Ad Age’s annual Revenue Report shows agencies in the U.S. saw 9.9% revenue growth in 2022. Worldwide, agencies reported a 7.5% uptick. But, times have changed.
2023 saw layoffs, restructures, and mergers following more pressure from clients and shrinking budgets. In 2024, growth’s only been “modest”.
In this climate, staying on top of agency metrics is more crucial than ever. They’re essential puzzle pieces that help you identify valuable ways to increase revenue and, as a result, drive profit.
But, there are so many metrics, and only so many hours you can spend on them.
In this article, I’ll demystify the key agency performance metrics that impact revenue. For more context on my experience—and how it’s shaped my understanding of these metrics—check out robsayles.com.
To begin, let’s get on the same page, definitions-wise.
In this article 📖
A quick agency metrics definition
It’s important to understand the difference between an agency metric and a key performance indicator (KPI). These are often—to the confusion of almost everyone—used interchangeably.
Here’s the line in the sand:
What is a metric?
A metric is anything you can quantifiably measure.
What is a KPI?
A KPI is a specific metric you’ve decided to track and prioritize because it’s a crucial indicator of success for your agency and tied to your goals.
| Let’s bring that to life:
Example agency goal: Increase MRR from retainer-based business Example metric: New leads per month (tracks something important, but doesn’t directly guarantee higher MRR) Example KPI: Increase average retainer value per month by 10% (measurable, specific, tied to goal) |
With that out of the way, let’s talk about why agency metrics matter and how they help drive revenue.
If you’re more interested in the KPI side of things, this article on choosing the right agency KPIs will help you on your way.
Why agency metrics matter
While creativity and client relationships are key drivers of success, underlying metrics are what determine an agency’s financial health and scalability.
Understanding and optimizing for those core metrics is crucial for driving revenue, increasing profits, and promoting sustainable growth. 
Here are some of the most important agency metrics in my experience, why they matter, and how they can be applied in real-world scenarios.
Part 1: Financial metrics
Financial metrics are the bedrock of any agency’s performance. They offer insights into revenue, profitability, cost management, and overall financial health.
Who owns this metric? The finance team—led by the CFO or finance manager—should own these metrics. They’re responsible for budgeting, financial reporting, and ensuring the agency remains profitable. This makes them the logical choice.
Note: Revenue and profit are related, but not the same thing.
Revenue includes all the money your business brings in.
Profit is how much money your business makes, when expenses are subtracted from revenue.
1. Gross profit margin
Metric type: Revenue metric
Purpose: This metric is essential for assessing how efficiently your agency delivers its services. A high gross profit margin indicates that your pricing is aligned with your costs, allowing for profitable operations.
How to measure it: It’s measured as a percentage of revenue that remains after deducting the cost of services sold.
Formula: (Revenue – Cost of Services Sold) / Revenue x 100
| Example: Take an agency that secures a contract worth $100,000, but spends $70,000 on the costs of services (e.g. ad spend, subcontractors). Their gross profit margin would be 30%.
($100,000 – $70,000) / $100,000 = 0.3 x 100 = 30% If they notice this margin decreasing over time, it might indicate rising service costs or the need to reevaluate pricing strategies. |
2. Net profit margin
Metric type: Revenue metric
Purpose: This metric provides a comprehensive view of your overall profitability. It shows how much of each dollar earned is translated into profit after expenses are subtracted.
How to measure it: It considers revenue remaining after all expenses (this is your net profit), and is measured as a percentage. Expenses may include operating costs, interest, salaries, rent, marketing, and taxes.
Formula: Net Profit / Revenue x 100
| Example: Consider an agency that, after deducting all expenses, ends up with $15,000 in net profit on $100,000 of revenue. Their net profit margin is 15%.
Net profit (revenue – expenses) = $15,000 $15,000 / $100,000 = 0.15 x100 = 15% For reference, the average net agency profit margin was 15% according to Promethean Research. If your margin is lower, it might suggest that operational costs are too high, or that you could charge more for your services. In one agency I worked with, increasing the net profit margin by just 5% through cost controls led to an additional $500,000 in annual profit. |
3. Labor cost as a percentage of revenue
Metric type: Revenue metric
Purpose: Labor costs are typically one of the largest expenses for agencies. This metric ensures that your labor costs are sustainable, relative to your revenue.
How to measure it: It’s measured as a proportion of total revenue spent on total labor costs (which includes employee salaries, taxes, etc.)
Formula: Total Labor Costs / Revenue x 100
Example: A mid-sized agency noticed that their labor costs had hit 60% of their revenue, largely due to overstaffing. By auditing their workforce and adjusting staffing levels, they were able to bring this down to 50%, freeing up more resources to reinvest in growth. Metric type: Cost metric Purpose: This percentage helps you understand how well you’re managing fixed and variable costs. Lowering this can directly increase your net profit margin—see above for more on that. How to measure it: It’s measured as the percentage of revenue spent on operating expenses. Formula: Operating Expenses / Revenue x 100 One agency I advised was able to reduce their operating expenses ratio by implementing a hybrid work model, saving thousands while maintaining employee satisfaction. Metric type: Cost metric Purpose: A low CAC indicates efficient marketing and sales processes, ensuring you can earn revenue from new clients, from the start. How to measure it: It’s measured as an average cost incurred to acquire a new client. Formula: Total Sales and Marketing Expenses / Number of New Clients Acquired $50,000 / 10 = $5,000 = CAC $15,000 – $5,000 / $5,000 x 100 = 200% ROI However, if the CAC were $12,000, the ROI would be significantly less (25%), signaling a need to refine the agency’s client acquisition strategy. $15,000 – $12,000 / $12,000 x 100 = 25% ROI Operations metrics are key to understanding how efficiently your agency runs. They provide insights into the processes that drive daily activities and ultimately affect your bottom line. Owner: Operations managers and the COO should own these metrics, ensuring that daily agency operations are efficient and cost-effective. Metric type: Efficiency metric Purpose: This metric helps evaluate the cost-effectiveness of your client services, allowing you to adjust pricing or service delivery methods. How to measure it: It’s measured as the average operational cost (the amount of money you spend completing work for each client). Formula: Total Operational Costs / Number of Clients You might have 10 clients with more requirements, but they might take up far more of your billable time than others. For example, $5,000 worth. That means each client would have operational costs of $500 each. You might then have 10 other clients who are substantially more self-sufficient whose operating costs total to just $500, making their operational costs $50 each. By identifying these cost drivers, and the associated clients, your agency could streamline services or increase fees for high-touch clients, improving profitability. Metric type: Productivity metric Purpose: This metric is a key indicator of productivity, highlighting how well your team converts their work into revenue. How to measure it: It’s measured as the amount of revenue generated by each employee. Formula: Total Revenue / Number of Employees Before the new hires, the agency was generating $50,000 with 5 employees. This meant their revenue per employee was $10,000. After the new hires, the team expanded to 10 people. But, revenue only increased to $55,000. This meant the new revenue per employee was only $5,500. The issue isn’t a lack of staff, it’s a lack of well equipped staff in terms of familiarity with processes. By investing in better onboarding processes, the agency I worked with was able to bring revenue per employee back to target levels, ensuring that each new hire contributed effectively to the bottom line. These metrics are essential for ensuring that projects are delivered on time, within budget, and to the required quality standards—key factors in client satisfaction and repeat business. Owner: Project managers and the PMO should oversee these metrics, ensuring projects meet timelines, budgets, and quality standards. Metric type: Delivery metric Purpose: Timely project delivery is crucial for client satisfaction and future business. Delays can lead to client dissatisfaction and additional costs. How to measure it: It’s measured as the percentage of projects delivered on or before the deadline. Formula: (Number of Projects Delivered on Time / Total Projects) x 100 After implementing a more robust project management system and improving communication between departments, they were able to increase their on-time delivery rate from 60% to 90%. This improvement led to a 15% increase in client retention. Join thousands of project managers who have made scheduling a breeze. Metric type: Efficiency metric Purpose: Not all projects are created equal. By analyzing project profitability, you can identify how you’re performing in terms of agency efficiency, and which work is most lucrative and double-down to maximize revenue . How to measure it: It’s measured as the profit margin of individual projects. Formula: (Project Revenue – Project Costs) / Project Revenue x 100 Using the above formula, say this was the calculation for those projects: $50,000 – $40,000 / $50,000 x 100 = 20% In contrast, the smaller projects, while bringing in less revenue, had much higher margins. $20,000 – $5,000 / $20,000 x 100 = 75% By shifting focus to the types of projects that were more profitable, the agency was able to increase its overall profitability by 20%. Metric type: Budget metric Purpose: Staying within budget is crucial for maintaining profitability. Cost overruns can erode margins, and strain client relationships. How to measure it: It’s measured as a proportion of over- or under-spend on projects relative to their allocated budgets. Formula: (Project Budget – Actual Spend) / Project Budget x 100 By refining their budgeting process and building in contingency plans, the agency was able to prevent similar issues in future projects. Need somewhere to put this all together? Check out our free project budget template. People are your most valuable asset, and managing them effectively is key to maximizing profitability. These metrics help ensure that your resources are being used efficiently. Owner: The resource manager should manage these metrics, ensuring that the agency has the right people in the right roles to maximize productivity and the amount of revenue they can bring in. Metric type: Utilization metric Purpose: High billable utilization directly impacts agency revenue by ensuring that a significant portion of your team’s time is spent generating income. How to measure it: It’s measured as the percentage of employee time that is billable to clients. Formula: Billable Hours / Total Available Hours x100 By reducing these, they increased their billable utilization rate to 75%, resulting in a significant boost in revenue. Metric type: Utilization metric Purpose: Optimized resource allocation reduces waste and increases profitability by ensuring resources are used where they can make the most effective impact. How to measure it: It’s measured as a percentage of how effectively resources (e.g. people, tools, time) are allocated across projects and clients. Formula: (Total Allocated Resources / Total Resources Available) x 100 By implementing resource management software, they could balance workloads more effectively, meaning no team was overextended and all resources were optimally utilized. This led to improved employee morale and a 10% increase in project delivery efficiency. Metric type: Capacity metric Purpose: Ensuring that staffing is in line with project needs helps avoid both underutilization and overallocation, both of which can impact revenue. How to measure it: It’s measured as a percentage of staffing levels with current and future project requirements. Formula: Current Staffing Levels / Required Staffing Levels x 100 By regularly reviewing staffing levels against project forecasts, they were able to hire additional staff in advance, maintaining productivity and client satisfaction. For example, let’s allow 4 staff members per client in this case. With a current staffing level of 20, they could take on 5 clients at a time. However, if they take on 5 more clients, their required staffing levels would rise to 40. Plugging these numbers into the formula we get this result: 20/40 x 100 = 50%. By calculating this ahead of time, the agency could accurately forecast and plan on hiring/contracting as needed to fill those gaps. Further reading: Agency capacity planning: 11 steps to better margins Client metrics are critical for understanding how well your agency is meeting client needs and driving long-term revenue growth. Owner: Account managers and client success managers should own these metrics, focusing on maintaining strong client relationships that drive sustained revenue growth. Metric type: Retention metric Purpose: High retention rates indicate client satisfaction and effective relationship management, both of which contribute to stable, recurring revenue. How to measure it: It’s measured as the percentage of clients retained over a specific period. Formula: (Number of Clients at End of Period – Number of New Clients Acquired During Period) / Number of Clients at Start of Period x 100 The agency responded by offering more transparent reporting and regular strategy updates, which led to a 25% increase in retention, and significant growth in recurring revenue. Metric type: Engagement metric Purpose: Higher engagement often leads to stronger relationships and increased client lifetime value, boosting long-term revenue. How to measure it: It’s measured as a level of engagement clients have with your agency’s services. Definition: Aggregated engagement scores from client interactions By focusing on increasing engagement—through personalized communications and additional value-added services—they were able to increase the lifetime value of their clients by 30%. Metric type: Quality metric Purpose: High client satisfaction leads to repeat business and referrals, which are essential for revenue growth. How to measure it: It’s measured as a score of the quality of work as perceived by clients. Definition: Average score from client surveys (e.g. NPS, feedback, satisfaction) The agency took this feedback to heart, improving their communication protocols, which led to higher satisfaction scores in subsequent projects and a 10% increase in referral business. As shown in our examples above, there are several methodologies you can use to calculate client satisfaction. NPS is a popular one. When asking for an NPS score, you simply ask a sample of your clients “How likely are you to recommend our services?” They then give a likelihood rating between zero and 10. You can then calculate what percentage of the people you survey are promoters (who scored nine or 10) and what percentage are detractors (zero-six), and subtract them. You leave passive people (seven-eight) out of the equation. Here’s an example: Imagine an agency surveyed 100 people. 60 were promoters, 20 passives, 20 detractors. 60% – 20% = 40% so their NPS would be 40. Any score above 0 indicates you have more promoters than detractors. Until now, I’ve covered metrics relevant to all agencies, regardless of their service specialities. However, there are two agency types that have specific, highly relevant metrics worth flagging. Ultimately, these differences reflect the distinct goals of each type of agency, with advertising agencies focusing on creative execution and media efficiency, while marketing agencies emphasize strategic impact and engagement across channels. As you rethink your metrics, remember this: metrics don’t mean much if you don’t have a team that feels encouraged to hit them. The foundation of healthy metrics at any agency is deeply intertwined with work-life balance and team well-being. Because as we all know, burnout is bad for business, and if your employees aren’t doing well, neither will your business. A happy team is more engaged, motivated, and productive, which in the end, leads to healthy metrics. If you’re looking for a clear, visual way to manage team schedules, project workloads, and individual availability to help bring harmony to your team’s workload, you can claim a 30-day trial of Resource Guru here: Join thousands of project managers who have made scheduling a breeze.4. Operating expenses percentage
Example: Non-essential office benefits like expensive office space or high-end furniture can contribute to a positive work environment but, if the operating expenses percentage is above the agency average of 20%-30%, this can eat into profits.
5. Client acquisition cost (CAC)
Example: An agency might spend $50,000 on marketing campaigns and sales efforts to acquire 10 new clients, leading to a CAC of $5,000. If each client brings in $15,000 in revenue, the agency has a healthy return on investment.
Part 2: Operations metrics
6. Operational costs per client
Example: An agency servicing high-touch clients might find that the operational costs per client are significantly higher than expected due to frequent meetings, custom reports, and additional services.
7. Revenue per employee
Example: A growing agency found that its revenue per employee was declining as it expanded. Upon investigation, they discovered new hires were not yet fully integrated into the agency’s workflows, causing lower productivity.
Part 3: Project management metrics
8. Planned vs. actual delivery
Example: A marketing agency struggled with consistently delivering projects on time, which negatively impacted client renewals.
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9. Project profitability
Example: An agency working on both small-scale website builds and large ecommerce platforms noticed that while the ecommerce projects were high-revenue, they were also high-cost, leading to slimmer margins.
10. Project budget adherence
Example: An agency working on a high-profile campaign underestimated the costs of creative development, leading to a 20% project budget overspend. This not only hurt the project’s profitability but also required difficult conversations with the client.
Part 4: Resource management metrics
11. Billable utilization rate
Example: A small digital agency realized that their billable utilization rate was only 60%, caused by too much time spent on internal meetings and non-client-related activities.
12. Resource allocation efficiency
Example: During a period of rapid growth, an agency found that certain teams were overworked while others were underutilized.
13. Staffing levels vs. project needs
Example: An agency took on several new clients without adjusting staffing levels, leading to overworked employees, and delays.
Part 5: Client account metrics
14. Client retention rate
Example: An SEO agency noticed their client retention rate was slipping, with several clients not renewing after the first year. After conducting exit interviews, they realized that clients felt they weren’t seeing enough ROI.
15. Client engagement score
Example: A full-service agency tracked client engagement through regular check-ins and surveys, noting that highly engaged clients were more likely to expand their services and refer others.
16. Client satisfaction score
Example: After a rebranding project, an agency conducted a client satisfaction survey, and received mixed feedback. The client was unhappy with the lack of communication during the process, despite being satisfied with the end result.
A note on advertising agency metrics and marketing agency metrics
Advertising agency metrics
Marketing agency metrics
The secret behind healthy agency metrics
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