Those two data points, how many hours of your staff is spent on billable tasks, and how many of those hours are you able to actually apply to an invoice, have nothing to do with billing. They have everything to do with whether or not you have the right number of resources on your team to efficiently and profitably get your work done.

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Hey everybody, Drew McLellan here from Agency Management Institute. This week, coming to you from Jackson Hole, Wyoming. You know, I got an email this week from someone who said, “Hey Drew, I know that you’re always talking about the fact that we need to add up all of our hours of all of our billable and non-billable people, and 75% of those hours need to be spent on billable tasks. and 75% of those hours need to be spent on billable tasks. And 65% of those hours need to actually be utilized, or put on a client invoice. But you know what? We don’t bill by the hour. We only bill by retainers. So I’m assuming that doesn’t matter to us.” And when I wrote him back, I said, “Actually, those numbers absolutely matter to you. I don’t care if you bill, however you bill, it doesn’t matter. Retainer, prebills, I don’t care if you get paid by chickens. It does not matter. Those two data points, how many hours of your staff is spent on billable tasks, and how many of those hours are you able to actually apply to an invoice, have nothing to do with billing. They have everything to do with whether or not you have the right number of resources on your team to efficiently and profitably get your work done.” So again, if you take all of the hours of your entire team, billable and non-billable, 75% of those hours should be spent on billable tasks. 75% of those hours should be spent on billable tasks. And if you can’t get to that 75%, what it tells you is one of two things. Either one… One of three things really. 1. You don’t have enough money, you don’t have enough projects, you don’t have enough AGI to justify that number of people. 2. You might have too many non-billable people, and not enough billable people. Or 3. Your people are spending too much time on something that is not coded as a billable task. And if you can’t get to 65% of your time, 60-65% of that time, of everybody’s time, actually being billed to a client. And again, it doesn’t matter if you bill by the hour, it’s really just about the dollars that those hours represent, is that the same number of dollars that you bill all of your clients? And if that’s not the case, what it’s saying is, boy, even if you hit that billable number, if your utilization numbers aren’t right, what it means is, perhaps, your system is bloated, or your process is bloated, and people have to spend too much time on tasks, and they end up going over budget, and you can’t bill it. It may mean that your estimates are off, and you’re not actually allowing for enough time. So your team is spending more time on the projects, but they have to honor the estimate, therefore they have to write off some of that billable time, and the utilization numbers are too low. It could also mean that you’ve got a billing error problem, and that may be something you need to fix. But the reason why you track billability and utilization, But the reason why you track billability and utilization, it’s not about the actual billing, it really is about how you’re using the resources of the people that you have on your team. So, whether you bill by retainer, you bill by chicken, you bill by whatever, remember, billability and utilization are critical numbers for you to be tracking every single month, okay? for you to be tracking every single month, okay? I’ll see you next week.

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