There’s always a delta between how much your agency could earn and how much you actually do earn.

There are some very straightforward reasons why this delta exists and some fixes to close that gap. In this video, I’ll share some ideas on both.

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Hey, everybody, Drew McLellan here from Agency Management Institute, this week, coming to you from New York City. In last week's video, we talked about opportunity cost, and I gave you some math to figure out. What the delta was between what you could be making and what you're making. And what I promised in that video is that in this week's video, we would talk about why you have that delta. So when I work with agencies and we first calculate what they could be making, and we look at what they are making, usually there's a pretty big gap. And remember that that opportunity cost is calculated by looking at all of your agency's hours, so billable people, non-billable people, all of that, adding them up and then sort of figuring out, on average, how many of those hours are actually billed to a client. But it starts with thinking about your billability. So how much of your agency's time is actually spent on billable tasks? Now this isn't suggesting that you are actually billing by the hour. What it is, is how much of our time is spent on things that we could charge the client for, regardless of how you do that, retainer, project fee, time and materials, it doesn't really matter. 75% of all of your agency's time should be spent on billable tasks. And honestly, most agencies are nowhere near it. So this week, let's talk about why that would be. So it's a couple of things. Number 1, it may be that your estimates are too low, and so your people are managing their time sheets to match the estimate, in other words, if it took them 8 hours to do it, and they only have 7 hours allotted, they're going to write 7 hours. So first of all, it could be time sheet accuracy, combined with the sort of appropriate level of estimates and making sure that you have enough time to actually do the work. Number 2, another reason why, is because you have somebody on the team, or you have a set of people on the team, who are not well-trained or they're brand new, and so they're slow at the task. So they are spending more time on the task and they are, again, not accurately recording that on their time sheets. Because this is not about what you actually bill the client, this is just where people spend their time. Another big one is that your codes, your time tracking codes, are confusing, or that people are miscoding some of their time. So for example, they're saying, "Well, I'm the supervisor on that account, but I wasn't actually tasked with doing the work, so even though I spent an hour overseeing a piece of creative, I didn't charge that as billable because, you know, I wasn't actually on the job." So one of the things you absolutely have to do is audit time sheets and start looking at what people wrote down, especially if somebody is just really never hitting their billability mark. Start looking at the time sheets, because it may simply be that they're putting their time in the wrong spot, and they're putting it in a non-billable spot rather than a billable spot. Another reason why you might not have the billability percentage that you're looking for is that you're overstaffed. And so if there's just not enough work to go around, your people are going to fill their time with non-billable tasks, if they actually aren't assigned enough billable tasks. So all of these are good reasons for you to look at your billability, which I'm going to ask you again to do. If you need the formula of how to do that, go back to last week's video. There was even a PDF you could download that sort of gave you the equations, and do that. And now next week, we're going to talk about why the hours that you actually bill a client may not be at the 60% that we need it to be, all right? I'll be back next week. See you then!

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