747,300 Reasons for Better Timekeeping

I’ve had the fortune of consulting with many marketing agencies across the country, ranging in size from 10-100 employees, at various rates of growth and stages of maturity. The one thing that binds them together is their ongoing struggle with time tracking.

If done properly (and with the correct software solution) timekeeping should give principals a detailed view of what is happening within their agency…not what they “think” is happening. Unfortunately, many agencies are not tracking time in a manner that provides actionable information. Worse, we’ve found that even among agencies that do track time, very few actually use best practices. Often, their data becomes inconsistent, inaccurate and useless for decision-making.

The only thing worse than not tracking time is tracking time inaccurately, and then making decisions using flawed data. Measuring time properly in your agency will give you three critical things needed to run an organization profitably:

1. Up-To-Date Project Actual Budgets
2. Utilization by Person
3. Billable Time, by Person-by-Service
4. Non-Billable Time, by Person-by-Service
5. Agency Realization

1. One of the biggest gains from logging time properly is the ability to have up-to-date project actuals for the client services team. This allows them to see when a project is going over budget, and work with clients to get additional budget to complete the project or manage the over-servicing and over-delivering that might be happening from inside the agency, that has caused this project to go off-track.

For small agencies this can be done manually by comparing basic time tracking software to manual excel budgets; however, with agencies over 10 people I highly recommend a software that can track estimates, budgets and actuals by both service (the rate you charge i.e., graphic design or project management) AND task (the phase of the project you are currently in i.e., discovery, concepting, production). This additional insight is critical for empowering client services teams to catch scope creep in each phase of a project vs. just by overall project budget. Workamajig and Advantage are great software solutions for this type of project management and timekeeping. QuickBooks is not a sufficient time-tracking tool above 10 people, and getting updated and accurate actuals from Accounting in a timely fashion is usually unlikely.

2. Utilizations are a critical piece to understanding how your agency is operating on the inside. People’s time should be broken down between billable and non-billable services. Most agencies have 20-50 billable and non-billable functional codes. The more capabilities your agency has, the larger the functional code list. A capability-niched agency might only have 15 codes whereas a full service agency will likely have over 50. Some software solutions call these codes services (Workamajig) and some call them tasks (TimeFox), but at the end of the day it is simply the function completed by an employee that is connected to a rate that you charge the client.

Believe it or not, it’s just as critical to track non-billable functional codes as it is to track billable functional codes. For agencies that are tracking non-billable time, they’re usually doing it in a single admin bucket, meaning there is no way to tell what any of the actual time is for. Most billable employees should have no more than 1-1.5 hours a day in admin, which would include non-billable company staff meetings, non-client related emails, and timesheet entry. There are other non-billable tasks that keep employees from being billable that should be measured like HR and Management time, Business Development or Marketing time, as well as IP Development for your own agency. You can only expect an employee to be 80%-90% billable if they are not participating in any other non-billable functions.

3. Agency realization is comparing the amount of billable time logged by your employees to the actual fee dollar amount that gets billed to the client. Agency realization is probably the biggest factor adding to low profitability in agencies and is often the result of broken workflow processes throughout the agency. These agencies tend to have extremely high workloads amongst their teams; however, many are fighting just to stay profitable. How is this possible? Agency realization is usually the key in these situations and is an indicator of low effective hourly rates. Meaning, you may indeed have high billable utilizations, but many of those billable hours are not actually getting billed to the client (thus giving you a lower effective hourly rate). Poor realizations are usually a sign of:

• Over-servicing and over-delivering by agency employees
• Not issuing change order to clients
• Taking on projects outside an agency’s core capabilities
• Principals/business development “investing” in a client by doing more work than is agreed to in the SOW (or by giving an unearned discount)

Tracking time correctly can help you identify which of these issues you might be facing. Over-serving and over-delivering is by far the most likely offender in most agencies. Many agencies have a culture where they will always deliver filet mignon steak even if a client is only willing to pay for a cheeseburger. It is critical for these firms to begin selecting clients that want and will pay for filet; otherwise they will continuously find themselves wrestling with realization and profitability challenges.

In order to measure your realization (at a detailed level) it is critical to have an integrated accounting and project management software like Workamajig or Advantage. Once an agency hits 25 people, this type of integrated measurement and reporting tool is critical to managing profitable growth. Smaller firms experiencing explosive growth should consider investing earlier than 25 people to make sure they are making the right decisions for growth based on accurate data.

How is timekeeping done properly?

Setting Up Your Services:

As we mentioned above, it is critical to know what services/functional codes people are doing in order to effectively manage your agency to profit. This being the case, it is critical you take some time to set up your services/functional codes properly. The goal of setting up your services is to make sure you can effectively measure the duties that require different skill sets so they can then be managed properly.

A great example is that of a blended role client services person. It valuable to know how much time this person is spending managing budgets and timelines vs. attempting to upsell and cross-sell their clients. Since these two things fall into different roles, it is easy to separate them into different functional codes, e.g. Account Management and Project Management. However, it is not as clear when separating things like graphic design and production design. It is less important that you follow industry best practices, but that you apply your rules consistently. What if you discovered your Art Director is getting bogged down doing production design instead of providing creative guidance to your designers and clients? This information allows you to either rearrange workloads or potentially hire someone to take the junior work off of your Art Director’s plate. Either way, you now have the data to be able to make the right decision for your agency.

Also, I encourage you to have a set of service/functional codes for each department, and that they be connected to a specific rate. Having a blended rate or separate rates for each code doesn’t necessarily matter. You might even have a special set of rates for certain clients who do significant amounts of business with your agency. Your services and rates should be based on the complexity of the work, not necessarily on the seniority of the person doing the task. You can’t possibly charge your client Creative Direction service rates even if your creative director is the one doing the production design work!

Rolling Timekeeping Out to Your Team:

Whether you are starting from scratch or just rolling out a few more services/functional codes, it is critical here to remind people that timekeeping is how agencies not only survive but also flourish. You will never know how profitable you are, or how profitable you could be, unless you measure both non-billable and billable time in your agency. Remind people that this isn’t about micro-managing them, its about making sure they are servicing their clients properly and not over-servicing, over-delivering or burning people out. Remind them that the profit goes back into the company (in many forms) and it’s even a good idea to consider both a carrot and a stick option for compliance with timekeeping. But remember: if you will never fire talent over timekeeping don’t pretend you will. It only makes principals look bad when employees don’t comply and never get fired.

Remember the Top 3 Tenets of Good Timekeeping

1. Employees must fill out their timesheets every day. If they don’t, it’s impossible to accurately record what they actually worked on, and you won’t gain accurate data to make informed decisions.
2. Always log what you are doing, NOT what your title is. It is critical to know what employees are actually doing, not what you thought you hired them to do. Maybe your expensive Creative Director is doing production design… or so much HR management that they can’t stay billable. Also, it’s vital to let employees know that measuring time is not a punishment; rather it is a tool to manage burnout, onboard needed skill sets and to protect your culture.
3. Enter your ACTUAL time worked, not a rounded up/down figure. It is critical to have people log their exact hours every day vs. a rounded up/down figure. This allows managers/principals to manage employee burnout and know whether their agency is running too bloated to stay profitable, or too lean to keep a healthy culture.

How Can Proper Timekeeping Change My Agency?

It is often easy for a principal or executive to see their team’s utilizations by just spending time on the floor and seeing how busy everyone is. Unfortunately, agency realization is not something you can see easily and, as discussed before, is the culprit for most agencies lack of profitability. Most agencies have a 60-80% average realization of all billable employees. Meaning, an agency is unable to bill for 20-40% of all employees billable work! In order to determine what you could gain as an agency from accurate timekeeping, let’s take a rough SWAG at calculating your billable realization.

Make a list of all the billable employees in your firm. In the column next to their name put their average billable utilization rate. If you aren’t currently tracking time you will just have to take a guess based on how busy they have been working on client projects on average over the year. Multiply each person’s average billable rate by the total available yearly hours 1,880, (taking out vacation and holidays), and then by their average billable hourly rate. You should get the total revenue number that should have been billed to clients for this person’s work. Then multiply this number by 20% in one column and 40% in another column. Total each column (both low and high estimates) to see how much your agency has to gain in profit in one year from effectively managing operations and timekeeping.

As you can see above, this agency could potentially add $747K to profit in one year by managing to their realizations, not by working people harder!

Unfortunately, timekeeping has become a dirty word in agencies because it has always centered around working people harder instead of focusing on capturing the work people are already doing. A simple change in perspective with the right measurement tools allows principals to finally find the balance between the time needed by creatives to do award-winning design and an organization’s need for profitability to create a stable environment for growth.

About: CPI

Creative Performance Inc. (CPI) is a marketing operations consultancy for the marketing services industry (both Agency + In-House). We specialize in improving our client’s Organizational Agility and Operational Resilience, through a seamless integration of industry best practices, mar-tech and business intelligence.  CPI is an AgencyStory®, Deltek®, Oracle Agile and Workamajig® partner.

About: Vanessa Vollum Edwards

Hailing from Portland, OR, Vanessa graduated from university with a degree in Philosophy. An amateur helicopter and fixed wing pilot since age sixteen, she began her first career as a pilot for LifeFlight. Upon completing her MBA, Vanessa was recruited by a fellow classmate into becoming the CFO/COO for a digital agency experiencing rapid growth. The agency was acquired in 2010. Over the last decade, Vanessa has built a strategic consultancy focused on empowering agency principals, accelerating growth, increasing profitability and deploying agency management software.  She is a founder of AgencyStory®, a patent pending curated analytics solution for the marketing services industry.