The number of prospective customers you may have at any given time
- The potential sales that you may be able to achieve in the near future
- The effectiveness of your marketing campaigns aimed at lead generation
- Your ability to collect high-quality leads
Leads may be considered Marketing-qualified when they...
- Open your marketing emails regularly
- Go through your product page
- Sign up for your newsletter
- Ask about your company or products
You can measure Marketing-qualified leads only by observing the customer journey and tracking the behavior of leads on your site.
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There are many marketing metrics that agencies should track to improve profitability. Whether you are looking to measure and track progress of your business to identify areas that need improvement or you need to be alerted when performance is going down, the metrics outlined in this article can help you.
More Resources on Marketing Agency Metrics
The Four Benchmarks of an Agency's Life Cycle—And How to Profit From Them
Content Marketing Agency Benchmarks: Pricing, Production, and Metrics
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