The Magic 40%: A Redefined Success Metric for Marketing Agencies

Why you could be making 20% net profit but still be classed as a STANDSTILL agency…

Net profitability, often benchmarked at 20%, is a frequently used success measure for agencies. Achieving this in todays market is no mean feat, but even those that do aren’t necessarily STANDOUT agencies.

Focusing purely on net profitability could mean you overlook a crucial element: growth rate.

Growth is key to an agency’s long-term success. Even a profitable agency may struggle in the future without growth.

So rather than focus purely on the 20% benchmark, I advocate a more comprehensive measure: the magic 40%.

You’ll be relieved to hear this is a combination of two key metrics:

1 – Net Profit percentage

2 – Gross Income year-on-year growth percentage

The first is the standard net profit calculation, the second tracks the agency’s growth from one year to the next.

If the combined total of your net profit and growth rate equals or exceeds 40% you are in strong position. The ideal situation is to have a 20% growth rate and a 20% net profit. A balance of immediate profitability and continuing growth.

However, this measure allows for other scenarios. You may be an early stage agency, experiencing high growth but lower net returns as you invest in your business. Or you may be a mature firm, not growing quite as quickly, but operationally efficient and maximising profits.

Whatever the combination, if you are hitting the combined figure of 40%, you are likely to be in a good position and running a great agency.

Alternatively, if your combined measure falls well below the 40% mark, you may be neither growing nor profitable which means that you need to take immediate action to address the situation.

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