There are a multitude of metrics an agency can track to gauge the health of its finances. This article will focus on three that impact profitability.
Whether you are a sole proprietor or a large holding company, these metrics are relevant for your success. This metrics are important if you are at the forefront of automation and artificial intelligence or you are solely basing invoices on billable hours.
Utilization: Measuring Billable Capacity
The first metric we recommend tracking is utilization. Simply put, this is a ratio that calculates each employee’s billable hours divided by total hours for a specific time period.
A healthy agency would have utilization of between 75%-85% across all billable employees, with more senior employees having fewer billable hours and junior employees having a higher percentage of billable hours.
This metric helps track if employees are under-utilized or over-utilized. Under-utilized can be a drag on profitability. Over-utilized can be a drag on creativity. A healthy agency strives for a healthy utilization percentage.
Revenue per Employee: Understanding Team Productivity
The second metric is revenue per employee. This goes hand in hand with utilization. Since some agencies work on fixed-fee arrangements or have deployed artificial intelligence, the billable hour no longer accurately measures the firm’s success as it once did.
Simply taking your revenue and dividing it by the number of employees can identify how much revenue you generate per person. This number can vary significantly based on headcount, overhead, and how an agency tracks hours. A healthy revenue per employee would be approximately $200,000 or higher.
Operating Profit Margin: Tracking Overall Profitability
The last metric for today is an operating profit as a percent of revenue. Divide your operating profit by revenue. This will tell you if you have the right mix of revenue, billable hours, and overhead expenses to generate a positive return. It will also indicate if you are properly pricing in technology and overhead costs.
A healthy agency will generate a 20% plus profit margin. An agency with spectacular client relations, a rock star workforce, and best-in-class ideas can generate 30% or more.
Using Metrics to Improve Agency Performance
Tracking these metrics consistently gives agencies a clearer view of what is driving profitability and where adjustments may be needed. Utilization, revenue per employee, and operating profit margin each tell part of the story, but together they can help agency leaders make smarter decisions about staffing, pricing, technology investments, and growth.
Questions? Contact Kevin Besikof, Partner, Eisner Advisory Group LLC
