Year-End Agency Financial Review: 3 Metrics That Matter

It's December. Time to look back at 2025 and ask the important question:

Did we actually make money this year?

Most agency owners can tell you their revenue. But revenue doesn't pay the bills—profit does. And if you don't know your key financial metrics, you're flying blind into 2026.

Here are the three numbers that actually matter, how to calculate them, and what to do if they're not where they should be.

Metric #1: Average Project Margin

What it is: The percentage of profit you keep after all project costs.

Why it matters: You can have $1M in revenue and still go broke if your margins are thin. This metric tells you if you're actually building a sustainable business or just buying yourself a stressful job.

How to Calculate It

Project Margin = (Project Revenue - Project Costs) / Project Revenue × 100

Example:

• Project revenue: $10,000
• Project costs: $6,000 (labor, contractors, tools)
• Margin: ($10,000 - $6,000) / $10,000 = 40%

What's a Good Margin?

• Below 30%: 🚨 Danger zone. You're barely covering costs.
• 30-40%: ⚠️ Acceptable, but tight. Little room for error.
• 40-50%: ✅ Healthy. This is where you want to be.
• 50%+: 🎯 Excellent. You're pricing strategically.

If Your Margin is Too Low

Problem 1: You're underpricing

Fix: Raise your prices by 20% on your next three quotes. Seriously. Most agencies can raise prices 15-25% without losing clients.

What to say:

"Our rates have increased to reflect our expanded capabilities and the value we deliver. New projects start at [new rate]."

Problem 2: You're over-delivering

Fix: Stop doing free revisions. Stop throwing in "quick tweaks." Every hour of work should be in the quote or billed separately.

Problem 3: Your team is inefficient

Fix: Track time by task. Find where hours are bleeding. Create templates and systems to speed up repetitive work.

Problem 4: You're forgetting hidden costs

Fix: Include these in every quote:

• Project management time (15-20% of project)
• Internal communication overhead
• Revision rounds beyond the first two
• Risk buffer for scope creep (10-15%)

Metric #2: Quote-to-Close Conversion Rate

What it is: The percentage of quotes that turn into signed contracts.

Why it matters: If you're closing 20% of quotes, you need to send 5 quotes to get 1 client. If you're closing 50%, you only need 2 quotes. This metric tells you if your pricing and sales process are working.

How to Calculate It

Conversion Rate = (Signed Contracts / Quotes Sent) × 100

Example:

• Quotes sent in 2025: 100
• Signed contracts: 35
• Conversion rate: 35%

What's a Good Conversion Rate?

• Below 20%: 🚨 Something's broken (pricing, positioning, or qualification)
• 20-30%: ⚠️ Room for improvement
• 30-40%: ✅ Solid performance
• 40%+: 🎯 Excellent (or you're underpricing)

If Your Conversion Rate is Too Low

Problem 1: You're quoting the wrong prospects

Fix: Qualify harder before spending time on quotes. Ask:

• Do they have budget?
• Are they ready to start now?
• Are they talking to other agencies?
• Do they understand the value of what you do?

If the answers aren't "yes," don't quote yet.

Problem 2: Your quotes aren't clear

Fix: Make sure every quote includes:

• Clear scope of work (what's included, what's not)
• Timeline with milestones
• Pricing breakdown (not just a total)
• Next steps (how to accept and get started)

Problem 3: You're too expensive (or too cheap)

Fix:

• Too expensive: Improve your positioning. Show ROI. Offer payment plans.
• Too cheap: If you're closing 60%+ of quotes, raise your prices. You're leaving money on the table.

Problem 4: You're not following up

Fix: Most quotes need 2-3 follow-ups before a decision. Set reminders:

• Day 3: "Did you have a chance to review?"
• Day 7: "Any questions I can answer?"
• Day 14: "Should we schedule a call to discuss?"

Metric #3: Revenue Per Client

What it is: Average amount each client pays you over their lifetime.

Why it matters: It's easier (and cheaper) to grow existing clients than find new ones. This metric tells you if you're building relationships or just doing one-off projects.

How to Calculate It

Revenue Per Client = Total Revenue / Number of Clients

Example:

• Total revenue in 2025: $500,000
• Number of clients: 25
• Revenue per client: $20,000

What's a Good Number?

This varies wildly by agency type, but here's a framework:

• Below $10K: 🚨 You're doing too many small projects
• $10K-$25K: ⚠️ Decent, but could be better
• $25K-$50K: ✅ Solid client relationships
• $50K+: 🎯 Strong partnerships with repeat business

If Your Revenue Per Client is Too Low

Problem 1: You're doing too many one-off projects

Fix: Focus on retainer relationships. After every project, offer:

• Ongoing maintenance/support
• Monthly content/marketing services
• Quarterly optimization reviews

Problem 2: You're not upselling

Fix: Every client should get at least one upsell attempt:

• "Now that the website is live, let's talk about SEO"
• "Your email list is growing—time for marketing automation"
• "We should add analytics tracking to measure ROI"

Problem 3: Your projects are too small

Fix: Increase your minimum project size. If you're doing $5K projects, make your minimum $10K. Package services together instead of selling them individually.

Problem 4: You're not tracking client lifetime value

Fix: Calculate how much each client has paid you over time. You'll find:

• 20% of clients generate 80% of revenue
• Some "small" clients have paid you $50K+ over the years
• Your best clients come from referrals, not cold outreach

Double down on what's working.

Putting It All Together

Let's say you run a 5-person agency. Here's what good metrics look like:

Scenario A: Healthy Agency

• Average project margin: 45%
• Quote-to-close rate: 35%
• Revenue per client: $30,000

What this means:

• You're profitable on every project
• Your pricing and positioning are solid
• You're building long-term client relationships
• You have room to grow without burning out

Scenario B: Struggling Agency

• Average project margin: 25%
• Quote-to-close rate: 15%
• Revenue per client: $8,000

What this means:

• You're barely breaking even
• You're sending too many quotes that don't close
• You're doing too many small, one-off projects
• You're one bad month away from a cash crisis

The good news? These are all fixable problems.

Your 2026 Action Plan

Based on your metrics, here's what to focus on:

If Your Margins Are Low (Below 35%)

1. Raise prices on all new quotes by 20%
2. Audit your last 5 projects to find where hours bled
3. Create pricing packages instead of custom quotes
4. Stop free work (no more "quick tweaks")

If Your Conversion Rate is Low (Below 25%)

1. Qualify harder before quoting
2. Improve your quote format (clearer scope, better presentation)
3. Follow up more (2-3 touches per quote)
4. Ask for feedback when quotes are rejected

If Your Revenue Per Client is Low (Below $15K)

1. Increase minimum project size to $10K+
2. Offer retainers to every project client
3. Create upsell paths for existing clients
4. Focus on fewer, bigger clients instead of many small ones

The Metrics Dashboard You Need

Don't wait until next December to check these numbers. Track them monthly:

Monthly Metrics Checklist:

• [ ] Average project margin this month
• [ ] Quote-to-close rate this month
• [ ] Revenue per active client
• [ ] Cash in bank vs. outstanding invoices
• [ ] Utilization rate (billable hours / total hours)

Set a recurring calendar reminder for the first Monday of each month. Spend 30 minutes reviewing these numbers. When you spot a trend early, you can fix it before it becomes a crisis.

Tools That Help

Tracking these metrics manually is painful. Here's what makes it easier:

For project margins:

• Track time by project (Harvest, Toggl, or built into Tillage)
• Calculate costs in real-time
• Compare estimated vs. actual hours

For conversion rates:

• Log every quote sent (date, amount, status)
• Set follow-up reminders
• Track win/loss reasons

For revenue per client:

• Tag clients in your accounting software
• Run annual reports by client
• Identify your top 20% of clients

Or use a platform like Tillage that tracks all of this automatically and gives you a dashboard view of your agency's financial health.

The Bottom Line

You can't improve what you don't measure.

These three metrics—project margin, conversion rate, and revenue per client—tell you everything you need to know about your agency's financial health.

If they're good, keep doing what you're doing. If they're not, you now know exactly what to fix in 2026.

The agencies that track these numbers grow. The ones that don't... well, they usually don't make it to year five.

Which one will you be?

Want to track your agency metrics automatically? Try Tillage free and get real-time visibility into project profitability, quote performance, and client revenue. No credit card required.