AMI’s Drew McLellan talks about a financial metric that helps you determine if you have the right number of non-billable FTEs.
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Hi, Drew McLellan here from Agency Management Institute. As you can see, I’m actually home today, but I’m heading out to Santa Fe tomorrow morning. So before I get on a plane, I wanted to talk to you about something that several agency owners have asked me about in the last week or so. For many agencies, one of the balancing acts that we have to perform every day is how do we get the work done and do we get the work done with W2 income people (people on our staff), do we use freelance work, and inside of our w-2 team, inside of our actual core team of employees, how many of them should be billable versus non billable? So first, the way I define a billable employee is somebody who is billable at least 50% of their time. So the metrics around billability are different than that, but certainly at the minimum someone should be billable at 50% of their time or 50% of their tasks that you’re assigning to them on a weekly basis should be billable to a client. Otherwise, they’re a non-billable employee, and typically that’s going to be the agency owner, it’s going to be whoever handles your books—CFO, accountant, bookkeeper, whatever you call them. Some of you still have a receptionist or somebody on the front desk, so that person would probably be non-billable. So when you look at all of the people who serve in a non-billable function, your goal is that you have no more than 20% of your staff, so one out of five of your employees should be non-billable. And if you do that then what it means is the billability of the other four will carry the burden, the financial burden, of the non-billable person. Absolutely, you need to have non-billable people in your shop. They make your billable people more billable. So they are doing tasks that take everyone’s focus and attention away from the billable work that we do for clients. And again, this has nothing to do with whether or not you bill by the hour. This is just about how do we get compensated for someone’s time. So everybody needs non-billable people, and in fact, if you have no one on your staff that’s non-billable, and in fact if you the owner are 100% or 75% billable, that’s a problem. Because what means is no one is actually running the business. No one’s working on the business. They’re so busy working in the business. So a great metric for you is one out of five. One out of five of your staff people, counting you, should be non-billable. Hope that helps.