The six numbers every agency owner should know
You don't need to love maths to run a healthy agency. You just need to watch a handful of numbers. Here are the six that matter, what each one means, and a rough healthy range. If you've never looked at a ratio in your life, start here.
1. Gross margin
What's left from a job after the direct costs, like freelancers and ad spend. If a project brings in $10,000 and the freelancers cost $4,000, your gross margin is $6,000, or 60%. Healthy for an agency is roughly 50% or more. Below that, your work isn't paying enough.
2. Net margin
What's left after everything, including rent, software, and your own pay. This is your true bottom line. A healthy agency often runs around 10% to 20%. Under 5% and one bad month can hurt.
3. Break-even point
The income you need just to cover your costs. Know this and you know how far your income can fall before you're losing money. If your costs are $30,000 a month, that's your line in the sand.
4. Revenue per head
Your total income divided by the number of people. It shows how much each person's work brings in. Watch it over time. If you hire and it drops and stays down, you grew too fast.
5. AR days (how fast you get paid)
On average, how many days clients take to pay. If you invoice $30,000 a month and clients owe you $30,000 at any time, that's about 30 days. Lower is better. High or rising means you're the one funding your clients.
6. Utilisation
How much of your team's time is spent on paid client work versus everything else. Too low and you're paying for idle time. Too high and your team is heading for burnout.
The quick version
- Gross margin: is the work worth it? Aim for 50% or more.
- Net margin: did the business make money? Aim for 10% to 20%.
- Break-even: how far can income fall before you lose money?
- Revenue per head: are you growing well or just growing?
- AR days: are clients paying fast, or are you funding them?
- Utilisation: is your team busy on paid work, without burning out?
Punctual works these numbers out for you and keeps them current, so you can watch them without a spreadsheet.