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.
Dom has spent nearly thirty years as a marketer starting his career in creative communications agencies before starting a business which he built it from the ground up and exited in 2009. He then consulted to tech and service companies before putting Selbey Anderson on the launch pad. Today, he leads development of the group strategy, M&A and performance.