There’s a delta between what your agency could be earning and what you earn today. If you don’t know what that is — how can you solve for it so you can close the gap.

This is an example of agency math that every agency owner should understand and be applying to their shop.

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Hey everybody, Drew McLellan here from Agency Management Institute, this week coming to you from the beautiful Oregon coast where I'm getting in a little R&R and a little bit of work. This week I want to talk to you about opportunity cost. I want you to think about what you should be making or could be making in your agency versus what you're currently making. So here's how we're going to do this. We're going to have to do a little math so grab a piece of paper and a pen and maybe a calculator. And here's the math we're going to do. So we're going to start with 1920. So 1,920, that is 48 hours times... Sorry, 48 weeks times 40 hours. So that's the full capacity of someone on your team billed every hour they had, which I know they're not going to so we'll get there for a minute. That's their full capacity to be billable. All right? So I'm going to then take the number of employees I have. So let's say I have 10 employees, I'm going to multiply that by the 1920. So now I have 19,200 hours that are available to me as the agency to convert that into revenue. All right? Now, what I want you to do is I want you to multiply that number, so in my example, the 19,200, by your billable rate. So for most of you, that's $150 an hour so you're going to multiply 19,220 by $150. And basically that number is, if everyone on your team was 100% billable, you would be making that dollar amount. Okay? So I want you to compare that dollar amount to the AGI that you are currently earning at your agency. And there's the delta. Now, you're never going to have all of your people billable at 100% of the time and you have non-billable people, so how do we factor that in? Now, remember our goal is to have 70%, 70-75% of all available hours be put against billable tasks. So you're going to take that number, that 19,200 times 150, you're going to take that and you're going to multiply it by 0.7. And that's really what your maximum capacity is, that you and the agency are going to get to. So now I want you to compare that number because that's a realistic number. It's a lofty goal number but it is possible for you to get there. I want you to take that number and realize... Let's say that number ends up being $3 million and you're a $2 million shop. What that means is there's a delta of $1 million that you could and should be earning in your agency and you're not. So this week I just want you to do the math and I'm going to include in the video a link to a URL that's going to give you this math. So if you didn't jot all this down, don't worry. I'm going to give you an example of how to do it. But, I want you to do that this week. And then next week, we're going to talk about how do you figure out why you have the delta that you have and how do you begin to close the gap? All right? Hopefully that's helpful. We'll dig into it some more, next week. And I'll see you then. Thanks.

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