Want to maximize agency profits? Focus on the Billable Ratio chain.
You’ll be happier as an agency owner when you maximize your profit margins. Money may not buy happiness but it certainly makes things easier.
This is true regardless of whether you’re a Lifestyle or Equity agency owner. Why?
- Equity Agency: If you want to sell your agency for a big payday, profit margin is the biggest financial driver to maximize the sale price.
- Lifestyle Agency: If you plan to keep running your agency for the foreseeable future, a higher profit margin allows a higher salary and shorter hours.
Maximizing your agency’s profits depends primarily on maximizing your agency’s average Billable Ratio. You want your agency’s average Billable Ratio to be at least 60% or more.
To maximize agency-wide Billable Ratio, focus on three roles at your agency: sales, PM, and highly-billable “doers.” Let’s look at maximizing each step in the process!
Three levers for maximizing Billable Ratio: Sales, PM, and “Doers”
Sales is first in the chain—because if you don’t have the work, no one can bill it. Salespeople generally are 0% billable, but that’s fine—their job is to bring in the billable work, for others to fulfill. Quality affects billables, too—some new business is better than other new business.
Your PM team is second, connecting sales and the doers. Because of this, the PMs have the most leverage when it comes to billable ratio. If your salesperson has sold a ton of design work but your 90% billable designer doesn’t have tasks to do… you’re losing potential revenue.
Your “doer” (SME) team is third, at the end of the billable ratio chain. “Doers” are your designers, developers, strategists, copywriters, etc. The difference between someone billing 60% vs. 80%, assuming $150/hour? That’s $56,000 a year, per person. If you have 18 people doing that, that under-utilization is a million dollar difference each year.
Fine-tuning each step in the billable chain helps you maximize the end result.
Troubleshooting your Billable Ratio
So what do you do? Maximize your billable ratio by drilling-down to each link in the chain.
Don’t have enough sales?
If you don’t have work coming in the door, start here—you need to sell more work. You want to be efficient in delivery, but there’s only so much you can optimize when there’s nothing to optimize.
Sales also drives the quality of the work you do—your salespeople are the front line in determining whether you get easy clients or difficult clients. Easy clients don’t always help Billable Ratio, but difficult clients nearly always hurt Billable Ratio.
Doers are waiting around for work?
If you’ve sold work but people are waiting for things they’re qualified to do, focus on improving your PM processes.
When a salaried “doer” doesn’t have billable work to do, you’re losing two ways—you’re paying their salary, and you’re missing what they could have billed during that time (the Opportunity Cost).
Hire great PMs, give them the resources they need, hold them accountable, and let them do their job.
For instance, they can plan things so that there’s billable work during lulls in big projects. Now’s the perfect time to work through your backlog of low-priority billable work for other clients. And they can give clients a heads up about content needs, so you’re not waiting due to content delays.
Doers aren’t qualified to do the work that’s available?
Cross-training isn’t an overnight solution, but the more people know, the more billable they can be.
For instance, if a designer picks up front-end development skills, they’re suddenly more useful from a billable perspective. Instead of waiting for a FED to become available, they can keep billing by doing the work themselves.
Likewise, a PM might not be your best copywriter but if they’re interested in writing, they can write a first draft for feedback once your regular copywriter is available.
You’ve tried but there’s still no billable work?
Sometimes you do your best and the jigsaw puzzle still doesn’t quite fit together. That’s OK—that’s why you don’t expect people to be 100% billable.
During these lulls, be sure employees know where to focus. Do you have a backlog of agency self-marketing work for people to do?
Now’s the perfect time to do the agency-promotion projects you’ve been putting off. But people can’t dive in if 1) there isn’t a backlog of internal projects, and 2) they don’t know to look once they’ve confirmed with the PM that they’re temporarily out of billables.
Summary for your agency
Want to get your agency’s Billable Ratio to at least 60%? Focus on the three links in the Billable Ratio chain:
- Sales: Are you ensuring there’s enough work coming in to fulfill?
- PM: Are you structuring things so that billable people have work they can do?
- Doers: Do highly-billable people have work to do, have they expanded their skillset to be more-billable, and do they instantly know their non-billable priorities when a lull happens?
If you’ve sold work and you have people to do it, PM will be your biggest point of leverage. Finding a good project manager is vital to your agency’s financial health—your PMs are the biggest day-to-day driver of whether your agency is averaging at least 60% billable—or losing profits by billing less.
Question: What do you do to maximize Billable Ratio at your agency?
