TL;DR

• The first step to triaging an agency is assessment via benchmarking.
• First, focus on a high-level (not exhaustive) list of metrics you can benchmark against.
• For revgen, we look at:
  1. Revenue growth
  2. Hourly rates
  3. Rev/FTE
  4. New clients
  5. Client tenure
  6. Client concentration
• For Operations, we evaluate:
  1. Employee growth
  2. Utilization rates
  3. Project load
  4. Employee churn
• The financial metrics we cover are:
  1. Days sales outstanding (DSO)
  2. Cash on hand
  3. Operating expenses (OpEx)
  4. Revgen investment level
  5. Margins
• Evaluating those should give you enough direction on where to dig deeper.
• I’ve published data on a number of these in a few places:
  1. ​A previous newsletter​
  2. ​In our industry primer​
  3. ​In our State of Digital Services Report​
• I’m not reopening our benchmarking service broadly, but if you’d like a custom benchmark run for your shop, reply to this email, and we’ll set it up.

Agency Triage: Part One Assessment

The easiest way to identify issues at an agency is benchmarking.

It’s one of the first steps I take when building growth strategies because it tells me where to dig deeper.

Here’s what I evaluate, some questions I ask, and some notes on implications:

Revgen

Revenue growth

• How does this compare to industry averages? Quantify agency potential.
• How does this compare to leadership’s goals?
• How does it compare to employee growth? Is Rev/FTE expanding/contracting? Can they support that level of revenue with that employee base?

Hourly rates

• How has this trended over recent years? Why?
• How is this influencing revenue growth? Compare it to new clients.
• Compared to margins, is there an issue with rates or project efficiency?

Rev/FTE

• How’s this sit vs. the industry average? Quantify agency potential.
• How has this been trending in recent years?

New clients

• Are they bringing in enough new business?
• Is it the right business?

Client tenure

• How does this compare to industry averages? Quantify agency potential.
• How does it compare to new client adds? Are they having to backfill with adds?
• How does this compare to margins? The data says longer tenure = higher margins.
• How’s this trending vs. margins? Are new clients higher/lower margin?

Client concentration

• Are they overexposed to a specific client?
• How’s this track with revenue growth and margins? Is one client the main driver?
• Compare to project load: Are they serving too many small clients?

Operations

Employee growth

• Used for revenue comparison.

Utilization

• How does this compare to industry averages? Quantify agency potential.
• Compare to margins to see if there’s an efficiency issue.
• How does this look vs. employee churn? Burnout?

Project load

• Compare to utilization rates and employee churn to see if there’s an issue with PM.

Employee churn

• How does this compare to industry averages? Quantify agency potential.
• Compare to margins. Is churn causing profitability issues?

Financial

Days sales outstanding

• Comp. to industry averages. Quantify agency potential.
• How does this compare to cash on hand? Is a high DSO causing risk-aversion and resulting in a higher cash on hand balance?

Cash on hand

• How does this relate to growth? Are they running too conservatively/risky?

Operating expenses

• Compare to revenue level. Is this an appropriate level of support spend for the revenue they’re generating?
• Compare to margin goals. Do they need to grow into this OpEx spend or shrink OpEx to meet the current revenue level?

Revgen investment level

• How does this compare to revenue growth?

Margins

• How does this compare to industry averages? Quantify agency potential.

That’s not an exhaustive list, and it’s not meant to be.

We’re doing the initial tirage here.

We need a high-level scan to guide the next level of evaluation. After doing this 100+ times over the last decade, this list has surfaced a lot.

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Where to Find the Data

Unfortunately, quality data on these isn’t easy to come by. This is the main reason why Promethean exists. Back when we started in 2015, there was even less available.

I published some data in a previous newsletter.

Then, there’s our industry primer, which has more and a number of time series for historical reference.

Finally, we do a State of Digital Services Study annually that hits most of the high points. (keep an eye out; we’re fielding this year’s study in a few weeks).

Those should get you most of the way there.

After saying “I used to offer benchmarking” in my last newsletter, I received a few replies asking when I’d reopen the service.

The issue is that it’s a fully manual process.

I’d spend a sizable amount of time assessing each metric and then evaluating them as a whole so I could provide actionable guidance.

That said, I’m not reopening the service broadly.

However, if you’re reading this newsletter and need benchmarks to help triage your agency, reply to this email, and we’ll set something up. It’ll follow our standard benchmarking service, and you can find all the details here.​

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What if We Don’t Track Those?

Some shops, especially those needing tirage, aren’t tracking many of these metrics.

What to do in that case will have to wait until Agency Triage Part Two: Revgen.

The spoiler’s in the title.

Start with (profitable) revgen.

I’ll dig into some of the core components of agency revgen and tests you can run to see how your agency stacks up.

✌️Until next time,

– Nick