Your agency’s scorecard is a collection of numbers that indicate the current status of your business. This measurement has gone by different names over time that you might recognize — dashboard, metrics, and KPIs are just a few of these titles. The right numbers will signal when to start or stop an activity (or when to speed up or slow down); furthermore, they will also provide you immediate feedback about how you’re progressing toward your goals.
There are two opposing camps for the numbers measured in your business scorecard: lagging and leading indicators.
Lagging indicators measure the past. They are useful in exhibiting the aftermath of your work. Lagging indicators are used to estimate the health of your agency e.g. gross revenue, profit and loss statements, clients served, etc. Think of these as outcome measurements.
Leading indicators are the exact opposite. They help you anticipate and predict the direction of your business in the future. They indicate whether or not you are on track to achieving your desired results. Leading indicators are the drivers to your lagging indicators, i.e. your outcomes. Think of leading indicators as the levers in your business that you pull in order to impact the results that are most important to your firm.
Begin Using a Business Scorecard Today
Sit down with leadership team.
Clearly map out all of your organizational goals. A good place to start is with the annual goals you defined during your last planning session. During this meeting, you undoubtedly outlined your stretch goals concerning revenue, profitability, number of clients, and headcount. These goals are unique to your organization, and it is crucial that all team members are aligned with the business’ 1-year goals.
How was last week?
This is a great question to pose because it forces you to focus on the primary drivers of your success. You want to think about how a good week can amount to a great month, which in turn builds into a great year. Looking at your business in weekly increments allows you to spot trends and anticipate problems in real time. For instance, say your project manager notices that labor costs are up. She may dig deeper and determine that labor costs have increased because you consistently underbid part of your work. Once you identify the problem, you can immediately take action.
Your leading indicators.
Leading indicators are all about knowing which levers to pull in order to enact positive change. It is important to note that different departments will have unique leading indicators that they want to track. For example, account executives may want insight into production status while agency principles will want visibility into cash balance.
Here are a few examples of common leading indicators I’ve seen:
- New Leads
- Sales Calls
- Number of Proposals
- Account Receivable
- Cash Balance
Example: New Business Leading Indicator
One of the most common challenges marketing agencies face is establishing a steady flow of the type of business they desire, i.e. lead generation. Here’s an example of how you might create a leading indicator around the metric of new business.
Perhaps your business receives new clients after a successful client pitch. In this case, we should examine the data to identify the steps that lead to a new business pitch.
When you initially look at the data, you might find that you have about a 40% hit ratio, meaning that you win two out of every five business pitches.
Dig deep to discover metrics that you can measure and influence to impact your hit ratio, such as:
- How can we increase the number of new pitches?
- Where are leads originating from?
- What makes someone a qualified lead?
- How can we increase the number of leads?
- How can we show up more often in front of potential leads?
- Are we attracting enough qualified leads?
- Are leads dropping off anywhere in our pipeline?
Your questions may reveal that your best leads are coming from webinars; in fact, your hit ratio with leads coming from webinars might be as high as 80%. Armed with this knowledge, you can begin allocating dollars accordingly.
While this is a very simple example, it illustrates the importance of examining your data to determine which “levers” impact your business. Now, it’s your turn. Pick a problem to solve over the next 90 days by tracking leading indicators, and start discussing your progress in your weekly meeting. You might need to revise your scorecard every few weeks to make sure it is tracking leading indicators that are impacting your business. Remember that this is an iterative process — you’ll learn more about your organization the more times you repeat it. Have fun and good luck.
Jeff Meade. Trusted advisor to owners of marketing agencies. www.themeadecompany.com