Is Your Creative Agency Billing Enough?

In this blog post, we will talk about typical agency financial challenges and present the causes and how to deal with unbillable hours of work in your creative firm.

Some roles in the agency present difficulties when tracking time, for example traffic / accounting (indirect services relating to your work) since they are not necessarily attached to a specific job or project, but are essential activities in keeping the business running.

Since it represents a significant cost to your creative agency, you have to include them when estimating your rates. In this case, most small agencies do not bill enough, considering the amount needed to cover agency overhead.

To solve this problem, you need to reduce your overhead costs as much as possible by increasing productivity and cutting down on the number of non-billable staff people on your payroll. Build all of your staff into your rate structure and adopt a workflow that will enable your agency to run faster and more efficiently.

With lower costs, you can ensure your rates are as competitive as possible while maximizing net profit.

Here are some formulas that may help you:

Total Agency Blended Rate

 (Total agency billable salaries / total yearly billable hours for all agency employees)* agency overhead factor = agency blended hourly rate

Overhead Factor

Total agency expense * projected profit = overhead factor

Billable Hours

Number of billable employees times 1,600 hours

Besides better estimating, it is also important to track time accurately, since employee time is the highest cost for any agency. For this reason, we recommend a good time-tracking software that offers user-friendly online timesheets and reviewing your practice.

If you want to learn more how creative agencies typically charge their clients check out this other blog post.

Please feel free to ask questions and leave a comment. Remember: if your agency isn’t profitable, it will not remain viable.

This article was contributed by former Function Point employee, Isabelle Costa Lima de Almeida.

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