Agency owners constantly ask me why they are always busy but are not making more money. The answer?—we write off too much time and overservice our clients to the death of our agencies.
How do we figure out how badly we are writing time off? What is your billability, and what is your utilization? Billability is how many hours your employees are working doing billable tasks, tasks that can be billed directly to a client you already have. Utilization is “hours” you actually assign to an invoice to a client. You do not have to bill by the hour, but it still starts with figuring out how many hours a task will take and adjusting your flat fee you charge your clients accordingly. Billability should always be more than your utilization. Your goal should be 65% of all available hours are utilized, meaning your billability average should be 75%. Keep in mind you will almost always overservice your clients. Every billable hour will not actually be billed, and that is okay as long as you stick to the goals above.
One problem could be that your agency has too many people and employees are taking more time than necessary to complete tasks. This is called Parkinson’s Law. Each task you assign with a due date or time will use the full amount of time available to complete it, even if it can be completed quicker. You might have too many people, and there is not enough work to keep each of them busy at a pace that is reasonable.
Another problem is overservicing your clients. Be clear with your team about how many hours there is to work on a project. People go over because they are perfectionists. You want your work to look good, but remember that some projects are more nuanced than others. A flyer should not take as long an intricate art project.
Your estimates might be bad as well. Employees giving you times in which they can finish projects in a perfect world. These times mean they will not be bothered by family issues, other clients, and various interruptions; realistically, this will never happen. Instead, ask everyone however many hours they will spend on a project (their perfection time) and multiply that by 1.3. This will be a much more realistic timeline for projects getting done, and your and your clients profitability will be more realistic.
You might have one of these issues, or you might have all of these issues. Find the sweet spot on clients, improve your scope documents, use the estimate hack, have a system in place for your team so they know exactly how many hours they have to complete a job, and create a system of checks and balances so you can fix problems along the way. Fixing these things will improve your revenue and allow you to keep more of it.
This podcast was originally broadcasted on sweetfishmedia.com