Gross Profit Margin
Gross Profit Margin is ultimately the most critical metric to be tracked within your agency. It answers the question: “Are we providing our services to customers in a profitable way?” Pricing in order to maintain sufficient margins is especially difficult in the world of advertising. Unforeseen expenses and changes in client budgets can quickly turn a profitable project into a loss. Maintaining an appropriate utilization across the organization and tracking project by project profitability helps to ensure that your gross profit margin as a company stays on track.
- 32.9%
- 46.5%
- 60.1%
- > 61%
The strongest brands out there are the ones that are relentlessly relevant.”
Project Profitability
With the advent of digital media, perhaps no industry was changed more than Advertising. The well-liked Agency of Record model has been largely replaced with a project-based approach, necessitating agencies to adapt or fall victim to the new highly competitive advertising landscape that exists today. Because agencies can no longer rely on lengthy customer relationships with steady work, it’s critical to ensure the projects you undertake are profitable and efficient. It’s vital to track your organization’s profitability as a whole, but to also understand profitability at the client and project level as well in order to make necessary adjustments that can have a company-wide impact.
- 3.32%
- 7.13%
- 11.1%
- 15.07%
Utilization
As an advertising agency, your most important assets are your employees and their skillsets. Utilization rate indicates how much time your employees are spending on client creative work versus internal work. Optimizing employee utilization maximizes profits and allows your business to take on more projects, hire the best talent and attract high-caliber clients. It’s important to set realistic utilization targets for your employees and compensate them for their achievements. A utilization target that is too high may result in employee burn-out, while a target that is too low won’t incentivize employees to be more productive and reach their full potential. Having a clear view into your company’s utilization rate is critical to recognizing inefficiencies, improving staffing, identifying training opportunities and increasing profitability.
- 62.8%
- 70%
- 72.7%
- 78%
Revenue Growth
0%
6.09%
13.5%
20.14%
Revenue Growth
Utilization
62.8%
70%
72.7%
78%
Utilization
Gross Profit
Margin
32.9%
46.5%
60.1%
> 61%
Gross Profit
Margin
Spend Under
Contract
Decentralized buying
40 – 60%
60 – 85%
> 85%
Spend Under
Contract
Project Profitability
3.32%
7.13%
11.1%
15.07%
Project
Profitability
Days Sales Outstanding
146 days
45 days
32 days
< 30 days
Days Sales
Outstanding
Finance FTE per $50M Revenue
> 3.5 FTE
3.5 FTE
2.6 FTE
1.8 FTE
Finance FTE per
$50M Revenue
IT FTE Per $50M Revenue
> 4 FTE
4 FTE
2.9 FTE
1.8 FTE
IT FTE Per $50M Revenue
Source(s): Finlistics
Parameters
Foundational
Your business may just be beginning to track this metric, perform this business function or identified this as a problem. Improved execution in this area should be a high priority.
Competitive
Your business is competitive in this area, but there’s still room for advancement. Consider investments to improve related operations to achieve better results.
Best in Class
Your performance in this area is considered best in class and is superior to the average company in your sector. You’ve laid a solid foundation in this business function, and the next step is optimization.
Transformative
You’re achieving the optimal results for this metric. Your business processes in this area are highly efficient and stand out against competitors. Keep investing in this area to maintain these results.
