Agency client metrics help you to manage how your agency delivers what your clients expect and will play a large part in determining your ability to grow and your eventual outcomes. You need to know just how you’re doing and this requires a set of agency client metrics. Without this you could not only be leaving considerable value on the table, but you could fall short on client expectations and forego one of your most powerful referral opportunities.
With all the moving parts that comprise an agency, it requires effective management and effective management requires measurement. This series will uncover and explain the central metrics for your agency and will help you manage more effectively. This is the fourth video on agency metrics; each one dealing with one of the six agency measurement domains. If you have not seen the preceding videos, you can view them at cremabusiness.com.au
A fundamental principle at play when dealing with metrics, is the adage ‘what is not measured cannot be managed’. This concept will add a lot of depth and context to the value of the metrics I am about to discuss.
Why Agency Client Metrics?
Client metrics are super important for two principal reasons:
- They give you a measure of how well you are serving your clients and
- They equip you to maximise the value contribution of each client to your firm.
It’s a generally accepted fact that the cost of getting incremental business from an existing client is far lower than getting business from a new client. Some say as much as 5 times cheaper.
Having worked with many agencies, I’ve observed that in general, there is far more emphasis on winning new business than there is on developing repeat business. Not to diminish the importance of new business, the cost benefit of improving revenue from client retention versus new client acquisition is substantial. You can demonstrate this to yourself easily with a simple spreadsheet exercise.
As my point of departure for this video, I’m going to concentrate on the use of client metrics for maximising client lifetime value. I always find this exercise to be highly valuable work with my clients, as this can add a great deal of value to the bottom line.
As in previous videos, we want to do this exercise using the principle of ‘minimum metrics’, that is using the fewest metrics we can to derive the most benefit.
An important use of these metrics is to use the data as a management feed-forward mechanism, so that you can improve profits and increase business value as a direct result of taking action based on better information and been thinking.
Specific client metrics that will make sense to you in the context of your agency will vary according to the nature of the services that you provide.
For some agencies your services might generally comprise short-term projects. For others it may be a longer-term proposition. Whatever the case may be, in general, all clients are concerned with obtaining a result that is substantially greater than the cost. So it stands to reason that if your agency’s efforts are generating considerably more value than what they cost, they are going to stay clients!
So the number one agency client metric that you need is something that will provide you a measure of your client’s ROI, return on investment. Their investment in your agency. But obviously that’s not the whole picture.
Whilst being a client of your agency may make sense to them from a financial point of view, there could be a number of other reasons that could result in your firm not being able to capitalise on an existing client relationship, or even maintain them as a client. So, a retention metric is vitally important. The simplest way to do this is to measure the length of time of the engagement. This could simply be a measure of the number of months that you serve them.
If you record this for every client then you’ll be able to get an average engagement length and from this, see how your agency is tracking over time and how specific clients fare against the average. Once you have this, then it will be easier and more meaningful to develop a range of retention tactics to improve performance in this area.
Closely allied to this concept is loyalty. This is a measure of how many times you get repeat business from a given client. If this makes sense in the context of your agency, then this is certainly something to be measuring. From this you can calculate the ‘repeat client concentration’, the ratio of returning clients to all clients. This is one of the agency client metrics that would be particularly valuable from a business valuation standpoint.
For multi-service agencies two important agency client metrics are:
- incremental or add-on sales value, and
- cross functional sales value.
These will directly measure the effectiveness of your selling and account management capability. Cross an add-on selling could significantly impact the lifetime value of a client.
Account management cost
Closely allied with this is another important metric: account management cost. Unlike other delivery related costs which are directly recoverable, for example the wages of the people doing the work on behalf of a specific client, account management costs are generally not recoverable.
Net Promoter Score
At the end of the day you want to make sure your agency is doing a great job in servicing your clients and your clients are the ultimate judges of this. So the metric that will have the greatest impact on your business will be the NPS or Net Promoter Score. It’s this metric that will define your agencies refer-ability and the ability to create a reputation.
It may not be easy to see how your agency will benefit from using some of the agency client metrics discussed, particularly if they are viewed in isolation. The real value comes from having the numbers readily available and regularly reviewing them as part of your regular management activity, and also analysing the trends in the data. Without this data, decision making on a very important aspect of agency operation could be made much more difficult or may perhaps never even happen.