The Rule of 40

There are 2 key numbers I always look for when assessing the performance of agencies:

1. Year on Year (YOY) Revenue Growth %

2. Net Profit %*

In other words, how fast is an agency growing its top line (sales) and how healthy is the bottom line (much money does it make)?

For a long time I’ve considered figures in excess of 20% to be STANDOUT performance.

However, applying 20% as a benchmark for both figures doesn’t take account of the fact that:

– Some agencies want to grow faster and need to invest to do so (impacting profitability)
– Some are not worried about getting bigger, but want to maximise their profits
– Some want a balance of the two

That’s where the Rule of 40 comes in…

Rather than look at these percentages individually, add them together. If your number is 40% or more then you’re doing well. Your growth may be high but your profitability might be lower. Or your profit might be high but with limited growth. You may achieving a balance.

How does your agency performance stack up against the Rule of 40?

*Use EBITDA and if you are paying yourself through dividends, make sure you add these back into your expenses/overheads to give a true reflection of your net profit.

#StandoutOrDie #StandoutSecrets #AgencyGrowth