It’s a worthwhile question to get answered. So here’s four metrics every agency should be tracking to ensure they remain profitable, high performing organizations.

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We work with 60+ digital agencies and even ones over the 1-2M/year mark aren’t tracking what we’re about to share with you (consider yourself ahead of the curve if you read on).

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Here's 4 less commonly talked about metrics you should be tracking:

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1. Revenue Per Employee

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Annual Revenue / # of Employees

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Annual revenue per employee is a great guidepost for organizational efficiency. As your revenue grows, your headcount will too, but if their time is more efficiently spent/more billable, this number will steadily rise.

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This measures how well we utilize time. The agency business is structured around time arbitrage essentially - we bill out skilled labor at an amount that’s more than it costs us. Ideally significantly more.

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2. Utilization Rate

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Total Billable Hours/Total Available Hours * 100

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This is a key factor in tracking how well your organization is utilizing your staff (and billing hours). Typically, you want employees 75-85% utilized based on 2080 total "available" working hours per year.

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The other 15-25% should be used for internal meetings, training, etc. If severely underutilized, it's likely you're overstaffed or using freelance talent in excess. If you're over 85%, employees may feel burnt out or you might not be focusing enough internally.

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3. Gross Profit Margin

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Revenue - Cost Of Sales / Revenue * 100

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Gross profit margin is a great indicator of how efficiently you're able to fulfill projects. The main cost variable with agencies is the time required to complete projects.

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You should measure gross margin at the project level and the organization as a whole. This requires you knowing exactly how many hours are going into projects - meaning time tracking is a necessity for this along with metric #2 above.

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4. EBITDA Margin

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EBITDA / Revenue

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This is a key profitability metric that looks at revenues and deducting operating expenses, such as cost of sales, general & administrative expenses (SG&A), but excluding interest, taxes, depreciation and amortization.

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If you ever want to sell, this one matters as it focuses on operating performance vs. other, less controllable factors like interest, taxes, depreciation & amortization. Using this metric is a better comparison tool with a similar business vs. net profit for these reasons.

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None of these are the end all be all metric, but they're super helpful to ensure you're on track to growing your agency's value and progressing in the right areas.