Smart Financial Goal Setting for Agencies: Beyond Revenue Targets

A framework for setting (and actually hitting) your 2025 financial goals

Hey there, Welcome back to Agency Finance Letters. This one will be a 5 min read.

Recently, I was reviewing goals with an agency owner who showed me their 2025 target: "Hit $5M in revenue." When I asked about their path to get there or what their margins would look like at that level, there was no clarity here. This is a common pattern - agencies often set arbitrary revenue goals without considering the full financial picture. Let's fix that... Here's how successful agencies approach financial goal setting:

1. The Three-Lens Framework Don't just pick a random revenue number. Set targets across these three areas:

• Revenue Goals: Your top-line growth targets

• Profitability Goals: Your bottom-line expectations

• Cash Flow Goals: Your liquidity requirements

Pro tip: For each $1M in revenue, aim to have at least $250K in clear profit and maintain 2 months of operating expenses in cash.

2. Break Down Your Revenue Goals Revenue isn't just one number. Here's how smart agencies segment it:

Net Revenue Retention (Your Growth Engine)

• Target minimum 100% net retention from existing clients

• Track expansion revenue per account (aim for 20%+ growth per retained client)

• Pro tip: A 100% net retention rate means that growth of existing client accounts will offset any churned clients

Revenue Mix

• Recurring Revenue: Set a minimum target (aim for 60%+ of total revenue)

• Project Revenue: Maximum percentage of total (keep under 30%)

• New Business: Should be your smallest revenue source (under 40% of growth)

3. Set Clear Profitability Markers Create specific targets for:

• Gross Profit Margin: Minimum 60% (revenue minus direct costs)

• Operating Profit: Target 25-40% of revenue

• Net Profit: Target 20% - 25%

• Employee Cost Ratio: Keep under 60% of revenue

4. Monthly Milestone Planning Don't wait until December to check your progress:

• Set monthly revenue and profit milestones

• Create a monthly cash flow forecast

• Schedule monthly financial review sessions

• Track variance from targets (and adjust accordingly)

5. The Goal Stress Test Before finalizing your goals, run them through these questions:

• Do you have the team capacity to hit the revenue target?

• Can your cash flow support the growth?

• What investments will be needed to achieve these goals?

• Are your profit margins sustainable at the target revenue?

Remember: Goals without a plan are just wishes. Take time this week to run your financial goals through this framework.

If you need help pressure-testing your 2025 goals or want a second set of eyes on your numbers, just hit reply.

Happy New Year, and see you next week!

Cheers,
Joey

P.S. If you found this framework helpful, consider sharing it with another agency owner who might benefit.