The Importance of Job Costing For Your Creative Agency

It is surprisingly common for small but growing creative agencies to be so focused on the work being thrown at them that they quickly lose track of what the jobs they’re taking on actually cost to deliver to the client.

Long-term profitability and the health of any business relies on the management team to effectively determine how profitable each job is to be better able to decide which type of work to take on, how to ensure future proposals and estimates are more accurate, and ultimately which clients to fire (or at perhaps refer to your closest competitor!)

The bottom line is that paying attention to job costing is the most effective way to ensure that your business is profitable and will remain that way. It doesn’t matter if your business focus is on branding, interactive, advertising, social media or interior design, your major costs are most likely labor related (being in the creative industry.)

The goal should always be to maximize margins and billings!

Time is both an asset and a cost to your business and needs to be treated as such. It’s NOT okay for your agency ignore time, and yes, time should be tracked daily … not to micro-manage employees, but to accurately display the “true” cost of any individual job that is run through the agency.

Determining labor and material costs for each job in a systematic way will reduce the amount of month or year-end surprises on your P&L and cashflow statements. Here is a quick list of items that every creative agency should take to heart:

  1. Track time accurately (this means doing timesheets daily)
  2. Ensure all employees track time (including agency principals)
  3. Determine the cost per hour of each employee (including an allocation of overhead)
  4. Track all expenses to each job
  5. Analyze costs (actuals) vs. estimated and the profitability of each job
    1. Are the right people doing the work (or is an agency principal doing a junior designer’s work?)
    2. Were estimated hours correct?
    3. What can be done better next time?
  6. Use this data when creating future estimates or proposals to ensure your work is as profitable as it can and should be.

The creative industry is a fun business to be in, but always remember that it’s only fun when the business is making money!

This article was contributed by former Function Point employee, Tate Lillies.

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