Improving Agency Profitability By Measuring Internal Capacity

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If you wish you were more profitable, then make sure you listen to this episode!  

My most read blog is called ‘Being a Busy Fool”. It clearly resonates with a lot of people, and it's also obviously a search term that a lot of business owners are typing on to Google!

After all, we can all be really busy run ragged, servicing clients, trying to catch our breath whilst recognising that we are not doing many of those ‘running the agency’ type tasks such as planning for the future, focusing on business development and so on because we are so stuck on the client service hamster wheel, just trying to keep up with client demands.  Sadly, this results in us being busy fools and, quite frankly, staying poor.

In today’s podcast, I dig into the cause of this and give you some ideas to start solving it.

Time Stamp

[01:27] There should be a direct correlation between how busy you are and how profitable you are. If not, here are some reasons why

[02:17] Over-servicing: an agency pandemic!

[03:06] The importance of measuring time internally (which is different to selling time to clients!)

[04:10] Putting the right systems in place to measure capacity and efficiency

[05:06] Translating a brief into internal allocated time

[05:50] Getting your team members to self manage using RAG

[07:22] Taking a strategic view on over servicing

[07:45] Say YES or NO to a client when they ask for more

[08:28] When time recording falls

[09:56] Explaining WHY to your team

[10:33] Don’t use an ‘admin other’ task in your time recording system

[11:29] The cultural implementation of not over servicing by implementing time recording

[12:26] Identifying skills gaps and training needs

[13:45] The sooner you implement this, the easier your journey of growth will be


"You have to track time internally to measure efficiency, capacity and profitability.” - Rob Da Costa
“You will never know if you are profitable with a client unless you track your time.” - Rob Da Costa
“The sooner you implement time recording, the easier your journey of growth will be.” - Rob Da Costa

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 Full Episode Transcription

If you are not profitable enough, then make sure you listen to this episode. Now, it's interesting that Being A Busy Fool is by far the most-read blog on my website., and not without good reason, even though it was a blog I wrote many years ago. And to be honest, it's not that long. It clearly resonates with a lot of people, and it's also clearly a search term that a lot of business owners are typing into Google. After all, we can all be really busy running ragged, servicing clients, trying to catch our breath and recognise that we are not doing many of those running the agency-type tasks such as planning for the future, focusing on business development to make sure we've got a good pipeline because we are so busy stuck on the Client Service Hamster Wheel, just trying to keep up with client demands and obviously retain our clients. And this results in us being busy fools and, quite frankly, staying poor.

So, I want to dig into the cause of this and give you some ideas to start solving it. So, that's what we're focused on in today's episode of the podcast. So let's get started.

I'm Rob Da Costa, and this is The Agency Accelerator podcast as someone who has stood in your shoes, having started, grown and sold my own agency and just how it feels in the ups and downs of agency life. So, this podcast aims to ease your journey just a little by sharing mine and my guests' experiences and advice as you navigate your way to growing a profitable, sustainable, and enjoyable business.

If you are run ragged, super busy, but you look at your invoice at the end of the month and your profitability, and there doesn't seem to be a direct correlation between how busy you are and how much money you're bringing in and, most importantly, how profitable you are, then we need to start diagnosing it. And of course, there are a number of reasons why this happened, so we need to understand the reason before we can start fixing it. 

So it could be, quite frankly, simply that you are undercharging. It could be that there is constant scope creep in the work that you're doing, you know, when the client says, “Hey, can you just...” in their mind, they think it's going to take five minutes, but your heart sinks because it actually takes you five hours to do them a favour in quotes. So it could be undercharging, could be scope creep, and there are many other reasons. 

But the reason I want to dig into today is that of over-servicing, which is a bit of a pandemic in agencies and especially at the moment as we're heading into more kind of challenging economic times and a potential recession. Of course, we all want to do a great job for our clients and we want to keep them. And we believe and certainly younger people in our teams believe that the one way to do that is just to say ‘Yes’ when they ask us to do something. But that is a surefire way of being a busy fall and not having the capacity to take on more work because you are massively over-servicing your current clients. 

I've spoken about this many times before. I use this fantastic framework called standards and extras with my group coaching programme, so everyone learns about that to make sure they can identify the difference between standard service and an extra. And most importantly, that the client can as well.

But we have to be measuring internal time so that we can measure people's capacity, and we can also translate client fees into time. Now, that might sound like I'm contradicting myself because if you've been listening to the podcast or you read my content, you know, I'm always telling you guys, “you should never be selling time to your client,” and I still can we stand by that. They’re not buying your time, they're buying an outcome. But that doesn't mean you shouldn't translate the work you're going to do for a client internally into hours. In fact, I absolutely believe that you have to do this if you want to measure efficiency, capacity, and also make sure that you are profitable. 

So, the big solution to over-servicing is two-fold, really. First of all, it's putting the systems in place, which we'll talk about in a moment. So, that's everything to do with time recording. And second of all, it's getting the mentality, and the culture, and the behaviour, and the understanding of your team members right, so they understand how to communicate to clients, and they understand how to push back or how to say it's going to cost more if a client says, “Can you just?”

S,o let's tackle these 2 one at a time, and the first thing you need to do before you can change behaviours and get the right culture is to put the right systems in. So, it's a given that you need to use some time recording.

Now back when I ran my agency in the nineties and early two thousand, this, well, this is one thing that we really got right, but the only tools that were available to us then for time recording were using a spreadsheet, which is what we did. But nowadays, there are some fantastic apps and tools out there that are very much designed towards sort of service-based businesses and agencies and will work really well for you. And you can use them on your phone and your computer, and they're really easy to use once you've set them up properly. So, things like StreamTime, and Harvest, and Toggl are all good time recording tools that my clients use. And at the end of the day, you will never be able to know whether you are profitable with a client if you don't measure your time. 

So, you win a new client, you create a brief and scope of work, and you talk about the outcomes the clients looking for. And then you go back to the office and you take that briefing that scope of work and you start setting up your time recording system, allocating time to different team members to make sure that they can deliver the project within the time; and therefore, in a profitable way, making sure you're hitting your margins of somewhere between 20 and 35% I would say. 

So, the first thing you got to do is implement a time recording system and then work out how to break the scope of work or a brief or a project into internal time. And then, you want your team members to be able to sort of self-manage. And I really like just the concept of using the R.A.G System for many things, including this. So, R.A.G. stands for Red, Amber, Green. 

So basically, if I have X hours in a month to work on a project and I'm an account manager. Then, I'm halfway through the month and I've used half my X of hours, so the Green light is still on. But however, maybe I've got halfway through the month and I've actually used three-quarters of my hours. Now, the Amber light should be on. And we probably want to have a conversation internally about this because we don't see the project momentum dying down for the last part of the month. And, of course, if I'm halfway through the month and I've already used up my hours, then the Red light goes on. Now, if you use the Red, Green, Amber system, then you really should never get to Red because once things go Amber, you should be sitting down and talking about it.

So, you want to get your team to have some self-responsibility and self-management here and awareness of that. So, you have to give them access to the reporting part of these time recording tools so that they can self-manage and bring it to your attention when things are in Amber or when a client is asking for something that's way outside of the scope and the team member, perhaps, is afraid of saying ‘No’, but they can get some advice from you.  And if you arm your team members with this information, they're much more likely to act in the way you want them to. Then, if you kind of protect that information just for yourself, which is what a lot of agencies do, so you have to give the information to your team members if you want them to behave in the right way. 

And then, of course, when a client is asking for more or when a project is taking much longer than you anticipated, you can now take a kind of strategic view on what to do. Should you just suck it up and absorb that over-servicing because you kind of feel you'll be able to catch back that time in the future? Or do you need to go and have a conversation? And remember, there are always four answers to a question when a client says, “Can you just do something extra”, so the answer could be “Yes, we can do it.” The answer could be “Yes, we can do it in the future.” The answer could be “Yes, we can do it, but we need to drop something else.” The answer could be “Yes, we can do it, but we need to charge you more.” Or actually, the fifth answer could be “No, we can't do it.” So, it's never just a yes or a no answer, and it may well take you or the account director (if you have one) to go and have that conversation. But you want the account manager or the people who are heading up the account to be the people that are bringing it to your attention. So, you want to train your team around that. And using time recording and self-responsibility, they can keep an eye on that.

Now, there's nothing worse than implementing a time recording system, getting everybody to use it, and two things happen. First of all, the leaders in the agency don't use it, so they're kind of saying, “Do as I say, but not as I do.” And the second thing is that people diligently fill out their timesheets, but the manager, or you, as the agency owner, never actually stop and look at the time sheet. So, they get demotivated because they feel like the information is being filled in, but they don't really know why, and it's all disappearing into a black hole. 

So, if you've taken the time to implement time recording, you also need to take the time to look at the data, analyse the data, give feedback, and take action accordingly. So you need to allocate time every month to actually look at the reporting. And again, these systems today give you some really great insights. So, it's not that difficult. You haven't got to dig deep into the data. It will do it for you. But you need to allocate the time to do this and then give feedback.

As I said, if you want to motivate your team to do this, then you have to give them feedback. Otherwise, they kind of feel like why on earth are they doing it? And to that end, when you do implement a time recording system into your agency, I suggest you do this as early as you possibly can, so you might even put this system in place when it's just you, so you can measure and monitor your own time and check. You're using it efficiently and a check that you're not over-servicing. But if you put the system in the early days, then it becomes easier to scale as you scale your agency. But you need to communicate to your team if you have one about why we are doing this because they will probably think you're doing it just to check up on them and to check their work. And especially, when we have lots of remote workers. And if that's their view of this and they're not going to be very motivated to fill them in or they're not going to fill the sheets in honestly.

So you want to be clear that this is all about being efficient, making sure we're profitable, understanding where there might be training needs, understanding where we've under-quoted and we're having to over-service so we can get it right in the future. You want to make sure your team members understand all of that so that they are motivated to complete their timesheets.

Now, talking about accuracy. One of the things I would really encourage you not to do when you're setting up your time sheets and this is quite a granular piece of advice is don't have an admin (other kinds of catchall bucket) in there because you will find a lot of people putting a lot of time into this kind of catchall bucket where they are not quite sure what they did with that time, so they'll just throw it in there. So, my advice to you is don't have that kind of admin or other types of category in your time recording because you will find a lot of people putting a lot of time in there. 

So, that's the sort of the first dimension of this which is implementing the actual system itself. And I highly recommend that you document the process of how to use this. You use some Loom videos to do it so that when you have new staff join your business or remote workers or even freelancers, you can train them very quickly and get them to use the system in the way that you want them to and also get them up to speed quickly.

Now, the second dimension is kind of the cultural application of this as well, and I sort of touched upon this already, but you need to make sure that your team have some commerciality. Even the most junior account executive needs to understand that if we just say ‘Yes’ to clients all the time, we stop being a profitable business, and we start becoming a charity. And when we are a charity, were making absolutely no money. So, you need to explain to people that the reason we're doing this is to make sure that we are quoting correctly, make sure we are translating client briefs into time, make sure we are measuring that time effectively, and are not over-servicing much more than 10%. And so, they need to understand that. And as I said already, they also need to understand the reasons why you are asking them to complete timesheets not because you don't trust them, but because you want to make sure that we are being profitable.

And, of course, another benefit of time recording is that you can identify training and skills gaps because if someone puts in that they've taken a day to write a press release, then you probably think, well, that's too long. It really should only be half a day or quarter a day, so I need to understand why it's taken so long. And when you're digging into this, you don't want to make it look like the Spanish Inquisition. You just want to help people understand the reason why. So, the cultural implementation of this is just as important as the actual system itself because if you don't get that piece right, people will not be motivated to fill timesheets in. They’ll feel you don't trust them, and they will not put accurate information into the timesheets. So, communicate carefully about why you're doing this and the benefit to them as well as to the overall agency, and you're much more likely to get team members that are compliant.

Now, it's important that they understand this isn't something optional, or they're going to fill this in when they get a moment or they're doing you a favour if they fill in. They have to understand that it is a crucial part of their job. And to that end, I would actually put entering accurate and timely information into our time recording system as one of their objectives in their roles and responsibilities. 

If you made it this far in the podcast and you are an entrepreneurial agency leader, then well done because talking about systems like this might send shivers down your spine. You might even be kind of objecting to what I'm saying because you think it inhibits creativity and all of that stuff, but trust me. If you don't put it in now, then it's so much harder to retrospectively fit it when you're a bigger agency. And I have never met an agency that is profitable without having time recording in place. And trust me, I've worked with many, many hundreds of agencies over the past 30 years, and I know that this is something that you have to do. 

As I said right back at the beginning, I did many things wrong when I ran my agency, but having time recording was one of the things that we got right, and it made sure that we were always hitting our margin targets and our profitability. Now, as I also said at the beginning, this is just one of the reasons why you might be a busy fool and why you might not be as profitable as you hope. There are many other reasons, and it often starts by making sure you are targeting your products and services to the right market, making sure that you have your pricing in line with your product and your service levels, and also that you are selling on value so clients are willing to pay the higher fee. And, of course, if you are a niched agency then you will be seen as a specialist. And of course, specialists can charge more money than generalists. So there's a whole bunch of other reasons why, but I just wanted to pick on one of them today, which is all about making sure that you can measure efficiency and capacity internally. 

Another benefit of this is that you will know when you need to hire the next person because there's often this really big disconnect in an agency where everybody looks super busy, but you look at the bottom line and you think, “Well, actually, we're not as profitable as we should be, and people should have spare capacity based on the amount of income work that they're doing.” But because you're not measuring their actual efficiency, you can't really diagnose what the problem is. 

So if that's something that's going on for you, then one of the first things you need to do is implement a time recording system. I'll put a few links in the show notes today, too, some time recording systems that some of my clients use.

I've got no particular affinity to any one of them. You just need to find a system that works for you. And as I said, there are many great systems that are totally good towards agencies that work on the desktop as well as you on your phone as an app so they really go wherever you happen to be working and they make it as easy as possible. So, there isn't really an excuse anymore for not doing this or not finding a system that is really aligned with the way your agency runs.

So, I hope you found today useful another really practical episode, maybe something that you want to start thinking about implementing over the next few months. And it doesn't have to be expensive, but it is something that you really have to do.

So as ever, if you found today's episode useful, please do consider leaving a review and sharing the episode with your colleagues so that we can get this podcast far and wide. But other than that, I'll see you next Thursday for the next episode of The Agency Accelerator podcast.

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