If you’ve been a Blumer client for any length of time, you know we are all about processes: consistent, regular, documented workflows that make client work flow smoother and allow us to hit a high level of quality in our financial support of our clients, day in and day out.
What might not be so obvious is that we are also all about making steady, continual improvements in our processes. When we hear client comments or see trends that make us rethink what and how we do things, we get together as a team to analyze the issue, come up with improvements and roll it out in a systematic, orderly fashion.
We did that recently by adding a new metric to the benchmarks we have been using for our clients for years.
Our Benchmarking Tools
Our firm uses two tools to perform higher-level analysis of client financials to help our clients gain insight into how their agencies are operating: our very own Agency Financial Metrics spreadsheets, and Fathom’s financial analysis reports.
In both tools, we compress multiple lines of financial statement detail into high-level categories, and then compare those categories with our own proprietary benchmark percentages. It’s a great way to get a big picture perspective of the financial health of a business, and to determine if the business is on target for the year.
A New Metric: The Team Analyzes a Benchmark Together
A couple of months ago, we had a client request a specific benchmark; a client wanted to have a better idea of how much revenue was being generated by their current level of marketing and advertising. They wanted to know if they were spending the right amount on their marketing compared to other agencies.
This sparked a conversation between their Customer Ally and our Client Services Manager about whether we needed to break this expenses category out as a new benchmark on our reports. The conversation quickly became a broader question within our firm: would this become a more important part of all of our clients’ financials in the near future?
Jason Blumer believed that clients would be spending more on marketing and advertising in the future, so now we needed to talk through, as a team, how to implement this new metric in a way that would benefit all of our clients.
Our Client Services Manager did an analysis of a sampling of clients and came up with an average of 2% of gross revenue. This agreed with the historical range of spending our team was seeing for their specific clients; we saw an average range of 2-4% of revenue being spent on marketing and advertising. It seemed like we had our target benchmark for marketing spend.
We then asked the whole team to 1) look at the client analysis spreadsheet, 2) make observations or ask questions about the data, and 3) assess whether 2% seemed a reasonable benchmark going forward.
The Team Decides We Could Do Better
Our team decided to continue to do further research to make sure that initial analysis looked reasonable.
One of our Customer Allies brought a Forbes article into the discussion that recommended 5-10% of revenue spent on marketing for maintaining revenue. When we looked at our clients who did spend more than average on marketing and advertising, we could see they tended to be doing very well right now in terms of revenue generated. As a team, we discussed what the numbers for our higher spenders could mean, whether there was a time lag between marketing spend and the (hopeful) increase in revenue it would create, and whether going into a recession should be a reason to spend more (or less) on marketing in the future.
The conclusion we reached as a team, after much discussion and analysis, was that the 2% represented what clients did spend historically, but not necessarily what we thought they should spend. We decided that 5% of revenue for marketing spend was more of a stretch goal and more in line with what clients should be spending in order to grow their businesses.
How We Rolled Out the Changes
Of course, we created a process for rolling out the changes to the various client spreadsheets and reports. Since we were discussing this change in Q2, the decision was made to roll out the revised quarterly Agency Metric Spreadsheets and Fathom reports with the new Marketing Expense benchmark line going forward into Q3 and Q4. We set a definite timeline and order to how and when we would revise the reports, who would make the changes and who would review them. And we have already begun rolling them out, first with monthly, then with quarterly clients as their financial review meetings come up on the calendar.
The Client Conversations around the New Benchmark Metrics Reporting
Interestingly, the responses to the new metric have been varied. Some clients feel they need to spend up to reach the new target of 5%. Others have looked at what they are already spending and evaluated whether they are getting a return on their marketing dollars. But either way, the new benchmark is doing its job of sparking conversations between our clients and their Customer Allies around marketing expense, what it should be, and what results clients hope to achieve with their marketing dollars.
What This Means for our Clients (and for You)
This is just one example of how we, as a firm, take seriously the financial reporting and benchmarking of our agency clients. They rely on us to lead them in how to spend, in regularly assessing the metrics that guide their financial decisions, and in the resulting conversations that are sparked by our detailed analysis.
After all, we are the experts at digital agency financial analysis and we know what we are doing. If you need more directed education on your own agency’s financial metrics and spending decisions, feel free to reach out to us!