Episode Details

Do you use your bank balance to gauge how well your agency is doing? Do you know and understand your key marketing agency financials? Or are you making business decisions blindly? A solid handle on financials and forecasting is one of the best things you can do not only to see where your agency is at but also to make decisions for the future.

In today's episode, we'll cover:

• Does your agency make proactive decisions?
• 5 financial benchmarks every agency should maintain.
• How to use benchmarks to plan for the future.

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Today I sat down for an informative discussion with two men who really have a handle on agency finances. Adam Stoker is the president and CEO of Relic and EKR. Nate Jenson is partner at an outsourced CFO agency and the founder of Agency Dad. Agency Dad is an accounting solution focused on helping marketing agencies make better decisions based on their financials. They're here to talk about the key numbers your agency should be looking at and how you can use this data to help your agency grow.

Does Your Agency Make Proactive Decisions?

When Nate started working with Adam, his agency was struggling. He had a revolving door of bookkeepers who could barely keep the books straight, let alone help him plan for the future. Nate says one of the biggest flaws agency owners have is making reactive decisions instead of being proactive. He says when you understand finances and what you are actually looking at, you can make better decisions. You have to establish benchmarks. This way you know what you should be spending, where you are actually spending, and where you have room to make cuts.

In the same line, you need to stop making decisions with your gut. Say, for example, you notice one of your teams is running a little ragged — they're obviously stretched thin. The gut-jerk reaction is to hire more people to take on some of the extra work. But is this the right choice? With metrics, you can see whether your team is busy because you're not charging enough, people are misusing their time, or if you really do need to hire more.

5 Financial Benchmarks Every Agency Should Maintain

Nate says having cash on hand is an important metric to look at, but it only tells you where you are at this exact moment. Benchmarks and KPI's help you plan for the future. In general, there are certain benchmarks all agencies should work towards. If you are way off, it's time to make a change. According to Nate, these are the percentages you should be hitting in each business expense category.

• 25% profit (EBITDA)
• 55% compensation
• 5% marketing
• 5% rent
• 10% other general admin costs

Sure, there's a little wiggle room. But you really want to stay as close to these numbers as possible. This is why having a good bookkeeper is really important. These numbers mean nothing if the data entry is not accurate. Don't skimp in this area.

How to Use Benchmarks to Plan for the Future

A lot of the time, agencies think they are at a certain level. When, in reality, they have no idea what will happen tomorrow. When COVID hit in March 2020, Adam and Nate sat down and looked at where they had room to cut. The sudden change in economic conditions greatly affected the agency's clients. They made the decision to cut employee wages (and their own) by 10%. But because they had this foresight and were able to tr