When I speak with agency owners there is always a lot of confusion around the related topics of billability versus utilization. I take a couple minutes in this video to help you understand both concepts.
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Hey everybody. Drew McLellan here from Agency Management Institute. This week I am coming to you from downtown Denver, Colorado. A couple weeks ago in a video I talked to you about the importance of doing daily timesheets. And that when I meet an agency that is not tracking their time, I know that that means that there is a storm coming in, that they are about to hit bad weather. I’m hoping that all of you, after you watched that video, went, my gosh, Drew, that is right. We should start tracking our time, and you’re doing it. Or, you went, I’ve heard you Drew. Heard it here for years, and we’ve been tracking our time for years. Either way, I’m hoping that you are now tracking your time, and getting it tracked daily. So, now that you’re doing that, here are two metrics that you should be looking at based on those numbers. The first one is, everyone in your agency should have a billable target. Which means, how much of my time that I spend inside the agency should be spent on billable work? So that is work that might be done on behalf of a client. Some of you may be treating your own biz dev as billable work. And your employees are going to range anywhere from, some employees might have no billable targets, they’re completely unbillable, and others are going to be uber billable. They might be at 85 or 90% may be their goal. So that’s number one. Every agency function, not by person, but by function, should have a target billable ratio. So, how much of my time is spent doing billable work? The second part of that equation is how much of that billable time can we actually bill clients for? So in other words, if I’m a copywriter, and I have spent 10 hours on a job. That’s how many billable hours I have. That’s my billability, but my utilization is how many of those 10 hours could we actually put on an invoice for a client, or charge against a retainer? How much of it can we actually bill the client for? So, that number is going to be smaller because maybe of the 10 hours that I spent on that job, I was actually only allotted six hours, and I spent four extra hours on it for whatever reason that we can’t bill the client for. So, billability and utilization. Two critical timesheet-based metrics that will help you know if your agency is being run well, if you are being efficient, if you are writing off too much time, if your estimates are wrong. Lots of data, lots of insight comes from looking at billability and utilization. All right. I’ll talk to you next week.