We had an internal conversation the other day about billable hours and tracking time.
I’m not so naive as to think people love to track their time.
I know they don’t.
But it is impossible for me to be able to track profitability by person and by client, know when and where we’re overservicing clients, or have a good understanding about how much things cost if people don’t track their time.
That is a completely different topic than billing by the hour.
Tracking time gives the business data it needs to grow.
Billing by the hour prevents a creative business from being paid for its ideas and results versus its time.
And time, as we all know, is not scalable. To add more time, you have to add more people. People are expensive. That makes it incredibly difficult to scale.
So let’s all agree right now that the billable hour stinks, but a service business still has to track its time.
Average Agency Data
There is a lot of information that comes from tracking your time.
But before we get into specifics for your business, let’s look at what the averages across agencies are like.
According to the 2017 Agency Billing and Utilization Report from StevensGouldPincus, the average:
- Profit per agency is 15.2 percent
- Salaries and benefits per agency is approximately 58.9 percent
- Annual billable rate per employee is $180,246
- Billable rate (blended for the entire agency) is $197/hour
- Billable time for the PR firm leader is 33 percent
Projected Billing
The study also shows, to figure an employee’s projected billing, you should take the number of working hours per year (1,800 at an eight hour day with paid time off and holidays removed) and multiply that by their target billable percentage.
Then multiply that by their billable rate and you have a dollar amount.
So for an account executive, you’d use the following:
1,800 (workable hours in a year)
x
84% (time that should be spent on billable work)
=
1,512 (billable hours in a year)
x
$150/hour
= $226,800 (projected billing)
We had a conversation in the PR Dream Team about this a few weeks ago.
If you have growth goals of $3MM in the next three years, it’s easy to figure out how many employees you’ll need.
Three million dollars divided by projected billings for an account executive ($226,800) is 13 people.
Of course, the percentage of time that should be spent on billable work decreases the further up the ladder you go (which is why the leader is at 33 percent), but this gives you a great starting point.
And this also is why tracking time is so incredibly important.
Without it, it’s impossible for you to project—and it’s impossible for you to know who you need to hire and when.
The Importance of Tracking Time
To boot, if your team does not track their time, you have no idea how much things cost or how long it takes someone to do something.
That’s why, even when you’re overservicing a client, tracking time—every minute of it that is spent—allows you to be strategic and smart about the budgets you’re creating.
When you go to budget new business, you can go into your financial history, take the last three similar clients or projects, add up the costs, divide by three, add 20 percent for unforeseen issues, and voila!
You have a realistic budget.
Can you imagine if you’re just guessing how much things will cost and then you go over by 50 percent?
You’re unhappy.
The client is not understanding when you ask for more money—or suddenly put the brakes on.
And then you become resentful and don’t want to work on their business anymore.
The relationship ends badly.
Track your time…and do it honestly.
I know my team sometimes wants to give clients some of their time for free.
That’s fine (in some cases).
But tracking time means you know how much things realistically cost in the future.
How the Averages Apply
After you have a year’s worth of data—because you’ve been militant about tracking your time—you can refer back to the Agency Billing and Utilization Report and see how you compare.
I will tell you right now that if your profitability is average at 15 percent, you’re not running your organization efficiently.
A service business should be closer to 28-32 percent because, to grow, you have to invest in people.
And people are expensive.
With a profitability at half of that, you don’t have the cash you need to invest in your business.
Aim to beat the average.
Also look at a true utilization you can get from each employee.
The less experienced an employee, the higher their utilization should be. When I worked for FH, our account executives billed in the 90-95 percent range.
The other time was spent on entering time, reading the news, and doing expense reports.
Most of their time can be spent with clients—learning the business and gaining experience.
As you finish your 30-Day Communications Challenge this week, compare your goals to the averages—and aim to beat them.
Not Good at Math
I know most of you went into PR because you’re not good at math.
I know this because every time I speak, I ask, “How many of you went into PR because you hate math?” And typically more than 90 percent of the room raises their hands.
So I get it. I do.
But if you’re going to lead an organization that sells people’s brains for a profit, you have to get good at the simple math.
Understand what your people are doing. Understand where they’re spending their time. Take the time to figure out which clients are making you money and which ones are not.
Use your data to figure out realistic budgets instead of telling new clients you can do everything they want inside their tiny budget.
Set expectations. Track your time. Be realistic. Work in buffers for the unexpected overages. Stay on strategy.
And, for heaven’s sakes, learn the math.