Essential KPIs for Web Studio / Agency Management

    Hello Megamind! Previously, we wrote similar materials on Habr, but after resettlement of "managerial and marketing" stories, we decided to try here.

    Recently, we launched together with UMI a large educational special project on sales and marketing for studios and agencies (we have already published all 5 seasons in 17 episodes). As part of it, I prepared a text about key KPIs in managing and planning the development of the agency’s business, and I wanted to share it with the audience of Habr / Megamind.

    1. Introductory, why this material


    Probably, any head of the agency with a minimum management background will be familiar with 80% of the KPI described in our material. The purpose of our material is to show the variety of possible indicators for evaluating the effectiveness and efficiency of a business, taking into account agent specifics. If you find in our list of more than 50 indicators at least a couple of indicators that you have not thought about accounting before, but they are important, then we will achieve our goal.

    In addition to this, we wanted to give some general overview of possible tools for planning activities in the studio / agency, accompanying it with our comments so that disparate sets of indicators could form a single picture.
    As part of our material, we will not build a separate financial model of the agency - I have already discussed this topic in some detail in earlier materials, and we will try to analyze the subject area from a bird's eye view.

    2. General principles


    A few words about KPI


    We will not separately dwell on the definition of KPI and the ideology of “management by goals” - tons of understandable and fairly high-quality materials have been written about this. We will try to consider the indicators from the point of view of the specifics of the agent business, as well as draw your attention to important nuances.

    The combination of quantitative and qualitative estimates


    The ideology of KPI implies the presence of understandable and measurable indicators of various aspects of your business. The "mathematical" approach to the planning and development of the agency, of course, has a right to exist and helps to better understand and calculate what the manager can "feel" at a qualitative level. It’s also a great tool for opening problem areas, bottlenecks, as well as a good way to get rid of psychological self-deception (when, for example, a client seems to the agency very important and promising, and analyzing it according to the real calculated indicators of revenue, order frequency, etc. - says exactly the opposite).

    However, this does not mean that you need to rely only on specific measurable indicators. Agencies, as a rule, have a small staff of dozens of people - and much from the point of view of management is built in manual mode and is felt “at your fingertips”. This is normal, and you don’t have to try to completely get rid of a quality approach - it can “dry up” the company.

    Therefore, the proximity in terms of the development of specific quantitative indicators / goals with “quality” milestones is normal and quite justified.

    Type of strategy


    The importance of certain indicators varies significantly depending on the type of agency, the range of services provided and their specifics, the chosen development strategy.

    For example, in the approach of the value disciplines of Tracy and Virsema (Alexey Yozhikov read a good report on this topic in the context of agent business on the RIF), with the leadership strategy for client-centricity, more attention should be paid to the KPI block related to client services (customer satisfaction index, CLTV, outflow, the number of repeated orders, complaints, etc.), and with the operational leadership strategy, indicators of the processes (level of production load, percentage / speed of tasks in support, average project execution time ave.)

    Segmentation by type of service


    A significant part of the indicators can be calculated at the level of the entire business, but it has a much greater practical sense when segmenting in certain areas and services. For example, the total number of clients in the service is a spherical horse in a vacuum, if your agency specializes in both heavy expensive production and SEO for small companies. 100 clients in total, of which 50 in production and 50 in SEO, and 100 clients, of which 5 in production and 95 in SEO are completely different things, as you yourself perfectly understand.

    Therefore, when building an internal analytics system (it doesn’t matter if it’s a tricked-out BI system or three sheets with formulas in Excel), it’s very important to pay attention to segmentation of indicators.

    A few words about motivational schemes and goal setting


    The KPI system, on the basis of which goal-setting is built (and often the employee motivation scheme) should be simple and comprehensive. The emphasis on one indicator in isolation from others often sets the wrong development vectors and the wrong motivation of employees.

    For example, the development of a new promising direction within the company, which is still in a “subsidized” mode, but is growing rapidly, can be easily ruined by a manager who is motivated only by the operating profit indicator of the entire business on a small planning horizon.

    Or a sales manager’s bonus calculation scheme, which takes into account 25 different indicators, can make it stupidly opaque, add a headache to its calculation - and also give a negligent employee the possibility of an unexpected “hack” of the system when his bonus is unreasonably large in relation to the real use for business.

    Indicator Redundancy


    Our review lists a large (excessive) number of different indicators. This in no way means that you need to measure and build a business management, relying on everything at once. “Pills from greed, but more” - it only hurts.

    Traditionally, in a standard management approach, experts advise using from 10 to 20 really key top-level indicators. At the same time, plunging deeper into internal processes (and taking into account the specifics of the agent business), you can increase this list by monitoring another 10-30 KPIs associated with local processes within the company.

    Let us proceed, in fact, to the listing of the main types of KPI, divided into 4 main "traditional" segments (finance, customers, processes, personnel). It is clear that in the case of agent business, the role of personnel-related indicators is probably of the least importance due to the low average number of employees in the staff (and often the absence of an HR unit as such). It should also be noted that this division is largely arbitrary and some indicators can be assigned to several segments at once.

    Some indicators of a "general nature", the purpose and essence of which are obvious, we will give without explanation, some (more specific) we will analyze in more detail. For many of the indicators described, you can write a separate article, but we tried to give brief semantic excerpts - more detailed information on most of them can be quite easily google.

    3. Finance


    1. Revenue Comprehensive indicator. Segmentation of revenue in various services / directions. Segmentation of revenue by new customers, current customers (repeat projects), renewals (subscriptions) and backorders.

    2. Profit (including special cases like EVA and  EBITDA ). Segmentation by services / products / directions. Segmentation by new and current customers.

    3. The volume of services closed by acts. Funds for agency services closed by acts for the reporting period. An important indicator reflecting the actual volume of shipment of services in production / services for the reporting period. Often used in motivational schemes of project managers, account / sales managers.

    4. Accounts receivable. The amount of funds that customers owe to the agency for which work has already been shipped (closed by acts). An important indicator for agencies working on mixed and postpaid work schemes.

    5. Accounts payable. As a whole company, as well as a private indicator that reflects the volume of payments received from customers as prepaid services for which work has not yet been closed by acts. An important indicator for agencies operating on a mixed or prepaid basis.

    6. General expenses. Comprehensive indicator.

    7. The amount of taxes paid. Comprehensive indicator.

    8. General PHOT. The total salary fund of the company. Sometimes it is considered “net” (net) - then the corresponding amendments are made to the tax item, sometimes it is considered taking into account certain taxes (gross, etc.). The key item of expenditures in the overwhelming case of agencies (with the exception of expenses on media purchases in the framework of client activity, which is especially characteristic of media and contextual agencies).

    9. Payroll producing resources. An indicator important for the agency is the share of the total salary fund attributable to employees whose time is sold to the end customer — designers, analysts, programmers, etc. As a rule, it makes up from 40% to 60% of the total payroll (decreases when the company grows due to the appearance of additional management levels and staff).

    10. Payroll non-productive resources. The salary fund of employees whose time is not sold to the end customer is administrative, managerial and service personnel.

    11. UPR . Conditionally fixed costs. Costs, the volume of which depends little on slight fluctuations in the volume of production and the size of the company, are office rent, utilities, cleaning of premises, cookies, consumables, etc. As a rule, with an agent-based business scheme, which implies the absence of warehouses, machines, heavy tangible assets and etc., the indicator is laid at the level of 20-40% of the total payroll of employees.

    12. ROI / ROMI. Return on investment (sometimes + rate of return on investment), in the case of an agency, as a rule, this refers to the costs of marketing and attracting new customers.

    13. The cost of a standard hour. How much is the standard hour for different roles of employees within the company.

    14. Client cost per hour. How much is the standard hour of various producing employees for the client.

    15. Overhead ratio. The average coefficient by which the employee’s hourly salary is multiplied when forming the client’s standard hour. It may vary depending on the type of service or format of work (office employee, freelance, subcontracting, purchasing, etc.).

    16. Marketing budget. The amount of funds used for external communication and advertising activities. Segmentation in various channels, services, products and directions.


    4. Customers


    1. The size of the customer base. The total number of current company customers.

    2. LT  (Life Time). The expected life of the client in the company. Segmentation by type of service.

    3. CLTV (Client Life Time Value). The total expected revenue from one customer throughout the life cycle. Simple infographic on how to calculate CLTV . And yet - on the  example of an online store .

    4. CSI (Customer Satisfaction Index). Level of customer loyalty / satisfaction. A simple way to measure: "Rate on a 10-point scale how much you are ready to recommend our service to colleagues and acquaintances." Detract: 1-3, attract: 8-10. CSI = attract / detract.

    5. ARPU (Average Revenue per User). Average customer check per time period. Segmentation by type of service.

    6. Number of complaints. The number of complaints / complaints received from dissatisfied customers. Segmentation by types of services, segmentation by managers.

    7. Brand recognition. The level of brand recognition among the target audience. Given the current state of the digital communications market, it is quite difficult to miscalculate, but there are first attempts . Allocate spontaneous knowledge and knowledge with a clue.

    Attraction


    1. Number of new customers. The total number of new customers for the period. Segmentation by type of service.

    2. First check. The average first check for a project / service from a new client. A special case of ARPU. Service segmentation.

    3. Reach (coverage). The first step of a standard marketing funnel (sales funnel). The number of potential customers who have contacted your advertising message (banner, post, booklet, etc.).

    4. CTR (Click Through Ratio). The banner / carrier click-through rate is equal to the number of clicks divided by the number of views (contacts) multiplied by 100%. It is believed that the average spherical in vacuum CTR of the banner is somewhere in the region of 0.05% (one click on two thousand views).

    5. CPC (Cost per Click) / CPV (Cost per Visitor). The cost of a click on the site and the associated indicator of the cost of the visitor (which is always a little more, since not all clicks on the medium turn into site visitors).

    6. Site traffic. As well as the core of the audience, the percentage of unique visitors, the failure rate, time on the site, viewing depth and other related indicators.

    7. Conversion to leads. The conversion rate of site visitors (people at the stand, etc.) into an application for company services.

    8. KOSST. A special term for agencies operating in the high price range. The Number of Appeals Agreeing to the Price. Allows you to cut out trash and leads that are guaranteed not to pass on the minimum budget. From the point of view of motivation, it allows marketing to focus on the production of better leads, rather than the pursuit of their quantity.

    9. CPL (Cost per Lead). The cost of attracting one lead. Allocate full and operational. Segmentation by services and channels.

    10. The number of leads. The total number of leads received over a period of time. Segmentation by channels and services.

    11. Conversion to sale. Conversion from lead to customer. Segmentation by channels and services.
    12. CAC (Customer Acquisition Cost). The cost of attracting a client. Allocate full and operational. Segmentation by channels and services.

    13. Lidgen / image ratio. An internal coefficient that can be used to evaluate channels that have both image and selling components. In the case of purely selling channels, it is close to 100% (for example, contextual advertising), in the case of purely image channels (for example, a teaser of a billboard with the logo of a new brand), it is close to 0%. It can be introduced as an internal norm in channels. For example, “contextual advertising with us should have a CAC that does not exceed acceptable, and the rating sponsorship channel has a coefficient of 33% - which means that the cost of attracting new customers on it can be three times the average CAC, and the rest is credited to the image effect."

    Retention


    1. Churn rate. Outflow rate. It is mainly used for services involving a monthly fee and regular renewal of services. It is equal to the ratio of departed users to the total size of the client base over a period of time. The actual and analytical outflows are distinguished. In the first case, the number of users who really stopped using the service is taken into account (although the term of payment for them may not end yet). In the second case, the outflow is recorded upon the termination of payment. The project business uses a customer return metric or conversion to repeat purchase. Service segmentation.

    2. DBTR (Data Base Transformation Rate). The dynamics of changes in the customer base over time. It serves as one of the grounds for calculating CLTV. Material with some details on the example of ecommerce .

    3. Customers are on support. Since support is often regulated by separate processes within the agency, it is sometimes taken out as a separate indicator.

    4. Conversion to support. Conversion of the transition of the completed project to support services.

    5. Retention Cost. The cost of customer retention. By analogy with the CAC, it is considered as the ratio of the total costs of retention measures to the number of customers “returned” from the outflow. Segmentation by type of service.

    6. Frequency The average frequency of the current client requesting a service. Segmentation by type of service.

    7. The number of returning customers. The number of customers who went into the outflow, but returned to the number of regular ones - on their own, or as a result of measures to return them.

    8. Due date. For subscriber schemes / services - the average term for paying for a service / service.


    5. Processes


    1. Volume of production. Total production in hours at 100% load. Segmentation by role and type of service.

    2. Focus factor. The percentage of time that an employee (for example, a programmer) actually spends on the implementation of project tasks - of the total amount of working time. Segmentation by employee roles and types of services.
    3. The average volume (time) of the project / account in hours. Segmentation by type of service.

    4. Percentage of production load. The average percentage of production load for commercial tasks. Segmentation by role and type of service.

    5. Volume of closed applications. For services that have a similar call format (for example, support tickets).

    6. Percentage of completed applications. For services that have a similar call format (for example, support tickets).

    7. Bounce rate The percentage of clients who left the company before the completion of the project / reporting period of the service is de facto who broke the cooperation in an emergency.

    8. The average number of bugs per project. As part of this review, we will not particularly delve into the QA questions on web development and other production issues, this may be a separate great material.


    6. Staff


    1. General staff of the company. Comprehensive indicator.

    2. Staff turnover. The ratio of the number of departed (or new when taking into account the invariability of staff) employees to the total staff for a period of time.

    3. Level of education, grade segmentation. Special metrics on the level of education or competency / qualifications of employees that can be implemented in the company. For example, the number of Google Certified Professionals for the overall division staff.

    4. Gross revenue / profit per employee / manufacturing employee. Comprehensive indicator. Service segmentation.

    5. Revenue growth per employee with a fixed payroll. It shows how efficiently the current motivation scheme works (revenue should grow).

    6. The speed of closing vacancies. HR-characteristic, the ratio of the number of closed vacancies to appeared.


    7. Comments


    Comparison of full and operational values


    One of the most common mistakes when building a KPI system is to compare “warm to soft”. Often, being in tables with large amounts of data and formulas, the manager forgets which value is complete and which is operational.

    We give a simple example. The analyst calculated that the acceptable total cost of attracting a new client (CAC) to a web studio is 60,000 rubles. The marketing manager conducted an advertising campaign with a budget of 200,000 rubles, with which he attracted four new customers. He divided one number into another, received a cost of attraction of 50,000 and joyfully wrote in the report that the campaign was successful and that the channel needed to be developed.

    At the same time, he forgot that 50,000 rubles is an operational value, and a rate of 60,000 is complete, taking into account all costs. And he could have been very mistaken, because if, for example, the payroll of employees who conducted this company (as well as other indicators of attached expenses) were added to the 200,000 direct advertising costs, then the total total CAC for the campaign could significantly go beyond the norm.

    Studio / Agency Financial Model


    Of course, the indicators described in our review are directly related to the construction of the financial model of the studio. For those who are interested in this topic, I recommend reading my material about an example of a template for a financial model of a web studio with a detailed analysis.

    Planning approaches


    I would also like to make a small remark about standard planning approaches. As a rule, in any financial plan, a number of indicators are “fixed” as given at the entrance, and this allows us to calculate the values ​​of other indicators at the output using formulas.
    There are two basic principles of financial activity planning (in fact, there are much more approaches, but we will give a remark about these two):

    • Top-down planning. Planning from goals to resources. The company's management sets as a goal the achievement of a certain number of new customers - and the marketing director draws up a plan with a minimum budget, which will achieve the goals.

    • Bottom-up planning. On the contrary, planning from resources to goals. The head of the company, for example, rigidly fixes the marketing budget for the year “on entry”, and the marketing director draws up a plan that will achieve maximum growth of the client base “on exit” with the specified budget.

    Customer segmentation approaches


    The topic of our lecture is also quite closely connected with analytics on the current client base of the agency, as one of the key components of the business. For a deeper immersion in this topic, I suggest reading my material on possible approaches to segmenting the client base of a studio / agency .

    And which KPIs from the list do you consider and use in your agency? Maybe there are some important indicators that we missed in the review? Let's talk about it in the comments.

    And again, we prepared a lot of other good free content about marketing and sales issues (as many as 17 episodes) in our free " Digital Series ", which we developed together with UMI - join us!

    Also popular now: