How to Set Realistic Revenue Goals for Your Agency

By Hannah Roth, mad scientist and strategist, Predictive ROI

Are you an agency owner who dreams of doubling your revenue in the next few years?

While ambition is commendable, setting realistic goals is paramount for sustainable growth. As Drew McLellan teaches at AMI’s Money Matters workshop, just as many agencies die from indigestion as starvation. When you have a solid understanding of where your agency is currently, you can better navigate where your agency can realistically go (and how to get there!). Let’s break it down using what Drew dubs “Agency Math.”

Understanding Your AGI (Agency Gross Income) Goal

First things first, to set realistic revenue goals, you need to have a solid grasp of your AGI.

AGI = Gross Revenue – Cost of Goods

Start by assessing your AGI at the beginning of the year. Let’s pretend that your AGI on 1/1/2023 was $3,000,000. (Don’t read into that number. I’m using it as an example. 2023 was a rough year for most agencies, so quell the urge to panic if your agency wasn’t at $3 million). 

Next, you need to factor in the average attrition rate. If you don’t know yours, the average for agencies currently stands at around 15 percent. Accounting for attrition is crucial as it impacts your forecasted AGI, so if you don’t know yours, work on tracking that metric.

$3,000,000 (AGI) x 0.15 (attrition) = $450,000

Deciphering Growth Goals

Let’s say you aim to grow your agency by 25 percent annually. Seems reasonable, right? However, when considering the 15 percent attrition rate, achieving 25 percent growth actually translates to a whopping 40 percent increase to offset attrition losses. It’s essential to grasp this reality to avoid setting unrealistic expectations. Let’s look at our example from above:

AGI – Attrition = $2,550,000

• This means that if all variables stay the same, you will actually lose money in 2024 because you are not making up the lost revenue from attrition. 

• Now let’s look at what it takes to grow by 25 percent.

$3,000,000 x 0.25 = $750,000 (new revenue)

$750,000 + $450,000 (attrition) = $1,200,000 (new biz goal)

You can see that your 25 percent annual growth goal actually translates to 40 percent when you account for attrition. 

Prioritizing Existing Clients

Using another one of Drew’s principles, a significant portion (70 percent) of your net new revenue should come from growing existing clients. After all, it is easier to sell to people who already know, like, and trust you (or it should be!). Understanding this principle is pivotal as it helps determine how much revenue you need from new clients to meet your growth targets. 

Let’s continue with the example above:

• Growth Goal = 25 percent (which we now know is actually closer to 40 percent when accounting for attrition)
• The agency needs to make $1,200,000 in new revenue to reach this goal.

$1,200,000 x 0.70 (from existing clients) = $840,000 

Now, look at how many clients you currently have. For example, let’s say you have 20. Your average growth per client should be $42,000 annually. 

Balancing Revenue Sources

Breaking down your revenue goals further, we need to calculate the revenue coming from new clients. This strategic approach ensures a balanced revenue stream and mitigates the risk of overreliance on new business.

$1,200,000 (goal) – $840,000 (70 percent coming from existing clients) = $360,000 (new biz)

So, you should be selling $360,000 of new business in 2024 if you can increase your average client spend so that 70 percent of new revenue is coming from existing clients.

Ok, I know I’ve thrown a lot of math at you, so congratulations on your math degree! The gist is this:

• Know your numbers
• Account for attrition
• Understand what a realistic goal looks like for your agency
• Don’t underestimate the potential for new revenue from existing clients

By striking this balance, you pave the way for sustainable growth and long-term success for your agency.

To dive deeper — check out AMI’s workshop, Money Matters.