Owning a advertising agency means you make money selling an inventory of hours and skills. Yet most advertising agencies don’t know how much time their employees spend working on projects. If you want to succeed you need to know your employee utilization rate.
Your employee utilization rate tells you how your employees are spending their time. Who is busy, who is free, and what percentage of time is being billed to clients. It is the key to improving your profitability, financial management, project management, business development, specialization, and talent development.
Profits matter. They aren’t only for the greedy. Profits create options for agencies to take on more creative projects, hire great employees, and attract the best clients.
Creativity requires motivation. Employees are motivated when they get paid well, and get to work on great projects for great clients — both require financial success. Financial success requires making the most of your agencies talented employees’ skills and hours — optimizing employee utilization.
Maximizing your profits is a two part equation. You need to improve both your billable margin and your employee utilization rate. You billable margin is your profit per hour. Your employee utilization rate is number of hours worked of the hours available to work. (Profits are a function of profit per hour multiplied by hours worked.)
Improving your billable margin requires finding ways to charge more and lower labor costs. Being able to charge more requires investment in marketing and business development to building demand as well as a reputation for high quality work. Lowering labor costs requires finding ways to trade work from Seniors to Juniors and para-professionals. This is typically done through technology, and training.
In contrast, improving your employee utilization rate doesn’t require you to remake your advertising agency. Instead improving your employee utilization rate helps you do more with what you already have. Knowing and improving your employee utilization rate makes your agency more efficient.
Setting target utilization rates for each employee can help you meet your financial goals. Set your financial goal for the year, quarter, or month and work backwards using your billable rate to determine what the agency’s target employee utilization rate needs to be.
Each employee should compare their actual utilization rate against their target utilization rate. This sets clear expectations for employees, and aligns the entire organization. Best of all: employees don’t have to know the firm’s financial goals, but still are working in the best interest of the firm. Make sure to reward employees that are on target, and adjust target utilization rates if employees are consistently under or over achieving their target. You don’t want target to be too hard or too easy, but just enough to stretch your employees to become more productive.
All to often projects are plagued with project management issues from day one. This needs to change. The solution starts with employee utilization rates.
Salespeople need to know your creative agency’s capacity for new work — what kind of projects to sell and how much. It is not enough to provide financial quotas. Equipped with only financial quotas salespeople will become opportunistic — focusing on the easiest deals. This creates lopsidedness — too many of one type of project.
You need to communicate your agency’s capacity in hours, skills, and dollars. To do this you need to know planned utilization rates for each employee by role. Armed with this information your salespeople can focus on closing the right deals, not just any deal. This will reduce future project management issues.
Goals are motivating. Your agency needs to tell salespeople what kind of projects to sell, and how much of each project to sell. This helps to keep salespeople motivated: they know what is expected of them, that they are helping, and that the agency can complete the work. The last thing a good salesperson wants to do is sell a project that overworks people, creates management problems, or ruins client relationships.
If an agency does provide salespeople with a quota it is typically only financial, and not based on the week–by–week needs of the agency. Salespeople know this. They see how busy everyone is. The stress at the office is palpable; making it hard to confidently close new business.
Fix their anxiety by providing sales insight into employee utilization. This way they know what they need to close, and what projects to avoid.
Providing this level of detail takes work. That is why we created Bric. Bric automatically generates quotas each week based on your planned employee utilization. Now your salespeople know your agency’s capacity in hours, skills, and dollars. We do all of this without creating more work for your already busy staff.
Clients love knowing that your advertising agency specializes in an industry, or a type of work. However, focusing is not without risks. You need to find the right focus, and continually evaluate if it is still the right focus.
Tracking employee utilization can help. Start by analyzing the types of projects, and employees that have the highest billable utilization rates. This allows you to identify the project types you are best at selling, and that can completed with the least amount of non-billable hours. Non-billable hours spent on a project typically indicate training or rework. With this knowledge you can identify your agency’s best area of specialization. In addition, you might find that you need more or less of a certain type of employee, or identify opportunities for retraining. Learn more about analyzing employee utilization rates.
The quickest way to improve your employee satisfaction and increase profitability is to eliminate under-delegation. Under-delegation is when Seniors do work that could be done by Juniors.
Under-delegation is a toxic habit that leads to:
You can increase the utilization of Juniors by changing how your advertising agency approaches billable hours, information access, and coaching.
In conclusion, if you want to take your agency to the next level employee utilization rates matter. Making better use of your employees will improve your profitability, financial management, project management, business development, and talent development.
Even better — it doesn’t have to be a lot of work. Bric makes it easy. We created Bric to help advertising agencies increase employee utilization through more accurate project planning and time tracking. Even a small increase in employee utilization can have a big impact. Just a 5% increase in employee utilization can generate an additional $100,000 a year in profit for a team of 10. That is the difference between breaking even, and making a profit.