Like most people I got into the marketing business because I love creativity. At the beginning of my career that meant copywriting, working with creative and art directors and flexing the left side of my brain graphically. As I come to the autumn of my career, invariably I spend more time thinking numerically, which I really enjoy. But there aren’t many agency leaders that enjoy Excel, delight in double entry book-keeping, or get fun from forecasting.
It turns out that there are consistent performance indicators that agency leaders can use virtually to ensure financial security. In my travels as an M&A person, I’m surprised to find that not many people know them. Moore Kingston Smith is, after all, the leading financial expert in this area and the annual survey should be a bible for anyone involved in the management of agencies.
In case you haven’t come across them, I’ve laid them out here. But, don’t see this as a spoiler! There is plenty of other really important stuff to listen to in Paul’s podcast. If you have the time, I thoroughly recommend you listening to it because Paul explains a lot of context around these numbers.
- Staff costs as a percentage of Gross Income: total employment costs should be no more than 55% of gross revenues. 60% is the non-stretch target. (Gross income is revenues minus bought in costs)
- Gross income per head: target gross income per head should equal £120,000 or more. The non-stretch target is £100,000
- Overhead cover: companies should have three months’ worth of overheads (as a minimum) in net current assets on the balance sheet.
- Operating profit: agencies should target an operating profit of 20%.
- Revenue growth: agencies should be targeting positive revenue growth. In normal times, growth should exceed 10% per annum.
I’ll look at each of these numbers in turn in separate blogs in the future.