Want to get a handle on your marketing agency financials?
You’ve come to the right place.
We’re going to break down the 11 top financials you should know and track for your marketing agency.
I’ve read 100s of financial statements for my companies and have seen the value in knowing your financials when it comes time to exit your business.
In this article, we’ll cover the following metrics:
- Monthly Recurring Revenue (MRR)
- One Time Revenue
- Gross Margin
- COGS (As an Agency)
- Monthly Expenses
- Labor Cost
- Net Profit Margin
- Client Churn Rate
- Customer Acquisition Cost (CAC)
- Lifetime Value (LTV)
- Refund Rate
Let’s dive into each of them!
11 Most Important Marketing Agency Financials to Know
Study these 11 financials on a monthly basis to understand how your marketing agency is performing.
These metrics can help you:
- Make better business decisions
- Reduce expenses that you’re not using
- Increase revenue
- Keep your clients happier
- Make more profits
1. Monthly Recurring Revenue (MRR)
MRR is a key metric for any business that provides ongoing services or subscriptions, and it’s especially relevant for marketing agencies.
MRR is simply the total amount of revenue that you expect to receive each month from your ongoing clients.
For example, if you have 10 clients who each pay you $1,000 per month for ongoing marketing services, your MRR would be $10,000.
The key here is that this revenue is recurring, meaning that it’s not a one-time payment but rather a consistent stream of income that you can rely on from month to month.
MRR is important for a few reasons:
- First, it provides a more predictable revenue stream than one-off projects or campaigns. When you have a solid MRR base, you can better plan and forecast your cash flow, which is critical for any business.
- Second, MRR helps you understand the health of your business. If your MRR is increasing month over month, you know that you’re growing and adding more ongoing clients. If your MRR is stagnant or declining, it’s a red flag that you need to focus on retention and/or acquiring new clients.
- Finally, MRR is a key metric that investors and potential buyers will look at when evaluating your business. A strong MRR base demonstrates that you have a stable and reliable revenue stream that’s not dependent on one-time projects or campaigns.
2. One Time Revenue
One-time revenue is any income that comes from a single project or campaign, rather than ongoing services or subscriptions.
For a marketing agency, this could include things like website design, branding, or a one-off social media campaign.
One-time revenue can be a great way to boost your cash flow and provide a source of income between ongoing client work.
However, it’s important to remember that one-time revenue is not as predictable or reliable as MRR.
For example, if you land a large website redesign project that brings in $50,000 in one-time revenue, that’s great news for your business. However, once that project is complete, you’ll need to find another source of income to replace it.
That’s why it’s important to balance one-time revenue with ongoing services and subscriptions.
By doing so, you’ll create a more stable and predictable revenue stream that can sustain your business over the long term.
One way to do this is to use one-time projects as a way to upsell clients into ongoing services. For example, if you design a website for a client, you could also offer them ongoing website maintenance and optimization services. This way, you’re not just relying on one-time revenue from the initial project, but also building a relationship with the client that can lead to more MRR over time.
3. Gross Margin
Gross margin is a financial metric that shows the profitability of a business by measuring the difference between the revenue generated by a product or service and the cost of producing or delivering that product or service.
For a marketing agency, gross margin represents the profit you make on your services after deducting the direct costs associated with delivering those services.
To calculate gross margin, you need to know your total revenue and your cost of goods sold (COGS). COGS includes the direct costs associated with delivering your services, such as salaries and benefits for your employees, software and technology expenses, and any outsourced services or freelance work. Once you have these numbers, you can subtract your COGS from your total revenue to get your gross margin.
For example, if your marketing agency generates $100,000 in revenue and your COGS is $50,000, your gross margin would be $50,000 or 50%.
A healthy gross margin is important for any business, including marketing agencies, because it indicates how efficiently you’re able to generate profit from your services.
If your gross margin is too low, it may be a sign that you need to increase your prices, reduce your costs, or adjust your service offerings.
4. COGS (As an Agency)
COGS, or Cost of Goods Sold, refers to the direct costs that are incurred in delivering your services as a marketing agency.
These costs include all expenses related to creating, producing, and delivering your services to your clients.
In the case of a marketing agency, the COGS may include expenses such as salaries and benefits for your employees, outsourced services, software and technology costs, and any other direct costs associated with delivering your services.
It’s important to calculate your COGS because it allows you to understand the true cost of delivering your services, which in turn can help you price your services appropriately and ensure that you’re making a profit.
For example, let’s say that you run a marketing agency that provides content marketing services to your clients. Your COGS may include the salaries and benefits for your content creators, the cost of any software or tools you use to create content, and the cost of any outsourced services such as graphic design or video production.
To calculate your COGS, you would add up all of these expenses and then divide by the total number of clients or projects you’re working on. This will give you a clear picture of the direct costs associated with delivering your services.
5. Monthly Expenses
Monthly expenses refer to the ongoing costs that a marketing agency incurs to keep the business running.
These expenses may include: rent, utilities, salaries and benefits for employees, marketing and advertising expenses, software and technology costs, and any other recurring expenses necessary to keep the business operating.
As a marketing agency owner, it’s important to keep a close eye on your monthly expenses to ensure that you’re managing your cash flow effectively and staying within your budget.
By tracking your monthly expenses, you can identify areas where you may be overspending and take steps to reduce your costs.
For example, you may find that you’re spending more than you need to on software and technology costs. By switching to more cost-effective tools or negotiating better rates with your vendors, you can lower your monthly expenses and improve your profitability.
In addition, tracking your monthly expenses can help you make informed business decisions.
For instance, if you’re considering hiring a new employee or investing in a new marketing campaign, you’ll need to factor in the additional monthly expenses associated with those decisions.
By keeping a detailed record of your monthly expenses, you’ll be able to make more accurate financial projections and plan for the future of your business.
6. Labor Cost
Labor costs refer to the total amount of money that a marketing agency spends on salaries and benefits for its employees.
This includes not only the salaries of full-time employees, but also the wages paid to part-time employees, freelancers, and contractors who work on a project basis.
As a marketing agency owner, labor costs are one of your biggest expenses, and it’s important to manage them carefully. This means not only hiring the right employees and contractors, but also managing their time and productivity effectively.
One way to keep labor costs under control is to optimize your staffing levels. This means hiring the right number of employees and contractors to ensure that you have the capacity to handle your workload, but not so many that you’re paying for idle time.
Another way to manage labor costs is to provide your employees with the right tools and resources to do their jobs efficiently.
This might include investing in software and technology that automates repetitive tasks, or providing training and development opportunities to help your employees work more effectively.
7. Net Profit Margin
Net profit margin is a key financial metric that measures the profitability of a business.
- It’s calculated by taking the net profit (total revenue minus total expenses) and dividing it by the total revenue.
- The result is expressed as a percentage, and represents the amount of profit that a business generates for every dollar of revenue.
For a marketing agency, net profit margin is a crucial metric that measures the effectiveness of your business operations.
A healthy net profit margin indicates that you’re generating enough revenue to cover your expenses and still make a profit.
To improve your net profit margin, you can focus on reducing your expenses, increasing your revenue, or both. This might involve finding ways to streamline your operations, improving your sales and marketing efforts to bring in more clients, or adjusting your pricing strategy to increase your profitability.
For example, let’s say that your marketing agency has a net profit of $100,000 and generates $1,000,000 in revenue. This would give you a net profit margin of 10%, which means that for every dollar of revenue you generate, you’re keeping 10 cents as profit.
A healthy net profit margin for a marketing agency can vary depending on the size of the business and the industry it operates in, but generally speaking, a net profit margin of 10-40% is considered good.
8. Client Churn Rate
Client churn rate is a metric that measures the rate at which a marketing agency is losing clients over a given period of time.
- It’s calculated by dividing the number of clients lost during that period by the total number of clients at the beginning of that period.
For a marketing agency, client churn rate is an important metric because it measures the agency’s ability to retain clients and generate recurring revenue. A high churn rate can be an indication that the agency is failing to deliver value to its clients or is not meeting their expectations.
To reduce client churn rate, marketing agency owners should focus on providing exceptional service and building strong relationships with their clients. This may involve regular communication, ensuring that clients are satisfied with their services, and providing ongoing support and guidance.
Additionally, tracking client churn rate can help marketing agency owners identify potential issues and take corrective action before they lose too many clients. For example, if you notice that a certain service or product line is consistently losing clients, you may need to revisit your approach and make adjustments to better meet the needs of your clients.
For example, let’s say your marketing agency starts the month with 100 clients, but 10 clients cancel their contracts during the month. This would give you a churn rate of 10%.
A healthy client churn rate can vary depending on the size and nature of the business, but generally speaking, a churn rate of less than 5-10% is considered good.
9. Customer Acquisition Cost (CAC)
Customer acquisition cost is a metric that measures the total cost of acquiring a new customer, including all marketing and sales expenses.
- It’s calculated by dividing the total cost of sales and marketing by the number of new customers acquired during a specific period.
For a marketing agency, customer acquisition cost is an important metric because it measures the effectiveness of their marketing and sales efforts. A high customer acquisition cost can be an indication that the agency is spending too much money to acquire new clients, which can negatively impact profitability.
To reduce customer acquisition cost, marketing agency owners should focus on optimizing their marketing and sales processes, improving their targeting and messaging, and leveraging data to make informed decisions. This may involve experimenting with different marketing channels, refining their messaging to better resonate with their target audience, and using data and analytics to identify high-value prospects.
Additionally, tracking customer acquisition cost can help marketing agency owners identify areas of inefficiency in their sales and marketing processes and take corrective action.
For example, if you notice that a certain marketing channel is consistently delivering high customer acquisition costs, you may need to revisit your approach and make adjustments to improve your results.
For example, let’s say your marketing agency spends $10,000 on sales and marketing over a month and acquires 10 new clients during that period. This would give you a customer acquisition cost of $1,000.
10. Lifetime Value (LTV)
Lifetime value (LTV) is a metric that measures the total revenue a client is expected to generate for a marketing agency over the course of their relationship.
- It’s calculated by multiplying the average revenue per client per period by the number of periods the client is expected to stay with the agency.
For a marketing agency, lifetime value is an important metric because it helps to quantify the long-term value of a client and to guide strategic decisions around customer acquisition and retention.
By understanding the lifetime value of a client, agency owners can make informed decisions around how much they are willing to spend to acquire new clients and how much effort they should devote to retaining existing clients.
To increase lifetime value, marketing agency owners should focus on delivering exceptional service and building strong, long-lasting relationships with their clients.
This may involve regularly checking in with clients to ensure they are satisfied with their services, identifying opportunities to upsell or cross-sell additional services, and providing ongoing support and guidance.
Additionally, tracking lifetime value can help marketing agency owners identify areas of their business that are performing well and areas that may need improvement.
For example, if you notice that certain clients have significantly higher lifetime values than others, you may want to investigate what makes those clients different and look for ways to replicate that success across your entire client base.
For example, let’s say your marketing agency provides ongoing services to a client that generates an average of $10,000 per month in revenue. If you expect the client to stay with your agency for 12 months, their lifetime value would be $120,000.
11. Refund Rate
Refund rate is a metric that measures the percentage of clients who request a refund for services provided by a marketing agency.
- It’s calculated by dividing the number of refund requests by the total number of clients served over a specific period.
Refund rate is an important metric because it provides insight into the quality of the services being provided and the overall satisfaction of clients.
A high refund rate can be an indication that the agency is not delivering on its promises or meeting the expectations of its clients.
To reduce refund rate, marketing agency owners should focus on delivering exceptional service and ensuring that their clients are satisfied with the work being done.
This may involve regularly checking in with clients to address any issues or concerns they may have, providing clear expectations and setting realistic goals, and being transparent about the services being provided and the results that can be expected.
Tracking refund rate can help marketing agency owners identify areas of their business that may need improvement.
For example, if you notice a high refund rate for a specific service or product, you may want to investigate why clients are requesting refunds and look for ways to improve the quality or delivery of that service.
For example, let’s say your marketing agency serves 100 clients in a month and receives 5 refund requests during that period. This would give you a refund rate of 5%.
What Is AccountsBalance?
AccountsBalance is a monthly bookkeeping service specialized for agencies & SAAS companies.
We take monthly bookkeeping off your plate and deliver you your financial statements by the 15th or 20th of each month.
You’ll have your Profit and Loss Statement, Balance Sheet, and Cash Flow Statement ready for analysis each month so you and your business partners can make better business decisions.
Interested in learning more? Schedule a call with our CEO, Nathan Hirsch.
And here’s some free resources:
Knowing your marketing agency financials will take you to the next level.
If you’re looking to scale to 6, 7, and eventually 8 figures with your marketing agency, you MUST know your numbers.
These 11 financials are the key to starting to better understand your monthly numbers.
If you have any questions, reach out to us here at AccountsBalance.
Cheers to your growth!