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How to calculate ‘true’ agency profitability: Part 3: How utilised are your people?

By July 16, 2019 November 19th, 2019 No Comments

In part 1 we talked through calculating the cost per hour of each of your delivery team, and in part 2 we looked at how to calculate client profitability. We now want to look at how much time your delivery team are spending on client work.

We need to caveat this analysis by saying that obviously the work has to be there in the first place first and foremost! It’s your responsibility as the owner/senior management of the agency to ensure that the work doesn’t dry up, and your delivery team consistently have projects to work on.

This also needs to be communicated correctly to the team. It’s about constantly improving what we do, spending more time in the right areas AND making their job more about what they love doing.

First of all, you need to come up with a realistic % target for each person delivering client work. This will vary across roles within the agency. For example, an Account Director should be spending much less time actually delivering client work compared to a Junior Web Developer. That being said, even someone solely responsible for client work can’t be 100% billable…it’s just not possible. Also remember that any targets AND analysis needs to exclude holidays and time off. Let’s say for a team of 5 you set the following targets:

  • Account Director = 20% client work i.e. 1 day a week on average
  • Senior Web Developer = 60% client work as some responsibility for new business
  • Senior Designer = 60% client work, same as above
  • Junior Web Developer = 80% client work
  • Junior Designer = 80% client work
  • Team Target = 60%

You now need to analyse timesheet data at the end of the quarter to see how the team are currently doing against these targets. So for example, for the Junior Web Developer this could look like:

  1. Total Hours Recorded

2. Less Holidays/Time Off

3. Hours Worked

(1 – 2)

4. Client Hours

5. Utilisation %

(4 / 3)

6. Target

7. Variance

480

32

448

320

71%

80%

(9%)

Now, as with the client profitability analysis, you have a document to take to your team to have conversation about current performance. Providing they have enough client work to be hitting their target, you need to be questioning them on where the non-client time is being spent. Are we having too many internal meetings? Are they spending too much time on administration tasks such as billing and procurement? Can we take anything off their to-do list by either delegating or creating a more efficient process?

Now the final step is analysing whether the client work itself is efficient, through analysing completed projects…

Keep your eye out for next weeks episode of ‘How To Calculate True Agency Profitability’.