Don’t cheat on your financial metrics

Hey, everybody. Drew McLellan here from Agency Management Institute, this week actually coming to you from a downtown hotel in Denver where we're holding our last peer group of the cycle. So a conversation we've been having a lot this spring with agency owners is around utilization and billability. So just a quick reminder, the billability is when you take all of your employees, anyone who gets a W-2 from you, and you multiply that number of people by 1,920, which is 48 hours of 40-hour work weeks. That's about the bucket of hours that you have as an agency. You then calculate how many of those hours are spent on billable tasks, whether they did bill to a client or not. That's your billability percentage and you want to be at 75% or higher, including all of your W-2s, including your non-billable people. And if you can hit that 75 number, what that means is hopefully you can hit 65% of that same bucket of hours actually gets put on a client invoice. I know you don't bill by the hours, but the dollar amount. So you would multiply how many ever hours the billable time you have and you would multiply it by your average blended rate and then you would see how much of that moves over to actual invoices. So super important, it's one of the most important metrics for an agency owner to measure. So the question we got was, hey, if we're using freelancers or contract labor, should I count them or can I count them in the billability and utilization numbers because they're 100%? And so that would really improve my numbers. This is not about gaming the system. The metric is too important for you to start putting false data into the dataset so your numbers look better. This is one of the number one reasons why you're not more profitable is because your utilization. Too many of your hours are either non-billable or they're billable but they're not moving over to an invoice. So don't game the system by adding contractors who by default, of course, are going to be at 100 or close to 100%. It's sort of like saying you are on a quest to lose weight and you hop on the scale, and you're not crazy about the numbers. So then you talk yourself into saying, well, you know what? I had a steak for dinner last night and I had a big breakfast, so that's probably 10 pounds. That's going to work its way right through me. So I'm just going to subtract that from the scale. Accuracy is what is most important, so make sure that your billability and utilization numbers are clean, are accurate, and only include W-2 employees because otherwise, you can't know the truth and you can't start diagnosing why the numbers aren't what they should be. All right? So no cheating on billability or utilization numbers. I'll see you next week.