Ever looked at financial KPIs and thought - “one day I’ll care”?

Because when you are small it’s easy, just you and the revenue, no surprises.

Won a new project? It’s going to be a good couple of months.

Tax bill time? Cash is going down a bit.

There’s one number that matters - the bank balance.

You’ve got a couple of spreadsheets you’ve pulled together, probably motivated by one of those tax bills. But that’s as CF-oh as you’ve CF-got.

Gross profit, COGS, delivery margins, staff cost ratio, real rate calculations, EBITDA. These are all for big agencies where the founder long ago stopped doing what they love and are instead stuck looking at graphs.

Shapes and numbers that control our lives (like playing cards can if you play too much poker).

However (it was coming!) you do have those things.

Just because you are small doesn’t mean you don’t have delivery margins, or net profit. They are just tangled up in you and how you work.

Calculating KPIs requires good data. Salaries, invoices, timesheets. Billed and unbilled time. Full transparency.

Yours are hard to calculate because you’ve got a business to run and you won’t let them sit still.

You take random amounts out of the business each month as pay. You discount that piece of work the client didn’t like. You’re not tracking time (or at least not the bit extra you did).

Just because they are hard to calculate doesn’t mean they don’t exist.

But it’s fine because you can instinctively know whether you are profitable because the bank balance goes up. And it’s obvious which of your clients makes you the money (the one on the higher rate that doesn’t keep asking for changes). And I know you know which one doesn’t.

Except it doesn’t take much to lose touch with those instincts.

A new hire or freelance cost means you now have delivery costs that don’t bend any more.

A rate negotiation because the client is buying big could mean you have to suddenly know what margin you’ll make.

The bank balance starts to include larger costs you need to pay and money that you’ve had to collect for the taxman (or taxwoman).

Getting the numbers wrong now can really get you stuck on large projects with bad rates or get left short for cash.

It becomes apparent you had KPIs all along, and if you could see them they would tell you things aren’t right.

So it’s never too early.

You can still do all the over-servicing and discounting you need to grow, and you can still take less out on the slow months, you’ll just have a clear picture of what that means.

Consider these now:

  • Put all VAT (or sales tax) aside the moment revenue comes in. For profit-based tax, calculate what you owe at the end of each month and put that aside too.
  • Set yourself a salary commensurate with the market rate for what you deliver. Even when you don’t take it all out, it’s important to know what you would have cost. Use this figure as your own delivery cost when calculating margins.
  • Track everyone’s time. Even if you don’t bill by the hour or day, log what people spend on each project.
  • Use that time data, your staff costs (salaries, taxes, pensions) and any freelancer bills to work out what it costs you to deliver work for each client.
  • Use the invoices from each client to work out what you earn from them.
  • Now subtract the delivery costs from what you earned to get your delivery margin for each client. A healthy benchmark is 55%–65%.
  • Finally, divide what you earned by the total time spent to find your effective hourly rate. At reasonable utilisation, this should be upwards of 2.5x the blended hourly cost of the people doing the work.

Dip your toe into the bath of financial KPIs - today might be the day you start to care.

And these are for you to own, every expert does it a bit differently, find what’s useful now and go with it.

However small you are, something is more useful than nothing.