In the world of service-based businesses, particularly digital agencies, there’s a constant tension between selling time and delivering value.
Many agency owners feel a sense of unease about the “selling time” model, preferring to focus on building assets and selling based on value. However, the reality is that an agency’s revenue is fundamentally driven by the available resources—the people on the team. This is where a well-executed capacity plan becomes your most powerful tool.
What is Capacity Planning?
At its core, a capacity plan is about aligning your revenue targets with the team you have in place, rather than simply benchmarking against what other agencies are doing. Your business is unique; it serves specific sectors, attracts different price points, and employs individuals with varied skill sets and salary expectations. The capacity planner takes all these unique factors into account, helping you determine an appropriate revenue target for your specific business.
The plan works by considering:
- The number of people on your team and their working hours (full-time or part-time).
- The proportion of their time spent on client work versus non-client work.
- The associated costs, such as salaries and other overheads.
By crunching these numbers, the capacity planner can tell you the minimum charge-out rates you need to achieve your desired financial performance.
Beyond the Basics: A Tool for Strategic Change
While it provides a crucial sense-check for pricing and profitability, the real power of the capacity planner lies in its ability to drive strategic change. As one of our clients discovered, it’s not just a snapshot of your business today, but a canvas for your future ambitions. By creating different tabs or scenarios within the plan, you can model different business models and test new ideas.
For example, our client used a second tab to model a future where they could achieve the same profitability with half the staff, by moving away from a design-and-build model to a more design-led business. This allowed them to plan for new roles, such as a strategist, that they didn’t yet have but knew were essential for their new direction.
Don’t Let Simplicity Fool You
Some may initially find the capacity planner too simplistic, believing it can’t account for the complexities of real-world business—like different clients paying different rates or team members performing multiple roles. However, this is a misconception. The plan is a flexible template that can be layered with specific details. You can duplicate a team member on different lines to reflect the varied rates they charge across different clients.
The key to unlocking its full potential is to make it a live document. By regularly tracking your actual performance against the plan, you can conduct a variance analysis to understand the “why” behind any discrepancies. Is it a utilization issue? Are your charge-out rates not what you thought they were? Or are there inefficiencies in your processes that are leading to written-off time?
The Bridge Between Budget and Reality
The capacity plan serves as a vital bridge between your annual budget and the day-to-day reality of your business. While a budget outlines your hopes and expectations, the capacity plan translates that ambition into tangible, actionable numbers. It allows you to de-risk your budget by identifying potential problems in advance and proactively making changes to achieve a better outcome.
Ultimately, the capacity planner is not about working people to 100% capacity. It’s about getting the best return from the sensible use of your team and making informed decisions about your business’s future. It’s about making it work on paper before you bet the farm on it in reality.
