In this episode, our founder W. Michael Hsu shares three important KPIs but many entrepreneurs neglect. You can use these KPIs to track in production performance. They provide you a better insight of how well you run the company. Let’s take a leap into this episode!
Topic: 3 KPIs to Track in Your Agency
In this episode, we’re going to introduce few metrics to track in production to hold your team accountable. In DeepSky, we firmly believe that there’s no such thing as “the right/the best KPIs” for any business. Because you can see a way bigger impact if you simply focus on yourself and the business.
3 KPIs to track in my digital agency?
1. Net profit
[00:52] It is probably the most important metrics that you should know in your business. Don’t make it too complicated. Don’t think net profit per project, net profit by employee, or net profit by the department. Think about net profit as a company, how does it look?
What is net profit
Net profit = [the revenue of the month] – [cost of goods] – [direct labor] – [overhead]
Make a simple calculation, share with us if you want. It should be north of 10%. If it’s not, you should take a look at your business and see where goes wrong.
2. Owner Salary
[01:32] Many entrepreneurs don’t track their salary. If you work in your agency, you should get paid; Especially if you want to build a company that you can sell. Because if you don’t take it seriously, the number may skew and you can tell how well you’re running the business.
What is Owner Salary
Now that if you want to calculate the owner salary, think about how much it’ll take to replace you. That amount of the number is the market rate salary, and that’s how you calculate your owner’s pay.
3. LER
[02:05] LER is the abbreviation of Labor Efficiency Ratio/Labor Effectiveness Ratio which was created by Michael’s mentor years ago. The ratio is the dollar spent — For every dollar we pay for employees, how much money we’re getting back.
What is labor efficiency ratio
How to calculate it: (Revenue-cost of sales)/direct labor salary.
Have your controller/accountant look into these numbers for you. See how’d it go. Share your thought with us, we’re more than happy to help move your company forward.
