What KPIs should an SEO agency track to stay profitable?

Key takeaways

• Track gross margin per client, not just total revenue. This shows you which SEO retainers are truly profitable after paying for team time and tools.
• Measure your team's utilisation rate. Aim for 70-80% billable time to ensure you're not paying for idle capacity while avoiding burnout.
• Calculate revenue per employee. This is your ultimate efficiency metric; growing agencies should target £80,000 to £120,000 per person annually.
• Monitor your cash conversion cycle. The time between doing the work and getting paid directly impacts your ability to invest and grow.
• Use project margin tracking for one-off campaigns. Every SEO project should have a pre-defined profit target, typically 25-35%.

Why do most SEO agencies get profitability KPIs wrong?

Most SEO agencies focus on client-facing metrics like rankings and traffic, while ignoring the internal numbers that determine if they make money. They might know a client's domain authority improved, but not if that retainer lost them £2,000 last month. Profitability isn't about how much you bill; it's about how much you keep after all costs.

In our experience working with SEO agencies, this is the most common financial blind spot. Owners get busy with client work and assume that if money is coming in, the business is healthy. But without the right SEO agency profitability KPIs, you're flying blind. You could be growing revenue while your actual profit shrinks.

The fix is to track a handful of commercial metrics alongside your SEO performance dashboards. These numbers tell you if your business model works. They help you price retainers correctly, manage your team efficiently, and make smart decisions about which clients to keep and which to let go.

What are the essential key financial metrics for agencies?

The essential financial metrics for an SEO agency are gross margin, utilisation rate, and revenue per employee. Gross margin shows your profit after direct costs. Utilisation rate shows how efficiently your team's time is used. Revenue per employee measures your overall business efficiency and scalability.

Let's break down each one. Your gross margin is the money left from a client fee after you pay for the direct costs to deliver that work. For an SEO agency, the biggest direct cost is your team's salaries (or freelancer fees). If you charge a client £3,000 a month and the SEO specialist working on it costs you £1,800 in salary, your gross margin is 40% (£1,200).

Your utilisation rate is the percentage of your team's paid time that is billable to clients. If you pay a full-time employee for 160 hours in a month, but they only log 120 hours to client projects, their utilisation is 75%. This is a critical key financial metric for agencies. Low utilisation means you're paying for capacity you're not using. Too high utilisation leads to burnout and no time for business development.

Revenue per employee is your total revenue divided by your number of full-time team members. It's a simple measure of how productive your business model is. If you have 5 people and bill £500,000 a year, your revenue per employee is £100,000. This number helps you plan hiring. You shouldn't hire a sixth person until you're confident you can generate enough new work to maintain or grow that average.

How do you track gross margin for SEO retainers?

To track gross margin for SEO retainers, you need to allocate your team's time and costs to each client. Start by tracking time spent on every client task using a tool like Harvest, Clockify, or Toggl. Then, apply the cost of the people doing the work to calculate the true cost of delivery for each retainer.

This sounds obvious, but many agencies don't do it. They look at their total salary bill and total revenue and call the difference profit. That's wrong. It hides which clients are profitable and which are loss-makers. A client paying £5,000 a month might seem great, but if it requires two senior strategists whose combined cost is £4,500, your margin is thin.

Here's a practical method. First, get your team to log time accurately. Categorise time as billable (client work), non-billable (internal meetings, training), or business development. Second, calculate a "burdened" hourly rate for each team member. This is their total employment cost (salary, pension, taxes, benefits) divided by their expected billable hours per year.

For example, a specialist costing £50,000 per year in total employment costs, with a target of 1,000 billable hours annually, has a burdened rate of £50 per hour. If they spend 20 hours a month on Client A's retainer, the direct labour cost is £1,000. If the retainer fee is £2,500, the gross margin is 60%. This level of project margin tracking is non-negotiable for profitability.

What is a good utilisation rate for an SEO team?

A good utilisation rate for an SEO team is between 70% and 80%. This means your billable team members spend 70-80% of their paid time on client work. The remaining 20-30% is for internal meetings, training, admin, and business development. This balance maintains profitability without burning people out.

A utilisation rate below 70% often means you have too much staff capacity for your current client load. You're paying people to be underutilised, which eats into your profits. Conversely, a rate consistently above 80% is a red flag. It means your team has no breathing room. They can't improve their skills, document processes, or help pitch for new work.

Track this by department. Your SEO executives and specialists should be at the higher end of that range. Your strategists and account directors will have lower utilisation because part of their role is non-billable client strategy and commercial oversight. Don't average everyone together. Look at the utilisation of your delivery team specifically.

Improving utilisation is about balancing supply and demand. If your rate is low, you need more client work or to reduce team size. If it's too high, you need to hire before quality suffers and people leave. This metric is a leading indicator of both profitability and operational health. Specialist accountants for SEO agencies often find this is the first lever to pull to improve margins.

How can revenue per employee guide your growth decisions?

Revenue per employee guides growth by showing you how efficient your business model is before you hire. It answers a simple question: does adding a person add more value than it costs? A rising number means you're scaling efficiently. A falling number suggests you're adding overhead faster than revenue.

For a growing SEO agency, a good target for revenue per employee is between £80,000 and £120,000 per year. This range accounts for different agency models and seniority mixes. A boutique specialist agency with high fees might be at the top end. A volume-based agency with junior executors might be at the lower end, but should still aim for at least £80,000.

Use this KPI when considering a new hire. If your current revenue per employee is £100,000, hiring a new person at a total cost of £50,000 means you need to find at least £50,000 of new, profitable revenue just to break even on that hire. Ideally, you want them to generate more, so your overall average improves.

This metric also helps you spot problems. If your revenue is growing but revenue per employee is falling, you're becoming less efficient. You might be hiring too quickly, or your pricing might not be keeping pace with your costs. It forces you to think about value, not just headcount. As highlighted in our AI impact report for agencies, leveraging technology can be a way to boost this number without immediately adding people.

What does project margin tracking involve for one-off SEO campaigns?

Project margin tracking for one-off SEO campaigns involves estimating all costs before you start, then comparing the actual costs to the fixed project fee. You need to account for strategy time, content creation, technical work, project management, and any software or external costs. The goal is to deliver the project within a pre-defined profit margin.

Unlike retainers where you can adjust scope monthly, projects have a fixed price and a fixed scope. If you get the costing wrong, you eat the loss. The first step is a detailed scope of work. Break down every deliverable. Then, estimate the hours required for each task and who will do them (with their burdened hourly rate).

Add a contingency of 10-15% for unexpected tasks or revisions. Then, add your target profit margin. A common target for project work is 25-35% net profit. If your calculated costs are £7,500 and you want a 30% margin, you need to price the project at around £10,700. Many agencies just guess or use a multiple of their hourly rate, which is why project margin tracking often reveals unpleasant surprises.

During the project, track time and costs against your estimate weekly. If you're burning through the budget faster than planned, you can identify why and take corrective action—perhaps by streamlining a process or clarifying scope with the client. After the project, do a post-mortem. Compare estimated vs. actual margin. This is how you improve your estimating accuracy and protect profitability on every job.

Which operational KPIs impact SEO agency profitability indirectly?

Operational KPIs that indirectly impact profitability include client retention rate, average client lifetime value, and debtor days. Keeping clients longer is cheaper than finding new ones. Getting paid quickly improves your cash flow, which is the lifeblood of growth. These metrics support your core financial health.

Client retention rate is crucial for SEO agencies. The cost of acquiring a new client is high. If clients leave after 6 months, you're constantly spending on sales and onboarding. A healthy SEO agency should aim for an annual client retention rate of 80% or higher. This means you keep at least 8 out of 10 clients each year.

Average debtor days measures how long it takes clients to pay you. If your payment terms are 30 days but your average debtor days are 45, you're effectively giving clients a 15-day interest-free loan. This ties up cash you could use to pay salaries or invest in tools. Set clear terms, invoice promptly, and follow up on late payments. Getting this number down to 30-35 days is a strong operational goal.

Track your pipeline coverage too. This is the value of probable new business in your sales pipeline compared to your revenue target. If you need £30,000 in new retainers next quarter, your pipeline should contain at least £90,000-£120,000 of opportunities. This reduces the panic discounting that kills margins when you're desperate for work. Using a financial planning template can help you model these scenarios.

How often should you review your SEO agency profitability KPIs?

You should review your core profitability KPIs monthly. This gives you a regular pulse on the business and allows for timely adjustments. Have a formal monthly management meeting where you look at gross margin, utilisation, revenue per employee, and cash position. Review project margins at the end of each project and quarterly in aggregate.

Monthly reviews prevent small problems from becoming big ones. If you see one client's margin dropping for three months in a row, you can investigate. Is scope creeping? Is the team spending too much time on low-value tasks? You can then have a data-driven conversation with the client about adjusting the retainer or scope.

Some metrics, like pipeline coverage, should be reviewed weekly in a sales meeting. Others, like annual client retention rate, are reviewed quarterly. The key is to build a rhythm. The data is useless if you don't look at it regularly. Make these KPIs visible to your leadership team. A simple dashboard with these numbers can focus everyone on commercial health, not just delivery output.

Ultimately, the right SEO agency profitability KPIs give you control. Instead of wondering where the money went at the end of the year, you steer the business month by month. You make informed decisions about hiring, pricing, and which opportunities to pursue. This discipline is what separates agencies that survive from those that thrive. For more on building a resilient agency model, explore our agency insights.