Agency Finance: How Measuring Utilisation Can Help Your Agency Succeed
Utilisation, productivity, efficiency
Whatever you call it, having awareness and control of how much time your team is spending on billable work is one of the pillars of a successful agency. On a basic level you must:
Accurately record how much time your production team is spending on billable and non-billable work in real time
Whatever tool you choose to use for time sheeting, get buy-in from your team at an early stage. Help them understand the role they play in the profitability of the company and that by completing time sheets accurately and on a daily basis, they are simply communicating where they spend their time. If your team understand that this allows the business to become more profitable which means more secure employment and greater opportunities for them in the future, they are far more likely to fill out time sheets regularly.
Calculate your utilisation rate
To refresh your memory, utilisation rate is the amount of time a member of your team spends on billable work divided by the total time they are available e.g. weekly: 28 hours / 37.5 hours = 75%. This percentage should be calculated monthly at the very least and is usually averaged for the whole production team.
Set a target for the utilisation figure you want to achieve each month
Whether it’s 60% or 95%, you need to determine, on average, how much of your team’s time should be billable. Averages vary by industry and it may take some trial and error to understand what works for your business. Consider how much time you need your team to work on billable work per month to ensure you are hitting your target gross profit margin and go from there. Considering that 100% utilisation leaves zero time for team development, you could approach it from the opposite angle and ask how much time you would like your employees to spend on non-billable work. Just don’t forget to work out if your business can afford the figure you set.
Bear in mind that your utilisation figures for employees and freelancers shouldn’t be the same. The cost difference means that you can afford for employees to have a lower utilisation whereas, in most circumstances, freelancers should be as close to 100% as possible.
Review the previous month’s figures to understand what went to plan and what didn’t
Maybe you set your utilisation figure at 85% and it was actually 30%. If you are recording and reviewing this, at least you know something went wrong and you can make adjustments to avoid it happening again. Perhaps too many of your team were working on internal projects or over-burning on a particular client project. Whatever the cause, low utilisation figures will have a huge effect on your profit margin so pinpoint the issues to avoid making the same mistakes next month.
Plan for the future
While this is much easier with rolling projects, you can still use your sales pipeline to resource plan and calculate your expected utilisation for the next month and beyond. This ensures you are resource planning with an eye on the profit margin and helps make the overall financial projection for the business as accurate as possible.
Make sure someone is responsible for owning utilisation
Even though each member of your production team should take responsibility for their own time sheets, one person should own the whole process. Mistakes happen but if someone isn’t reviewing your time sheet figures and filling in the blanks, the data will be inaccurate and useless. Your time tracking tool also needs to be set up and managed effectively. Projects and tasks must be named accurately and your team may need advice on where to record their time to avoid mistakes.
Use the data
There’s absolutely no point taking the time to fill out time sheets if you don’t do anything with them. Done correctly you can use the data to:
Understand what is affecting the profitability of your production team month by month
Make future projections about your resourcing needs rather than at the last minute
Make early decisions regarding recruitment including when to use freelancers and when to hire employees
Preempt any team issues with overwork
Feel secure in the knowledge that the company’s gross profit is safeguarded by the utilisation target you set and aim for
To properly apply utilisation you’ll need to put in some legwork to set up and manage an effective time sheeting tool but the payoff is substantial. Understanding and using your utilisation rate to make decisions can have a hugely positive impact on your company’s profit margin. Without this knowledge, you are leaving your profit margin to chance.
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