Advertising agency owners take money out of their own pocket to stay overstaffed

I have found that most agency owners are very generous people. They love the people they work with and want to create an amazing working environment. They are also very slow when it comes to firing an employee – whether it’s because the person isn’t performing at the right level or because billings have dropped and they just don’t need that person any more. All of that is lovely. But, you are literally taking that money out of your own pocket when you make that decision. I can’t tell you how many times an agency owner has lamented to me, “I know I should let Carl go but he’s putting two kids through college.” Yup – and you are taking money that should be going into your kid’s college fund (or your retirement or investment account) and handing it to Carl’s kids. Even more than that – by not firing an employee, you are putting your entire agency at risk, for the sake of this one person. Your responsibility is to run the agency in a fiscally sound manner so that the agency survives the ups and downs of cash flow, clients coming and going and other economic factors. I saw way too many good agencies just close their doors in the last recession because the agency owner stubbornly held onto too many people and didn’t trim overhead expenses fast enough. One ratio that can help you stay in alignment is a rule of thumb we use at Agency Management Roundtable with our agency clients. On average, for every $100,000 - $125,000 in AGI (adjusted gross income = your gross billings minus your costs of goods sold) you should have one full time equivalent. If [...]

How many hours should ad agency employees work?

How do you track billable time in an agency, and how many hours should ad agency employees work? This is a question that comes up all the time in my work with agencies.  The expectation in terms of a work week ranges from 37.5 hours a week to 50 hours a week although most agencies will say 40 in terms of hours worked in a week.  So that gives us a range from 1950 hours a year to 2600 hours a year with most people citing the 2080 hours a year number (40 hours/week).  But given an average of 3 weeks of time off (vacation and sick) and 10 work holidays (which translates to 5 weeks off) that gets you down to 1762.50 (37.5) to 2,350 as a range with 1880 hours a year being the 40 hour work week average. So when you think about how you're going to track billable time, the rule of thumb is that no employee can be billable 100%.  So here’s the best practices expectations by job function: Project Managers/Production Managers — 80% which is 1,504 hours at the 1880 hours in a year model Sr. Account Staff who have more admin/new business responsibilities — 70% which is 1,316 at the 1,880 hours in a year model Account Executives (jr and mid range)  -- 80% which is 1,504 at the 1,880 hours in a year model Creatives (writers and art directors) -- 75% which is 1,410 at the 1,880 hours in a  year model Media — 90% which is 1,692 at the 1,880 hours in a year model   And then you have your admin folks, who if you can get 25% billable time from — that’s great. The [...]

Should my advertising agency take on debt?

All debt is not bad debt -- the question you need to ask yourself is 'should my advertising agency take on debt?" Every business faces the issues surrounding cash flow and keeping the money moving in and back out the door.  Advertising agencies are no exception. Until I actually owned my own agency, I didn't really wrap my head around the differences between how much income a business generated and the daily cash flow issues. As many of you have experienced -- you can have incredible billings but that doesn't mean you have enough money to make payroll. Sooner or later an agency owner is going to be faced with the question -- should I borrow some money? Here are some reasons NOT to borrow money: Work is slow and you're over staffed.  Billings won't cover payroll but you don't want to lay anyone off. Your computers are a few years old and the creatives are starting to complain. You've had to toe the line for the past couples years and not bonus yourself.  Your husband is making not so subtle hints about Hawaii. In other words -- don't borrow to avoid tough decisions, to keep staff the business does not warrant, to pay for disposable items (sadly computers now fall into that category) or to line your own pockets.  Those are emotional, short term feel good decisions that you will regret.  Over and over. On the flip side, there are times when borrowing makes sense.  None of these are absolutes of course. To buy a building that will house your agency for years and appreciate in value over time. (Do it as a separate LLC) To invest in an opportunity that could pay off [...]

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