7 Behaviours of Underperforming Agencies #1 - Dodging the DataOct 20, 2022
2+2 = 5
Or it should.
Orwell used this sum to illustrate the dystopian lies of society in his novel 1984.
Yet, it perfectly illustrates the function data should have in business: the creative - and often unexpected - outcomes that result from its collection and analysis.
Of course, the correct answer is four, but the creative answer - what you do as a result of the data - is anything but.
And this is why numbers are important. Not for their own sake, but for the story they tell about your agency, and how analysis of them can help you plot its next chapter: moving your agency to innovative, interesting and profitable new places.
In this seven-part mini-series, we flag the behaviours we see time and again in underperforming agencies and give you our take on how to correct them.
This week’s blog explores why data - and what data - should drive decisions that direct your agency to higher revenues and long-term security.
If the pace of your agency’s growth, client onboarding, staff retention or churn are concerns, it likely won’t take much detective work to sleuth out why if you dig into the right metrics, observe changing trends or seek new data to give you the insights you need to create impactful change.
As Sherlock Holmes declared: “It is a capital mistake to theorise before one has data.”
2+2 = 5? It’s elementary…
The numbers you need
Full disclosure: we love data. And you should too. Because if you track the right metrics you can create your KPIs.
According to Mckinsey Global Institute, data-driven organisations are not only 23 times more likely to acquire customers, but they’re also six times as likely to retain customers and 19 times more likely to be profitable.
Underperforming agencies tend not to know their numbers: whether from a refusal to look at them or an inability to assemble or analyse and then act on them, they are blind to key information that tells the story of their agency…its heroes, helpers, threats, surprising plot twists…and have no clue as to the direction it’s heading.
As Suhail Doshi, CEO of Mixpanel states: “Most of the world will make decisions by either guessing or using their gut. They will be either lucky or wrong.”
Not knowing the numbers leaves you vulnerable to unexpected problems, exposed to the need to make reactive, non-strategic decisions, unable to plan ahead.
You need numbers: but which ones?
A starting point for any number naysayer is to grasp the following two fundamental pieces of data that are often misunderstood, confused or even absent from the less effective agency’s strategy and analysis: gross margins and utilisation.
- Gross Margins (contribution margins)
Simply: how much you get paid to deliver your service minus how much you pay out to get it done - in salary or contractor fees. As a percentage of how much you get paid.
If your gross margin sits above 60% then you’re doing well; below 30% and you’re just not going to be able to cover your overheads: will you even be in business in a year’s time?
The amount of hours you have available to be billed versus the hours you actually have billed. I.e your efficiency. Between 60-75% utilisation is about right for a high-performing agency. If you don’t know you’ve a problem with productivity, then you’re clearly unable to address it.
Understand both of the above numbers, then track them like your heartbeat.
Look before you leap
An inability or unwillingness to analyse the numbers means you are flying blind with your strategy and at best allows only fumbling forward motion.
Looking at the numbers allows you to see the truth about where you really are and LEVERAGING them enables you to make decisions to forge faster growth to reach your goals.
Look at three areas:
- Look around
Gut instinct is good in many instances, but give up on your ‘gut’ when it comes to pricing. Research the true market value of the service you’re delivering. Facts are where it’s at when it comes to positioning and pricing your services.
- Look ahead
You need to use numbers to forecast: capacity planning, revenue, cash flow. You can then deal with problems before they happen and feel something the ‘ostrich approach’ never affords you: security.
- Look back
Tracking where you've come from alerts you to growth stagnation, or allows you to dial into positive changes in the business' metrics and lean into these revenue streams, or actions. Deliberate, methodical review adds weight and rigour to the decisions you make: it's all grounded in data.
Count on Accountability
A significant proportion of business entrepreneurs (46%) don’t have any form of business education… so don’t beat yourself up if you’ve been shy of number-crunching to date. At least you’re here. And can take action.
The first leap you make is to employ someone to remind you to look consistently, someone who has a grounding in this stuff: a financial director or a really great accountant.
As their name implies, they shouldn't just do numbers, but give you ACCOUNTABILITY.
Beyond simply ensuring your compliance, your accountant (or FD) should hold you to account on the data. Pulling you in to review it and analyse trends on a regular basis.
As well as the headline stats of gross margin and utilisation, create and regularly review a BMI dashboard of your agency:
- 4 or 5 numbers on finance
- 4 or 5 on sales and marketing
- 4 or 5 for ops and deliver
- 4 or 5 that measure teams and people
- Use lagging indicators: something that measures what’s happened before
- use leading indicators: numbers which monitor actions / inputs.
It’s what you do with the data that will deliver tangible results - data drives decisiveness and enables you to make deliberate, educated decisions, on purpose, at specific points.
While you got into the digital agency game to create value for clients, and numbers might be anathema to the creative spirit, the truth is that understanding them expands creative freedom.
Data-driven strategic decisions better serve your staff, your clients and yourself - leveraging the data for meaningful improvements in your business: return you more profit, faster growth and more bandwidth for the work that gives you purpose.
Want to talk about your KPIs and financial strategy, but can’t afford an FD yet? Read more about what support GYDA can give you and our Peer-to-Peer learning options here: https://www.gyda.co/what-is-a-mastermind