One billable rate to rule them all; probably not. Depending on your agency and work you do it can make sense to use different methods to organize your billable rates. The following are 4 common methods — I recommend 3.
However, a blended billable rate can cause problems. With juniors, seniors and partners all charging the same rates, on complicated projects clients might get a lot of Senior/Partner time at the same rate as Junior Talent. On simpler projects, client are paying Seniors/Partners “rates”, but mostly getting Junior Talent. One of the ways to manage this downside of a blended billable rate is to agree in your proposal on a ratio of Junior, Senior, and Partner level involvement in the project.
However, using individual billable rates is not without problems. First, you have to manage multiple billable rates. Second, planning is more complicated. In order to provide an accurate project budget and project plan, your creative agency has to know who is going work on the project. Last, delegation becomes more important. Seniors/Partners can quickly use up project budget if they do work that could have been delegated. However, encouraging delegation is not necessarily a problem: it can help with talent development.
The solution might be role-based billable rates. This allows you to charge for the level of service provided, while being able to easily create project plans. An added benefit is additional protection of confidential compensation details.
Yet, what method is best for your agency? It depends on the work you do. Your work determines the ratio of Juniors to Seniors to Partners, and how they engage on projects. This ratio determines the best method for organizing your billable rates.
Seniors and Partners are focused on training, improving operations, and business development. Improvements to profitability come from improving recruiting and training juniors through better processes and technology. Production agencies are highly scalable, and can be very profitable. In fact, most creative agencies are Production agencies.
A Blended Billable Rate works well for Production agencies. Juniors do most of the work. Seniors and Partners provide some oversight, but are mostly focused on building the business. As long as clients understand this relationship, the benefits of easy planning outweigh any downside. Client’s know that they are hiring mostly Juniors.
Individual billable rates work best for this type of work. Knowing who is important. Clients arrive looking for specialized expertise, and often a specific person. Projects can’t be planned without knowing who is going to work on the project. Individual rates allow agencies to maximize profits, because adjusting billable rates by person captures the value that specific person provides.
Role based rates work best for this type of work. Partners and project managers probably have an idea of the type of roles that are required. However, as the project progresses they need the ability to add/remove people on the project. This gives them flexibility, while being able to charge clients for differences in abilities.
In conclusion, setting your billable rates is the first step to being able to create accurate project plans, and improve your employee utilization.