The Problem With Benchmarking and What to Do Instead
About this Episode In this solo episode, Marcel tackles a big end-of-year question many agency owners face: Are we performing well? While it’s tempting to compare your agency to industry benchmarks like rates or revenue per FTE, Marcel explains why these absolute metrics are often misleading and rarely provide real answers. Instead, he highlights the power of focusing inward—building a clear understanding of your agency’s unique model, its capacity, and key performance drivers like utilization, delivery margins, and profitability. Marcel shares practical steps to map out your agency’s structure, set healthy targets, and measure performance against meaningful benchmarks that reflect your goals—not someone else’s. Plus, he introduces Parakeeto’s new modeling tool (now in beta) to help you simplify the process. If you’re ready to ditch unhelpful comparisons and take control of your agency’s success, this episode will give you the clarity and tools you need to start 2025 strong!
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Show Notes
Points of Interest
- 00:00 – 00:47 – Intro and Gratitude: Marcel thanks listeners and sets up the episode's focus on benchmarking traps and performance evaluation.
- 00:47 – 01:33 – The Benchmarking Trap: Marcel introduces the risks of relying on external benchmarks instead of understanding your agency’s internal performance model.
- 01:33 – 02:53 – Rate Benchmarking Limitations: Marcel explains why comparing rates fails to provide meaningful insights, especially with modern pricing models.
- 02:53 – 05:00 – Flat Fees and Efficiency: He discusses the rise of value-based and project pricing, and how efficiency affects realized rates.
- 05:00 – 06:08 – Realized Rates vs. Rate Cards: Marcel highlights that listed rates (rate cards) rarely reflect the actual rates agencies earn.
- 06:08 – 07:29 – The Power of Average Billable Rate: Marcel introduces average billable rate as a more meaningful metric, blending efficiency and pricing insights.
- 07:29 – 09:30 – Challenges in Measurement: Marcel explains why few firms measure key metrics like average billable rate and the inconsistencies in benchmarking them.
- 09:30 – 12:26 – Revenue per FTE Caution: He critiques absolute revenue-per-FTE benchmarks, emphasizing cost structure and geography's role in profitability.
- 12:26 – 14:00 – Look Inward First: Marcel urges agencies to focus inward on their business models instead of seeking external validation.
- 14:00 – 17:33 – Understanding Your Agency Model: Marcel explains how to map team structure, capacity, and time allocation to determine delivery and utilization ceilings.
- 17:33 – 19:48 – Budgets and Cost Breakdown: He emphasizes categorizing hard costs into delivery, sales, admin, and facilities to build a clear financial model.
- 19:48 – 22:44 – Revenue Potential Example: Marcel demonstrates how capacity, utilization rate, and average billable rate determine an agency's revenue potential.
- 22:44 – 25:00 – Delivery Margin and Overhead Benchmarks: He shares benchmarks for delivery margin (50–60%) and overhead costs (20–30% of AGI) to evaluate profitability.
- 25:00 – 28:47 – Operating Profit Targets: Marcel outlines healthy operating profit margins (20–30%) and explains how utilization and billable rates interact within a model.
- 28:47 – 31:00 – Beta Tool for Agencies: Marcel announces Parakeeto’s beta software for modeling agency performance, offering free access for listeners to analyze and improve their businesses.
Show Notes
- Pricing models / Margin Targets
- Episode on Rates
- Toolkit Link
- Link for our beta free access to our model software
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