Managing agency employee utilization and capacity for profitable growth

Getting the most from your team and making key allocation decisions
Agency Leadership Podcast

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Many agencies struggle with how to flex their capacity up and down as clients and projects come and go. Capacity planning, effective employee utilization, and building flexibility into your business model are all topics covered in this episode.

Chip and Gini stress the importance of elasticity to be able to take on new clients and handle emergency projects. Leveraging contractors and freelancers in addition to in-house staff is one approach, but there also needs to be effective resource management of your employees to manage workload.

Finally, the co-hosts look at how to set expectations, both internally and externally to get the most out of your efforts to maximize capacity and profitability.

Resources

Transcript

The following is a computer-generated transcript. Please listen to the audio to confirm accuracy.

CHIP: Hello, and welcome to another episode of the Agency Leadership Podcast. I’m Chip Griffin.

GINI: And I’m Gini Dietrich.

CHIP: And we’re going to see if we have the capacity over the next 30 minutes or less to discuss our topic of the day. And what is that topic, Gini?

GINI: Our topic of the day is capacity and utilization of our team.

CHIP: And our team is just the two of us. We are you are stuck with us for however long you decide not to hit stop on this podcast

GINI: after that introduction. I might hit stop if I were you.

CHIP: Except I think this is a very important topic. So hopefully people will get value out of it despite corny entry point.

GINI: Yes.

CHIP: You know, it is what it is. So let’s talk about capacity utilization because that really goes to the core of whether you can build a build a profitable and grow agency.

GINI: Yep. And I think it’s one of the probably the one of the biggest challenges that we have, which is how do we figure out not just capacity planning and utilization for retainers, but project work as well. And think about okay. If somebody you know, and at different levels to right, it’s somebody who’s Junior levels, are they supposed to be billing 40 hours a week? 47 and a half hours a week, 35 hours a week? What does that have to be? And then all the way up how many hours a week should we be billing? So figure out from that perspective, and then you have to throw in the wrench of well, we don’t build by the hour me, Bill. We, we do again, we usually have retainers, and we, you know, of course, we track our time, but we don’t build by the hour. So then you have to throw that into and figure out okay, what if I have this person doing this and this person doing this? And you know, how do I figure out when we can bring projects in? Do they have some downtime where things are cyclical with retainer clients. You it’s, you know, you have this big huge Google spreadsheet where you’re trying to figure all this stuff out. And it’s not an easy undertaking.

CHIP: I mean, fundamentally, agencies are a people business. And yes, every agency says our differentiators are people know, first of all, it’s not because it says it’s not a differentiator, and everybody has people. But the reality is that every agency is selling time, you may not build by the hour, but you’re you’re selling hours. And it’s very, you know, this is not like widgets, you can’t just call up Amazon and have them send you another 10 widgets so that you’ve got them in stock or whatever you have to, to really manage your team’s time because if you’re over utilized and you’re over capacity, then you’re not going to be able to deliver the results that your clients want and you don’t make room to grow. Right. And if you’re underutilized, then you’re going to take a giant hit and your profitability so you know it’s getting that balance correct is a huge challenge and is at the core of managing an agency business.

GINI: Yeah. And then I think you also add in there over servicing. Yeah. And and now you you have a real conundrum.

CHIP: Yes. Well, and that’s why it’s important to understand what what the real utilization of your team is because the as we’ve talked about in previous shows, one of the causes of over servicing is that your team is actually under worked. And so therefore, they’re filling their available time by over servicing existing clients, rather than sitting there and playing solitaire twiddling their thumbs, right fortnight, whatever it is that that they may do. Well, it’s fortnight gets a burnout at my house because I have to

GINI: Yeah, I’m sure. So yes.

CHIP: I think all the bandwidth in the whole neighborhood is being used by fortnight, but so you know, so you really, you need to understand these things if you’re going to build a profitable agency. And you need to have solutions for those times where you may be underutilized, or you may need more resources than what you have.

GINI: And one of the things we talked about last week is you You know, figuring out what how long it takes somebody else to do a job versus you? And I think that we can I mean, is there a percentage that you can use? Maybe, you know, is it double the time that it would take you is it. So I think one of the most important things you have to have to have to have to do is track time. And then as you start to start to look at program budgets, if it’s a retainer, and it’s a project, whatever happens to be, you have to go into your actual data and say, Okay, the last time we did this, for a client that had this, this, this, and this, this is how much time it took us. And this is how much it costs. And that allows you to start to look at things and I think one of the challenges that we that we then have as an upline is the same, right? So it’s not going to go exactly the same way. But you have to be able to look at the data and say, okay, based on the last three times we’ve done this, it’s been an average of this price. Also, and I will I think you could, I hope you can add a link to this in the show notes. But I think you have a really nice capacity planning spreadsheet that allows you to look at what staff costs are and how you’re going to build, what kind of business you have to have to from a capacity standpoint, utilization standpoint, what that looks like from a revenue standpoint and how you build that out.

CHIP: And I will do my very best to remember to include that link. And if I don’t, and you’re listening, just drop me an email at Chip at agency leadership calm and I’m happy to send it to you and at the same time, that’s really nice and update the show notes with that. But you know, so I think that the key here, first of all, is the time tracking, you know, it’s a dead horse that will continue to beat because not enough agencies are doing Yeah, anytime tracking level. Yeah, we’re time tracking. And it really is critical to understanding these things and getting yourself more profitable or getting yourself profitable period depending on what situation you’re in. But the other piece is listening. Right. So You need to, you need to ask questions and actually listen to the answer. So if you see that, you know, it’s taking your team, you know, four hours to write a press release, and you think it shouldn’t take that long. ask them why. And, you know, it may be that they’re not being given the right information to begin with, maybe they don’t have appropriate talking points or research and they’re having to reinvent the wheel each time or what you know, who knows what it is, but you need to understand why things take the amount of time that they do and figure out is that what it should take? Is that what we want to use in our planning? Or is there a way to make the process more efficient, so that we can acquire some additional capacity that way so, you know, be really open when you’re having these conversations with your team to understand, you know, what it is that can be done to improve your capacity.

GINI: And I think you also have to figure out if they’re getting stuck if they’re going to Facebook and Twitter and Reddit and YouTube and tick tock and other places Well, they’re kind of trying to work it out in their brains, and how much time that’s taking away from actually doing the work too. So, I mean, there, there are definitely some time wasters. Especially when we’re working to be creative or writing something, and we might have writer’s block or something. So you have to figure those pieces of it out. Right? Not that I do any of those. No,

CHIP: no. Well, and and the other pieces is understanding, you know, who is the best person to assign projects to, you know, if you’ve got someone who’s really efficient at one aspect of the job versus someone else, you may want to, you know, to use them, particularly when you’re on a time crunch, you know, so, so understanding what the capabilities of your team are, is important. And that’s why as you get larger you need, you know, someone who is whether you call them officially a traffic manager or traffic cop or an operations manager, you know, someone who really understands what resources you have available, both internally and externally to get the job done so that they can help do this and there there are tools you can use. I, to be honest, I haven’t seen very many people in the agency space use them particularly effectively. So you know, oftentimes, it’s just, you know, it’s keeping either spreadsheets or working with team leaders to sort them out, you know, that that often works best. But in some fashion, you need to be tracking this and have people who can help traffic cop the situation internally for you.

GINI: And I would say that this is, this is something you have to do no matter the size of your agency, if it’s you by yourself, and you’re working with contractors, or if you have a gazillion employees, this is something you have this is this is the data you need to have, in order to properly properly project how you’re going to grow your agents.

CHIP: Right. And, and you need to, you know, a piece of this is understanding what’s coming, you know, the, you know, you need to know what your capacity is, but you also need to know what’s in the pipeline. And so, you know, this conversation actually is stemmed out of another Reddit post where somebody was talking like it me like, I mean, I know I know Jenny, you’re really, really on the ball with with Reddit here. You’re going to be the new ambassador for the

GINI: new Reddit AMA Oh, it’s not go that far. Okay, baby steps,

CHIP: but you know, but the the particular question on Reddit was, you know, how do you how do you manage capacity and it and it particularly went to the point you made earlier in this episode, which is, you know, planning for retainers is relatively straightforward, more or less. But planning for projects is more difficult. And so that’s, it’s really understanding what’s coming. And so that means having a good system of communication amongst your team, particularly if you’ve got different departments or groups, teams that you know, we’re, you know, let’s say you’ve got, you know, a web dev team or something like that, or a social team and, and you’ve got someone else who’s doing some of the earned media and client service, you know, they need to be talking to each other so they can say, Hey, you know, we’ve got this release coming next week. We’re going to need you to help promote it with some ads with some social with you know, Whatever we need to build a microsite doesn’t matter, there needs to be the internal communication. But you also need to be having those conversations with your clients and understand from them from their business perspective, what’s coming, what, you know, what, what products, right? How about what events are they going to be at? Are you going to be adding? Yeah, yeah. So So, you know, there needs to be clear communication, internally, but also with your clients. And, you know, frankly, the best way to retain clients is to have a strong relationship with them, where you understand what their business needs are and how you fit into it. But that will help you a ton with capacity planning, because if they’re telling you what’s coming three, six months down the road, you can start planning for it now. And make sure that you have the capacity or the systems or the processes in place to deal with it.

GINI: And one of the things you can do and I think that management consulting firms do this really well is you have people on the bench so in from our perspective, people on the bench might be to 99 or contractors, right. But people that you trust that you know are going to do a good job. that come in and out of the agency. So when there’s something, you know, a big project or you win crisis work, or you know, whatever it happens to be, but there’s something that has a finite amount of time, you can go to your bench and say, Okay, we’re going to need you for this, this and this, instead of trying to rely on your full time staff to do that.

CHIP: Yeah. And I would triple underscore that last point, because every agency needs to have a network of freelancers that, that bench that they can tap into. Yep. And, and the bench serves a variety of different purposes, just like bench and sports. You need to have specialists who can do things that you maybe don’t have the need for full time. They should be people who can absorb capacity, when you have a crisis, where you have a new client or whatever, and you just need to get stuff done. And want to make sure that you have it because it takes a long time to hire people. I mean, this is a mistake that a lot of agencies may Yeah, they Yeah, they sign a new client and they’re like, you know, we need to hire three people for it, but they underestimate how long it takes to find, hire and onboard them. And the solution, by the way, is not that you go to that new hire and say, I need you to give your current boss one weeks notice. Because guess what, folks, if they give their current employer one weeks, notice how much notice they’re going to give you yet one week, you don’t want to build that from the get go. And someone who’s willing to do that is probably not the kind of person that you want to bring on board. But so having this network of freelancers, look you in the short term, if their capacity plays, you’re going to take a profit hit, there’s no doubt about it. paying a freelancer is almost always more expensive than an employee. And And if not, then you you’ve got an odd cost structure and we’ll visit that another episode. But you need to be willing to take that profit hit to get things done as long as you don’t prolong it, but that all comes down to having that bench. So you need to be constantly talking to freelancers, you need to have a list, you need to work them out. If I got a new client or I had a client, a client Client have a crisis? How would I solve that problem? If I need more writers? Do I have them? And by the way, don’t rely on just one saying, I’ve got one person who can do this. That is not a bench that you need to have multiple people because what happens if your your go to videographer is otherwise engaged yet? Or is actually engaged and off on a honeymoon? Right? I mean, what? Come on, you gotta have some fun. Anyway. So whatever it is there, you’re going to have times where you’re your go to person is not available. And so that means having a network of people that you can go to and a plan B and A plan C. Yeah, there folks that you’re not just finding initially, you don’t just have their name on a spreadsheet, you’ve actually talked to them. Ideally, you’re throwing them projects along the way, both to understand how they work so they can understand how you work and so that they feel more likely to be willing to help you when you’re in a time of need.

GINI: Yeah, I really like I mean, not everybody’s a sports sports person, but I do like the sports analogy from that perspective. You have your your starters. And then you have people that are on the bench you can bring in to give people a break, or, you know, there might be vacations or to your point somebody on a honeymoon, whatever it happens to be, or, you know, like, a really great example is eight o’clock last night, I got a phone call from somebody who said, we’re in, we’re in the middle of something, and we need your help. And so you have to, you have to have assuming that that you want to do that work, you have to have the capacity and availability to be able to drop everything and go.

CHIP: Right. And it’s in general, particularly if it’s a current client, it’s advantageous to drop everything and help them. Right. So you know, it helps strengthen the relationship. So being prepared for it and being able to not just say yes, but also able to deliver on whatever you said yes, to my experiences, most agencies say yes, in those situations. The problem is if you say yes, and then you can’t do it, or you have to torture your team so much or yourself, right? So you want to make sure that you’ve got that and the beauty is in the gig economy, we have much more access to quality, freelance help than we did when we first got started. Yeah, it’s improved even five years ago. Yeah, yeah, it’s much more accessible now it’s much more common for people to, to be out on their own and, and working this way with agencies. So take advantage of that fact. But but don’t wait for bad things to happen before you go looking make sure that you are or good things, right. I mean, because you know, it’s bad only because you don’t have the capacity. But it might be good because you just got a new project or a new client, right? But you want to make sure that you have that ability to to be elastic in your capacity.

GINI: Yeah. And I will tell you that if you don’t have that the free spin sucks community has a roster of people and we keep we keep a list of everybody and what their capabilities are. And I will also tell you privately what my own experiences with Certain people too. So, um, you know, use that because there are resources like that out there that can help you if you need the, if you need the bench bench strength,

CHIP: right, and understanding, you know, what someone’s particular strength is within their bench role is useful to right. So there are, you know, I’ve got because I’ve done a lot of writing projects over the years, I have a pretty good network of writers and I’ve got some, if I need it fast, I know who to go to, if I if I need it really detailed and meticulous, I know who to go to I, you know, I people who are better at short form a long form. And so, you know, it’s not just enough to have the bucket, but it’s knowing you know, what their particular strength is, so that you can match it up when you need it.

GINI: Yeah. Yeah, I think you’re right. I mean, in today’s gig economy we are we’re have a severe advantage to be able to create a good good strong bench so that we can move up and down as our client needs. Do the same,

CHIP: right? Yeah. The other thing, the other piece of this utilization and capacity planning, is that you also have to set expectations correctly, particularly with clients. And so, you know, one of the challenges that that I think folks have is, as an agency, you always want to say yes to clients and prospects. And if someone comes to you and says, I need a website and week, you say, yes. But if you’re constantly having to tap into this network in order to meet that, you’re not going to be able to build something profitable. And so you really need to work with your clients and prospects to help them understand how long does it actually take to do these things, it doesn’t mean that you can’t do rush things, but maybe there has to be a rush fee. You know,

CHIP: Yeah, you need to, you know, you need to think those things through. But you also, you know, if, and one of the mistakes that the agencies often make, particularly when they are getting started as an agency or when they’re starting with a client is they do everything just like that. And, and so you have now and this happens all the time with new clients, where you know, first of all You in the team, you’re excited about the client. And so it’s something new, it’s a shiny object. Yep, you want to impress them, it’s fun, because it’s not the same old same old that you’ve been doing for that client that you’ve had for three years. So there’s a natural tendency to turn that work around faster. The problem is, you’re now setting the expectation that when they ask for something, they get a same day response or next day response back. And that makes capacity planning much more challenging down the road. So, you know, that doesn’t mean that you can’t turn it around faster for them if you’ve got the capacity, but they need to understand, look, typically, it takes us three days to turn around a press release or whatever, you know, we happen to be able to do this one in same day or whatever. But it’s not that you shouldn’t come to expect that. And so you really need to have that kind of open communication about how long projects take with clients. And when you’re onboarding a new client. You know, don’t tell them you can start tomorrow if you really don’t have the capacity to start tomorrow. Most clients are going to be unless you’re perhaps in crisis mode. or something like that, right? They’re going to be fine starting a week or two later. Yeah. And as long as they’re, they’re getting it right. And so, you know, and I’ve seen a lot of agencies get this one wrong. And you really just need to sit there and say, Look, you know, I can take you on, but it’s going to take us two weeks before we’re ready to give you what you want. So let’s, let’s not start building you today. Let’s we’ll start building in two weeks will be ready for you will have the capacity, got the team all together, and they’ll start seeing great results and nine times out of 10. your prospects going to be just fine.

GINI: Oh, yeah. I mean, people, they’re busy too. So

CHIP: Exactly. And it also shows that you’re in demand, you know it yet so so that can be helpful to now if you tell them it’s going to be four months before you can get started, right? Well, then you’re gonna have some drop off. Right? And maybe you’re the kind of agency where you’re, you’re okay with that because, you know, you’ll just sort of sort through the clients you want. Generally speaking, that’s not how most agencies should or would want to run. So you know, there is a balance and how far you can put them off.

GINI: Yeah, and the the the last thing I will add to that I think with from an from an expectation standpoint is do the same thing with with nights and weekends. You know, I think we all have a tendency to, you know, sit on our phones and answer emails no matter what time of day or night it is, and, and then suddenly the client expects that, oh my gosh, if I email them at nine o’clock at night, they’re going to answer me if I email them at four o’clock in the morning, they’re going to answer me, that’s a really bad expectation to set. And it may very well be that you do. But don’t set that expectation. Because eventually you’re going to get to the point where either you have to step away because of other things. And then they’re going to expect that if your team or whatever happens to be and it’s really hard to plan for that. So expectations are very smart.

CHIP: Absolutely. And at the end of the day, if you if you get all this right, then you have the right capacity. You can add clients when you want to you can, you know, you don’t have teams sitting around twiddling their thumbs just hemorrhaging the agency’s cash. And so you therefore have a business that is not just profit Will book can also grow, right and continue to become the business that you want not just for today, but for tomorrow.

GINI: Yes, yes indeed.

CHIP: And with that, that brings to a close yet another episode of the agency leadership podcast. I’m Chip Griffin.

GINI: And I’m Gini Dietrich,

CHIP: and it depends

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