Contact CPI
What is Marketing Agency Slippage?
Agency slippage is the amount in dollars of billable work each year that you are not billing your customers. Imagine if you could just bill every billable hour your company logged and increase your net profit 10 fold? Great idea huh? Definitely easier said than done, however tackling your slippage is absolutely worth the effort. In essence, you have already covered all the internal costs to do the work for your clients which means all the extra money you get back can go directly to the bottom line, therefore increasing your net profit. Or, be put towards that office treadmill and TV so you can work off those winter pounds that might be forming!
Simply put, Agency slippage is the total of all billable hours that are not being billed times your average or blended hourly rate (some technologies like Workamajig can actually give you your slippage by person and by rate so you can see in detail where the leak is coming from). Agency slippage does not take into account the amount of money you could earn if your people put in more hours; rather it is the hours that they have worked that you are not getting paid for. I have calculated this number for many agency owners and most of them were blown away by the amount of money they were leaving on the table with the brilliant and creative resources that they already had. How de-motivating is it for employees to work long hours and put in lots of billable time to have a principal say, well, you have to work harder because we just don’t have the profit we should.
At Creative Performance Inc, we believe if you tackle your agency slippage gap you can effectively do more with the exceptional talent you already have without working them harder. Often, this requires you stop over servicing and over delivering to your clients, but that is another blog post entirely.
Measuring slippage should be calculated with a detailed formula, however you can use a pretty simple formula to ballpark it and see if this is an area you should be digging deeper. In order to measure your slippage you must already be measuring your employee’s utilizations of billable vs non-billable work. Start by taking your average billable employee utilization (let’s use 75%) of hours in one month, and multiply it by your total number of billable employees (15) and then multiply by your average or blended hourly rate and finally by 12 for a yearly total.
Example Firm ‘ABC’:
- .75 * 157hrs = 118 billable hours a month (We use 157 to exclude 10 Holidays and 3 weeks Vacation time)
- 118 * 15 Billable Employees = 1770 billable hours you should be billing every month
- 1770 * $150 blended hourly rate = $265,500 of billings to invoice every month
- $265,500 * 12 months = 3, 186,000 in Fee Income to bill in one year
Current Firm ‘ABC’ with 15 billable employees, 3 non-billable is currently running at $1,865,000 in Fee Income, meaning their Agency Slippage = $1,321,000.
*Note Fee Income is equal to your Agency Gross Income – Cost of Good Sold Mark up
Can you believe it? ‘ABC” is currently leaving 1.3M on the table for billable work they are actually doing. If your client’s asked for a 41% discount on your current rate card what would you say, because that is what you are effectively doing?
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.