The Only 3 Metrics That Matter For Your Agency Business

Over the years, I’ve tried lots of different tracking systems to monitor my progress in my agency.

For Stodzy, I spent weeks creating custom dashboards in my HubSpot account. One time, I even created a custom spreadsheet where every morning I would punch in all the numbers from the bank account and then punch in my expenses, and it would automatically update my profit margin.

“What gets measured gets done.” These are words I truly believe in.

But as I’ve continued on my path, I’ve also discovered plenty of times when there is paralysis of analysis, meaning that people look too much into the numbers and it stops them from making decisions.

You don’t need to make things harder than they need to be. In order to run a successful agency, there are only 3 numbers you need to know.

Today, I will tell them to you.

LFG. 🔥

1. LTV to CAC Ratio

First, let’s define these terms.

LTV = Lifetime Value. Put simply, how much money do you earn on average from a customer? You find your LTV by calculating the average monthly revenue and multiplying it by the average length of time a client stays with you.

So let’s say you average $2,500 a month, and your clients stay with you for for average of six months. Then your LTV is $15,000.

2,500 × 6 = $15,000

CAC = Customer Acquisition Cost. Put simply, how much money does it cost you to acquire a customer?

I don’t advertise, so my CAC is very low. I essentially have a CAC of $0, but if I wanted to nail it down, I would put an hourly rate on my time and then figure out how much time I typically spend closing deals.

However, in the past, when I managed an in-house advertising budget, I had a CAC number.

If you’re just getting started, I highly recommend you put a value on your time and calculate a monthly CAC number that accurately reflects the effort and cost it takes to acquire new business.

Once you have these numbers, simply divide your LTV by your CAC to find your ratio.

For every $1 you spend in CAC, you want a $4 or $5 return.

If you’re 1 to 1, you’re breaking even and will probably go out of business. If you’re 10 to 1, you’re being too cautious and need to invest more in your business.

5 to 1 is the sweet spot.

2. Stage 2 Lead to Close Ratio

There are two types of leads.

Stage 1 leads are anyone you can contact. Every comment on LinkedIn, every DM, and every business relationship you have in your phone is a lead. These are stage 1 leads. It’s simply a person you can reach out to.

Stage 2 leads are worth tracking. They’re not yet a prospect, but they’re worth adding into your CRM.

Stage 2 leads should be taken seriously. You need to measure how many stage 2 leads you need to work through in order to close a deal.

If you have 100 stage 2 leads and only close 1 deal, you don’t have a marketing problem, you have a sales problem.

If you have 10 stage 2 leads and close 2 deals, then you’re crushing sales and should seriously consider scaling by ramping up your lead generation.

For every 10 stage 2 leads collected, you should be closing 2 to 4 deals.

One more thing to consider is the strength of your qualifying system. More leads isn’t always better. Sometimes the best thing you can do is create a filter that disqualifies leads who don’t fit your program or aren’t high intent buyers.

I teach all of this in my sales training program. You should check it out.

3. Profitability

Any time you see people on Twitter talking about revenue numbers, it’s probably because they don’t make good profits.

Look, I’m not a high-tech billionaire, and frankly, I don’t know anything about building a company by borrowing money and intentionally being unprofitable for the sake of growth.

That lifestyle has never interested me.

I like profits. I like cash money in my bank account and I like reinvesting that money into other cash-flowing assets.

I want my bank account to go up, not down.

For me, I have a strict policy of maintaining a 50 percent profit margin, at least for my agency.

If my profit margin drops below 40 percent, then I’m setting myself up to be overstaffed, overstressed, and working with low-quality clients.

Tracking profits is easy.

How much money did you make divided by how much you spent.

Personally, I track my profits pre-tax, since I put money in a different bank account every week to prepare for the tax man.

In Conclusion

I love agencies because they are great at generating cash flow.

An agency is not going to create 1000X returns like Facebook or Airbnb. If you want to live that kind of high-risk lifestyle, then this is not for you. You should be a silicon valley CEO of start a hedge fund.

But if you want to make a lot of money, build an ecosystem that pumps cash flow, and put yourself in a position to build a portfolio of assets, then this way of business is perfect for you.

With that said, you can’t do it if you don’t know your basic numbers. You don’t need a team of accountants and you don’t need insane spreadsheets. You just need to be organized and intentional about your choices.

Do that, and you will crush it.

Love you guys. Talk to you tomorrow.

Tim

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