Calculating rate cards for your agency isn't difficult but it needs some logic, understanding if the how and some basic information To be as accurate as possible you need the below: - list of staff with salary, job title, FTE % - utilisation data for each staff member for as long as you can - agency recovery data - actual or preferably budgeted overheads for the year - ability to use a spreadsheet (preferable Google sheets!) If you have this you have everything you need to at least calculate what they could be. It doesn't mean you can sell at those amounts, but with the data you will be able to price more strategically, knowing where margin is higher etc If you need help calculating your rate cards please get in touch. #ratecards #agencyfinance #finops
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6 things to do or know every month when running your #Agency 1 - Rev rec - a process that ensures you book revenue when the work is done. A collaborative process utilising project managers, client services, timesheets and interrogated by finance/SLT. This should be forecasted forward not just historic. 2 - Staff Ratio - total staff cost (inc freelancers) as a % of the revenue recognised. This shows how much of that revenue was used to pay all your staff. If you include non billable people cost in your rate card, why not here? Keep it between 55-65% and you should be good. Too low = too much work, not enough people (or value pricing). Too high = not enough work, too many people, weak rate card, overservicing. Using future rev rec and a nice breakdown of expected staff costs you can look forward and see whats going to happen, and try and change things 3 - Utilisation - how are people in the business spending their time. How much is billable? How much should be billable? What is all that internal time? Review this monthly at agency, dept and role level. 4 - Recovery - whats the value of timesheets x rate card vs the value you have recognised in the month/period. Greater than 100% could be good but maybe we over recognised? Below 100% and check if we are overservicing. You should be looking at this on an Agency, client and project level. 5- Billable paid - Billable Utilisation x Recovery. Do this at Agency level. If one is high and the other isn't you need to look into it (the above should help you do this). Example utilisation is 95% and Recovery is 55% = billable paid = 53%. Utilisation is great, but if you are working on client work that isnt paid for, is it really client work? Probably means you are overservicing. 6 - Future month work value, by agency, client and project. Using resource software or a spreadsheet understand the value of work booked in (time x rate card by role). How does this compare with revenue recognition forecast? What are the variances? Do we need to change the numbers or the bookings? #finops #agencyfinance
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Monthly Revenue recognition and cashflow are, can and should be kept completely separate. A billing schedule wont necessarily tell you what work has been done (even if you have milestone based billing) unless it's a pure T&M contract. Both important. Obviously, we should be trying to invoice as much as possible upfront as we can. Rev rec doesn't need to be overcomplicated. Fundamentally it's about trying to match up revenue with when the work was done. Ergo, when the timesheets were booked, freelancer used etc. To do this you need to get an understanding of where you are on the project and a good question to ask is "If the client pulled the project as at today, and agreed to pay for all work completed up to that point, how much have we done, whats the value and can it be proved?" Equally, if you are doing value pricing (lucky you) then you might just take an approach that you decide the length of the project and then divide the fee element over those weeks and months. This will then balance out across a time period but also give you a fair and reasonable approach to take. As you get better at it, you can refine this to make it more accurate using timesheets, resourcing, PM know how, CS views and SOW review. Ultimately, doing this is about trying to get an accurate PNL each month. Doing something is better than nothing, but basing revenue on invoices and schedules that don't correlate to when work was done wont be suitable if you want to make decisions about hiring, firing and investing. Rev rec and getting a process/system setup in place is one of my favourite subjects, so if you want to implement something but don't know how or want some advice, let me know. #revrec #finops #agencyfinance
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I often get asked how to deal with freelancers in the pnl as well as other freelancer questions. In the current market the use of freelancers is a great move to allow you to flex up and down resource and get specialism in house for specific projects. So here are some thoughts. They should be shown in staff costs. Here's why. A freelancer is a person working for the business. Putting them in cost of sales hides them from knowing the staff cost as a % of revenue. It's often said that staff ratio (staff cost to revenue) is one of the most important metrics so why hide a cost of a person doing something somewhere you can't see it? A billable freelancer should be billed on your rate card. This means you can make margin on them. If shown as a cost of sale and not charged on your rate card then a client will see them as a third party cost and most contracts don't allow you to make margin on them. I would always recommend adding roles you don't yet have that can be done by freelancers into your rate card. They should do timesheets (because they are doing work) and by seeing these you can see time being used and can help understand potential FTE and hiring in the future. A cost of sale won't show this. Track and forecast time and cost as far ahead as you can. That way you can look to replace freelancers with perms if the workload is there. Try and ensure the freelancer costs less than 50% of the rate card value. If you can do a package deal for more time do it. Non billable freelancers should also be shown in staff costs. If they being paid a day rate and doing work that is needed in the business they are a staff member, just not a perm one. Break out the number so you can understand the billable/non billable split. #finops #freelancers #agencyfinance
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It seems to be that the most powerful way to a convey a message on Linkedin is to do it talking into your camera whilst walking somewhere (with purpose). I guess it shows how busy you are that the only time you could fit it in this nugget of gold is while you were going somewhere.
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Bit of advice for people starting agencies or with relatively young agencies. But actually anyone running an agency. Focus on implementing resourcing + timesheets. Don't just focus on timesheets. They are historic, a ballache to get people to do and need someone to look at and check to get value from. Resourcing can be somewhat controlled by one or a few people. It can help you understand the future and mostly rely on getting good information. Don't spend a lot of money on a system for timesheets, spend time and money on a solid resourcing tool or even a spreadsheet that does it. Resourcing = timesheets that havent been done yet. So if people dont do their timesheets at least you can fall back on the resourcing plan. For those of you who have worked with me. Of course I still love timesheets but resourcing is much more powerful data if you can get it right. #timesheets #finops #resourcing
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So much time is spent by Agencies looking at future revenue, pipeline, forecasting revenue for the next few months. So little time or investment is spent looking at or planning the people needed to deliver work. So much time and focus is on timesheets, which are historic and don't help you understand whats going or likely to happen. Agencies that have a solid process, framework, good people and a system to resource and understand: - Predicted revenue by project/client/agency/month - Potential capacity by role - potential overservice on projects Will do better than those that don't. Guaranteed. They will know when to hire, when to use freelancers, when to go harder to get more work, when they are overservicing and so much more. Resourcing and how to deliver work is often met with "we will cross that bridge..." which is the opposite to how sales and pipeline is approached. It's odd. #finops #agencyfinance
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I've been doing some interim FD work for a few agencies this year. Whilst it's not the type of work I intended to do when I started my business it's still interesting work (and pays the bills) and I am enjoying them. Its been great to actually be back involved in the nuts and bolts of an agency and on the frontline, talking to actual agency people and understanding more about the work and current issues. I think advisors and consultants can be guilty of dining off their past. Agencies move and change quickly so not working in one can mean you quickly get out of touch. I'm also lucky that I often get to sit in the leadership teams and board meetings so I am able to learn from people with different backgrounds and experiences. I have only worked in 2 agencies as a full time employee so seeing inside different sizes and types but alongside people with different perspectives helps expand my knowledge. Which can be passed on to my other, smaller clients. The issue with the type of work is that its a lot more requirement of time. Various people have questions all the time and there are a lot more things to do day to day. I have found it tough to provide a good level of service and support to the agency I am supporting whilst also feeling that time spent doing the work has taken it away from my smaller clients. Who were the ones I initially started the business to help. I am finishing one of the roles this month (as they have hired an excellent replacement) and the other role continues. I am not against taking another interim position but maybe I will leave it a few months!! #interim #FD #finops
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Apologies in advance for the very wordy post but here goes… Staff utilisation should be an important part of your rate card calculation. Of course, we all know that. So below you can see me trying to explain the impact of utilisation on your rate card calcularions in as simple a way as possible. Ready? Lets go! (See you on the other side near the hashtags) Obviously, utilisation needs to be factored into your rate card because it allows you to calculate how many days people or roles will work in a time period to cover their cost + overheads. The more days you plan to sell the more you can spread the costs. Planning for higher utilisations by role creates a lower rate card value, as the calculation spreads the cost across more days the person works. But if you do this, you need to be sure that you will be able to hit that utilisation level across a long period of time, because if you don’t, you have less days to “pay” for that person and the associated overheads. The benefit of this is that with lower rates you might be more likely to sell at that price, ergo (hello old friend) more likely to hit that high utilisation. The opposite of high utilisation is of course to reduce the utilisation values by role to mitigate the risk. Doing this will increase the rate card values as the costs associated are spread over less working days. If you can sell at those higher prices then you have to sell less days to cover the associated costs but the tricky thing is that higher rates might make you less competitive when pitching for work. So although you have to sell less days to make it work, you still have to sell it! Also, remember that if you reduce utilisation the unbilled cost has to go into overheads and be covered by others or within the margin, because the cost has to be covered somewhere. So it might reduce a roles rate but it will increase others (and the one you are reducing as well - maths). As I have said before, creating a rate card is fairly simple but has a lot of complex parts that agency owners or people selling on behalf of an agency need to understand. My recommendation is to do the calculation based on “realistic optimism” but then take a view about how the rates look and whether you can drop some or increase others. Understand what roles are more valued in your business and increase the rates for those roles to make more margin. If you have roles that you find hard to sell, look at dropping the rate and having others that are easier to sell pick up the difference. The important thing is to get the balance right but more than anything else make sure you set rates that can actually be sold. ALternatively, just do what all the advisors are saying and just do value pricing and forget about rate cards all together... 😐 If you got to the end of this, are awake and still might want to chat rate cards or get support checking/reviewing or updating your rate card please get in touch. #ratecards #finops #agencyfinance #utilisation
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I understand that the algorithm says you should post everyday but if what you are posting is absolute dross surely its better to just post something less regularly but make it banging?
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Exploring how superfounders build amazing agencies — and sharing what I learn in the Agency Espresso and Agency Leaders Playbook. |🏅 Top 10 Inspirational Agency Leader | 4x Founder | 📖 Author | 🎤 Ex BBC Journalist
2mo👍 Good list — but most important of all is your point that these shouldn't give the final price. They'll just be one input that you can use, to be sure you have information from all angles when setting price. As well as costs data, it's valuable to have market data. Competitor/industry benchmarks, and a very clear idea of your value proposition and what that could be worth to your target clients. Great agencies make their money on dialling up their value proposition (with strong evidence to back it), rather than controlling costs.