Taming the Digital Agency Beast: 2 Metrics for Control and Growth

Running a digital agency is anything but a walk in the park. Often born from chance encounters with clients or leveraging in-demand skills, it’s a thrilling, chaotic journey that rarely follows a script. While it’s usually not anyone’s initial dream, it can become a lucrative path to success with the right approach

The Unexpected Rise of an Agency

It typically starts with an individual realizing their talent — in development, marketing, branding, or anything digital — holds significant value. This value can be applied to other companies, who don’t usually have every skill covered. The first client takes a leap of faith, and the entrepreneur unknowingly starts a new path. With successful projects come more clients, and what started as a solo endeavor turns into managing talent, juggling client demands, and meeting deadlines — often fueled by late-night sprints.

Years pass, and the agency owner builds a dedicated team, a passionate crew of 10 wearing multiple hats. It’s a horizontal organization focused on getting things done. Success is measured by two key metrics: revenue coming in, and profit after project completion. Everything else becomes a mix of intuition and creative ideas for boosting the bottom line. While this will work in the short term, the entrepreneur will soon want to get off this chaotic carousel and lead a more fulfilling life.

Charting a Path From Uncertainty to Well-Oiled Machine

By year three, the agency resembles a well-oiled machine with 20 employees in a constant dance of coming and going. New clients arrive, existing ones leave, but revenue fluctuates, and profits remain elusive. This is where most agency owners yearn for a magic solution since hiring a dedicated CFO isn’t exactly on the immediate to-do list.

Enter the Metrics to the Rescue Founders from Chaos

Direct Labor Efficiency Ratio (DLER) and Utilization Cost are the missing pieces to agency success. DLER reveals the profit earned per hour worked on a project, giving a clear picture of the value created. Utilization Cost, on the other hand, calculates how much your team is working on billable projects versus internal tasks, ensuring resources are used effectively.

The Power of Two: Balancing People and Profits

The true magic lies in combining these metrics. They help strike a delicate balance between fulfilling client needs and ensuring your team isn’t overworked. DLER, with its “adjusted profit” focus, prevents overcharging clients. Utilization rate makes sure the team doesn’t get too heavy focusing on internal projects and stays on track adding value to clients. This way, billable hours become a measure of both productivity and employee well-being.

Using These Metrics as Your North Star

These metrics become the captain’s north star, influencing decisions on hiring, firing, project selection, resource allocation, and more. Every financial misstep can be traced back to these metrics, highlighting areas for improvement. They guide you even in seemingly insignificant choices like overtime work affecting DLER or hiring decisions impacting utilization.

See how these metrics can finally give you peace and stability by reading the full version of this article on our blog.