Which metrics should you be tracking for scaling your agency? Scott Gellatly breaks it down for us in this podcast.
Episode HighlightsWant to make sure that your agency is scalable? Scott Gellatly @scalemyempire shares the metrics that actually matter on the @beanninjas podcast. #metrics #business #success Click To Tweet
01:00 – The nature of Scot Gellatly’s business
01:48 – Pivoting from project management to working with change-makers
04:24 – Scott Gellatly’s views on financial freedom
06:42 – Maintaining a work-life balance
08:16 – Challenges on the pathway to scale
09:55 – Identifying the metrics and implementing a system to track them
20:57 – Scott Gellatly’s framework to help service businesses with sustainable growth
21:53 – Systems Blueprint: What it is and how you can get one
23:06 – The king of all metrics
24:24 – Learning about finances from past failures
25:02 – The accounting software Scott Gellatly swears by
Announcer Welcome to the Bean Ninjas Podcast, where you get an all-access pass to see what happens behind the closed doors of a fast-growing, global bookkeeping and financial reporting business.
Hey everyone, and welcome to another episode of the Bean Ninjas Podcast. Today, we’re talking with Scott from Scale My Empire.
I’ve actually known Scott for a couple of years now, and he is also a Bean Ninjas client. Today, we’re going to be talking about metrics forward agencies. Scott, welcome to the show.
G’day, Meryl. Absolutely stoked to be here.
Let’s start with … I don’t really like the term elevator pitch, but how would you describe your business, if you were at a barbecue, to someone? And in a couple of sentences, how do you explain what you do?
The nature of Scot Gellatly’s business
Well, if I was at a barbecue with someone, I’d probably explain it differently. I’d just go, “Yeah, I’m in IT.”
But for anyone who’s listening and that would resonate in business, it’s, “We help the change-makers.” So the agencies, the consultants, the engineers, the teams that are out there working with the largest brands in Australia, trying to make a difference, and we help them systemize their businesses for scale.
So really, optimizing how they deliver their services, how they deliver their customer experience, improving cashflow, improving profit, giving them the numbers to make insightful decisions, and making sure the right tech platforms are in place to really leverage and multiply, get that great multiplier in the business through automation.
Does that make sense?
It does, yeah. How did you get into running this business?
Pivoting from project management to working with change-makers
I’m a Gen Y. We’ve got this like bold, we can do it ourselves attitude that I’ve always had in my head for as long as I can remember. I mean, I remember telling my dad that I wanted to start my own business when I was a kid. So it’s been in my psyche forever.
And as a project manager working for… I’d been on this project for two years, Meryl, in a large mining company. We’d be banging our heads against the wall trying to get it over the line.
We’re three months from go-live, and then another business buys them out, shuts the whole thing down. They didn’t even tell me, they just said, “Scottie, I need you to go home today. We’ll tell you what’s going on tomorrow.”
Never heard from them ever again. Whole project canned. Go home, see you later. And I was like, “That’s it! I’ve had enough. I’m starting my own thing.”
And sure enough, here I am, sort of four years later. Now just started doing some freelance gigs with people in small business, trying to help them leverage technology and automation, and now here we are helping the change-makers, as I said.
I certainly like that phrase, the “change-makers”. I think it takes it away from, “I do IT implementations,” or whatever it is, and it sounds a lot more holistic.
And it’s been really nice actually watching your business evolution, too. I don’t think I knew right when you started out, but it was pretty early days. I’ve seen a lot of iterations of your business, and the way that you’ve really progressed so quickly.
Fail fast, Meryl, and move on. We have, like all of our clients, have gone through the ringer, trying to work out who we want to serve, how we want to serve them, how we can do that profitably, how to manage the team and get everyone productive, and all of that.
All of those learnings in that journey we’ve actually applied to our solutions. So we’re helping people do the very thing that we’ve achieved for ourselves.
I think only when you’ve experienced the pain of growing a business yourself, can you really understand the decisions that other business owners are going through. Where they’ve got limited resources to implement, whether it’s technology, whether it’s accounting systems.
So there’s best practice, which big corporates can implement, but small businesses have such limited budgets and I think as a business owner you can really appreciate that.
So I think having that been through that experience yourself, it would add a lot of value to the systems that you’ve put together.
Let’s move into a little segue into financial freedom, which is one of our themes at Bean Ninjas. We won’t spend long on this, but just briefly, what does financial freedom mean to you? And on a scale of one, being just starting out, and 10, being financially free, where are you sitting at the moment?
Scott Gellatly’s views on financial freedom
It’s a great question. And when you said we’re going to talk about financial freedom, I really turned that around in my head because I think it means a lot of different things to different people.
And for me, money is like stored energy, like coal, and you burn it or you spend it to create change and to do things that you want to do in your life. So I guess financial freedom is about having enough energy coming in so that we can live on purpose and follow our passion.
Financial freedom is about enabling me to align my work to purpose, which it largely already is. So on one hand, I’ve sort of got a business that allows me to live my passion and I guess I would say that I am financially free in that sense.
But then there’s other things that I now want to do, now that I’ve established that in my personal life. There’s other changes in the world I want to create. There’s other things I want to do for my family and that requires a bigger injection of energy coming in.
So it’s sort of a journey that never stops. I couldn’t give you number, if that makes sense.
Yes. And that’s one of the privileges for me having this podcast is I get to ask this question to many different people.
And you’re right, financial freedom means something different to everyone. And it’s really interesting having all these different perspectives.
And I’ve never heard the energy comparison, or analogy, before and I love it. That’s brilliant.
Well I think when we stop thinking about money as this thing to be attained, this separate thing and just think of it just like fuel for the body. You want to do things with your body, you need fuel, you gotta get food, right? No brainer.
I think life and doing things externally for the body is exactly the same. Then the more fueled you’ve got, the more change, the more energy you can put back out to the world. And that’s just how I treat money.
well I think when we stop thinking about money as this thing to be attained, this separate thing and just think of it just like fuel for the body, you want to do things with your body, you need fuel, you gotta get food, right? Then the more fuel you’ve got, the more change, the more energy you can put back out to the world.
Intertwined with freedom is how we can spend our time. And I know that you are a father to a couple of children and actually just before my daughter Ava was born, I was messaging you to get some tips about how you juggle growing a business as well as being present for your kids.
Do you have any insights around how you’re doing that at the moment?
Maintaining a work-life balance
Notably very poorly, I’m sure. No, look, I think it’s a really important thing and one of the reasons I wanted to start my business is so that I didn’t make the mistake of other people in my family and be present for my kids.
And I can’t say that I’ve gotten it 100% right. But I do feel like every year I’ve improved the balance and for me it’s actually like building family into my schedule.
I’m such a systemized guy. Mirror week. Yeah. I practice what I preach. I do it for everyone else.
So I get up super early. I work early in the morning when my brain is sharpest and then I finish at like 3:00 PM.
I get home, I sit on the carpet and I play trucks. It’s the wind down, but also really just gets me with the kids, playing with them and hearing about their day and getting involved.
And it helps from a mindfulness perspective. It helps with the presence perspective and it’s fun. I’m getting involved with the family.
That’s what I want. So that’s one little tip that I’d give is to build it into your schedule so to speak, if that’s what you’ve got to do.
Yeah. Thanks for sharing that. So let’s get into with the main theme of today and let’s start with what you see are some of the biggest challenges in scaling professional status businesses or agencies.
Challenges on the pathway to scale
Great question. I think a lot of the agencies that we work with, there’s this sort of point in the growth curve. When you get to, let’s say maybe ten, 15 people, the first couple of mil, where the founder’s getting off the tools, they’re bringing a team in to kind of deliver their customer experience for them and at the same time visibility and cashflow fall through the floor.
They’re not in the weeds anymore. They’re not on the tools. In the trenches. Fighting as a team. They’ve got to work at a different level and they just don’t have the numbers to actually make insightful decisions in that capacity.
And what happens? The team kind of do whatever they want.
They don’t have the direction, there’s no way of measuring their success and like a house of cards, it tends to topple down and they really struggle to get past that ten to 15 range of people up to the next level, that 50.
So bridging that gap by definition, you’ve got to have the numbers, you’ve got to have the insights to make smart decisions. Right? So that’s sort of one of the biggest challenges we find on that pathway to scale and we set out to solve exactly that.
So you’re talking about numbers, which is one of my favorite topics.
But it’s still challenging even if you know that you need… I think one of the challenges is knowing what numbers or what metrics to track and then the other is finding a way to track them efficiently.
Because if it’s a manual process, then when the team gets busy, it’s one of those things that the ball gets dropped. So what are your thoughts around what metrics should be tracked and then how you go about implementing a system to track them?
Identifying the metrics and implementing a system to track them
Great question. And this is exactly where people fall short because they’re doing it all on spreadsheets, as you say.
They kind of know they need the numbers, but there is a lot of effort in getting those numbers. And often it’s a a string of spreadsheets or a bunch of different tech platforms out there and they’re kind of every month pulling data from one thing and comparing it to something else.
Inevitably it just falls through the gaps. They’ll go months without understanding where their business is at and how it’s performing.
It all becomes too hard. And that’s where technology is the great multiplier. And I’ll talk through what some of those metrics are in a minute, but unless you’ve got the right technology platforms, you’ve got the right CRM, the right project management, the right resource planning and accounting packages in place, as you well know, you’re really just flying blind.
unless you’ve got the right technology platforms, you’ve got the right CRM, the right project management, the right resource planning and accounting packages in place, you’re really just flying blind.
These kind of tools. Your team are working with them every day.
They’re collecting the information. They’re farming this information for you and it’s building up and should be reportable live at any point in time in the business so that you can say at the end of any week, at the end of any day, at the end of any quarter or month, how did we perform as a business?
Were we profitable? Do we have money coming in the door? Do I need to make a change to how I market, how I sell, how I deliver to make sure I’m going to achieve my goals in the business and ultimately get that financial freedom we were talking about.
Yeah, and what you’ve talked about there, actually, just ties into an example I can think of with Bean Ninjas where we previously did a whole lot of marketing activity but we weren’t tracking it. And we implemented weekly marketing tracking.
And back in March we had a dip in SEO traffic or website traffic. And we were on top of that within three days because we were reporting that weekly.
Whereas last year if we’d done that, we might not have noticed for three months. And that’s where we get, it’s not our primary source of leads, but it’s probably a secondary source of leads for us.
And so that’s a prime example of a leading indicator of something that might impact cashflow in the business.
Yeah, really good point. And I think, if the first metrics that I think that any business needs to track, there’s a few that I’m going to going to kind of give you the top five.
But lead qualification is the health of your marketing business or your marketing strategy. Doesn’t matter how many leads you generate, it’s how good a quality they are as to how well they’re going to feed through the business. So lead qualification is really important as the first metric that you’re tracking.
And the second is sales conversion. How good are we at pitching our message to the right target market to get a deal across the line?
And if those two things are in alignment and they’re at the right value, you know that marketing is working well, you know your sales team is working well and you know that you’re going to generate revenue and it’s probably just a matter of turning up the volume to get more leads in the door if you need more revenue. Does that make sense?
It does. I’ll ask a quick question about that and then we can move into the other metrics. So often there’s a different team member looking after marketing to bring in the leads to sales.
And it would be easy for sales to say, “My conversion rates are down because you’re not bringing in the right leads.” I know it would be easy for marketing to say, “I’m bringing the right leads, you’re just not converting them well.” And is that where the qualification step comes in?
And how do you go about qualifying or the lead?
Great question. I said that we help the change-makers.
We’ve got a really specific profile of who we help. And I’ve been able to break that down.
You know how I talk about systemize for scale? I’m talking about being able to break down that ideal client into specific criteria that match what I call the ideal client.
And so when the marketing team generate a lead and the qualifiers have the initial call that can tick their criteria and if it doesn’t match, they disqualify it.
It’s scientific. It’s not a subjective he said, she said, you’re not bringing in the right things, you’re not converting. It’s science, right?
The leads you’re bringing in either match the criteria for ideal clients or they don’t.
Awesome. And so what would be some criteria? What are some examples of criteria that you put?
Okay. Well for us, like I said, I mentioned we started at that… We like businesses that are in that ten to 15 range.
So we’ve got number of team members as a criteria. We’ve got positioning on whether it’s the right time for them to buy. And we ask that in the initial call.
Whether that got the authority to make a decision, whether they’ve got indications on budget. And of course whether what they need is actually something we can help them with to begin with.
So there are your top line, basic qualifications that any business can do. But then from that you could drop out heaps of different ways of assessing whether somebody’s ideal client. You’ve just got to really know what that profile is in a lot of detail.
All right. So we’ve talked about a couple of metrics around marketing and sales. What are some of the other metrics every agency should be tracking?
Well, the first part is about are we marketing and just converting, right? That’s about generating revenue.
The next set of metrics are how efficient we are at turning that revenue into profit. And the number one metric is project margin. Whether it’s your materials, a fixed fee, a retainer, value based, whatever your billing or model is in your agency to sell your IP and your service, ultimately you’ve got to margin on that versus cost.
And you would not believe the percentage of agencies who don’t actually track that. Who don’t know for sure whether or not the work they’re doing for their clients is actually profitable.
And when you put in the right tech system and you realize that what you’re doing is just not profitable and you’re going backwards, it’s a pretty big shock for a lot of people and it can be pretty confronting as well. They’re also getting the answer to the question as to why they don’t have money in the bank account at the end of the month. So project conversion is a huge one.
I hear that often where revenue is increasing but my bank balance isn’t. And that is often the key reason, margins on the job delivery.
Now the second part of that is that people come to me and say, “Well look, our projects are profitable. Where 60% on cost.
Everything seems right. Why do I still not have money?”
And the hidden one is what we call utilization of your team. If you’ve got a team of, let’s say for simplicity sake, ten people and one of those ten people or across those ten people, you’ve got the equivalent of one full time individual that is not doing billable work.
Maybe it’s 20% of this person, 30% of that person, 40% of this person… Let’s say that equates to one. I mean if you’re paying someone a hundred grand a year, that’s 100,000 bucks off profit a year.
Utilization is the percentage of your staff’s time that is genuinely billable versus non-billable. And that is the hidden metric where so many agencies think their projects are actually profitable but their team is not profitable. And that’s where they fall into the gap.
And is there anything you can do to improve utilization? So say, in that example, they’re doing jobs that are profitable, but then there’s team members that just have downtime. How would you go about improving that metric?
Well, I guess there’s two parts to it and the first you’ve got to keep the team off the bench and scheduled into work. So it’s about how well you… And again this is where tech platforms help in helping you schedule people in to work at irregular times in the business.
And then there’s capacity planning at a high level. For the pipeline or the demand for our services that’s coming in, what’s my supply look like?
Is my team at 50%, 60%, 80%? What’s their overall.. It’s like aligning supply and demand, but you’re manufacturing ideas, you’re manufacturing change. You’ve got to create that alignment otherwise your team’s not going to be profitable.
And are there any other metrics that you wanted to mention?
Well, I think there’s two key ones. One, are your customers happy?
Customer satisfaction scores. Ultimately, we’re here to help create change and improve businesses, right?
So if our customers aren’t happy… And on a general sense about 40 to 60% of most consulting firms, their business is coming from return customers. So if you’re not getting high client satisfaction, you’re missing out on a huge bucket of work.
And the flip side of that is team satisfaction. They’re your supply, right?
They are in a lot of senses, the products that you’re getting out there in front of your customers. And if they’re not happy and you don’t have a strong culture, and it’s built as part of your brand, then they’re not going to perform and they’re not going to create a great customer experience.
And how do you track something like customer happiness? I’ll give you an example from Bean Ninjas.
So in the early days, I was probably similar to the founder that you mentioned that was on the tools and I really just had my finger on the pulse. So I was reviewing emails in HelpScout every week and I could just get a sense of who was happy or who might not be happy, but that’s just not scalable.
And so now our managers do that where they try and keep their finger on the pulse that way.
But it’s not really metrics driven. So we’ve considered something like NPS… Sorry, Net Promoter Score for people that aren’t aware of what that is. What do you recommend to track something like that?
I think Net Promoter Score is great because it’s so simple. Ultimately, what is the metric of a happy client?
NPS asks the question, “Would you refer us to someone else in your network?” That’s what it asks. It just asks one question.
If the answer is yes, why? I mean if somebody is willing to refer you in trust to someone else in their network, then you’ve done the right job.
Yes, spot on. And so you’ve developed a framework to help service businesses with sustainable growth and I imagine that this framework ties into the metrics that we’ve talked about. Did you want to take us through that?
Scott Gellatly’s framework to help service businesses with sustainable growth
Yeah, sure. Well, I’m a creative wasteland, so it’s called the “3PM” model.
That’s about as interesting as I can get it. It’s about aligning People, Process, Platforms and Metrics together to create a scalable foundation to grow upon.
So you’ve got to have the right people in the right roles. You’ve got to have your customer experience instilled in how you deliver.
And you’ve got to have the technology platforms in place to create leverage and to underpin those people and those processes. Of course they’re going to give you the metrics you can use to measure the performance, which we talked about.
So that’s the model that we’ve adopted or that I’ve crafted to help people scale.
Brilliant. And you’re going to be offering something helpful to our listeners. Your Systems Blueprint. Could you tell our audience a little bit about what that is and how they can get one?
Systems Blueprint: What it is and how you can get one
Sure. Well, look, a bit like going to the doctor, you can’t make a decision on how you’re going to change your business until you really understand where the gaps are, where the problems are.
And much like the consulting firms and agencies and engineers that we work with, you’ve got to go through a diagnosis. So we offer what we call the Systems Blueprint, where we really look at the people, the process, the platforms, and the metrics that you have in the business right now.
And determine whether or not they support your growth goals. Where you’re going as a business. Identify those gaps and recommend a pathway to solving it.
Call it the Systems Blueprint. Kind of like building a house Meryl. You don’t just go and lay bricks, right?
Or it’s going to fall over. You got to go to an architect and get a drawing, right? You’ve got to get your idea, your concept, on paper first. And that’s what the Blueprint’s all about.
So we’ve got a couple of bonus questions that are related to finances, but before I ask those, is there anything else that you wanted to share about metrics for agencies or growing sustainable service businesses or anything else related to that concept?
The king of all metrics
Unless you’ve got another couple of hours, I won’t dig into too many other topics. But I will say one other thing that if you’ve already got margin utilization, qualification conversion, client satisfaction and team engagement ready to rock and roll in your business, the next metric you want to make sure, your bonus metric, average AR days, accounts receivable days.
You probably know this well, but it’s the silent killer of every services business.
Yup. Build that good cash this month. Sensational. 10K profit, 30K profit, looking good. Got any money in the bank? No.
No one’s paying me. That’s the real killer because as an agency owner, you’ve got to pay your team. There’s no getting around it. You got to pay them out.
And if you clients don’t pay you and you don’t pay them, you can’t invest in growth. So that is the silent killer of agencies.
Well, average AR days is a brilliant segue into a couple of final finance related questions. The first one is if there’s any books or resources that have helped you build your understanding of business finances?
Learning about finances from past failures
Oh yeah. It’s called the book of hard knocks. I wrote it entirely myself and it’s based on years of total failure in order to understand truth. Is it a physical book?
No. In fact, I wouldn’t even recommend reading it. I’d recommend skipping that and perhaps doing your course on key metrics and financial fundamentals and getting ahead of the game before you start this kind of business.
Brilliant. And lastly, what accounting software do you use? Well, actually, I know the answer to that question, but our listeners may not.
The accounting software Scott Gellatly swears by
I was going to say, you can answer that. Of course I use the one and only Xero.
Contributing to 90% of New Zealand’s GDP. I’m helping carry the flag for those boys over the ditch.
Love the platform. It’s so easy. And you know what? It just integrates everything.
Makes my life easy. I ain’t trying to do technology implementations, so use Xero everybody. Use Xero.
Well said. Well Scott, thank you so much for coming on the show. It’s been great and you shared some real gems around the metrics, but also the systems that professional service businesses and agencies can use to scale their businesses. So thank you.
Love your work, Meryl. Thank you very much for having me.
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Designed for non accountants who want to better understand and manage small business finances. Head over to beanninjas.com/course to learn more about our Financial Literacy course and to apply.Scale your agency business with metrics that actually matter. Check out these expert insights from Scott Gellatly @ScaleMyEmpire #metrics #growth #business #agency Click To Tweet