A back-of-envelope benchmark worth doing even if your agency is thriving
Y’know I think part of our collective problem is the unknown.
How bad is bad?
How good is good?
We’re not an industry with hard and fast benchmarks, so it’s hard to gauge what’s ‘normal’ … and any calculations and forecasts quickly become complicated.
So, I’m uncomplicating it … I’ve got something quick ‘n dirty to share.
It’s a blunt instrument but valuable for two reasons. Firstly it’s easy, it doesn’t take a day, an abacus and a spreadsheet to come up with an answer.
Secondly the result will give you a direction for activity. That’s important because right now we’re seeing designers paralysed with indecision.
I guarantee this is worth your time….
4 questions to answer
1. How many weeks do you work each year?
Hint: most Australians work around 45.6.
That’s 52 weeks in the year less 4 weeks leave less 7 days public holidays and assuming 5 days sick leave to round it up. But you do you.
For demonstration let’s use 45.6
2. Productivity or utilisation — how many hours can you realistically bill?
I cheated, this is actually two questions to get one answer:
Firstly what is the number of hours FT people in the business regularly work per week.
Hint: Most design agencies work 9-6 with an hour for lunch, that’s 8 hours x 5 days = 40 hours.
For this example I’ll use 40.
Secondly – and stay with me – how much of your day is billable?
Hint: no-one can work 100%, we’re not robots and we need coffee and toilet breaks. Juniors with few management tasks often hit 80-90%, founders/owners more likely 50%. Average it out. If your team is all seniors doing their own account service the number might be lower than juniors with a studio manager managing their time.
We use a benchmark of 70%.
So 70% of 40 hours per week means you can bill 28 hours per week per person.
3. What’s the hourly rate you use to calculate your project rate?
Hint: most Australian design agencies use a rate somewhere between $160 and $350.
For this example I’ll use $200
4. How many employees work in your business?
If it’s just you, that’s 1. You and a freelancer that helps out 3 days a week is 1.6. For this example I’ll use the ‘average’ number employed by a design agency: 3.
The calculation
Multiply the answers.
45.6 weeks x 28 billable hours x $200 p/hr x 3 people = $766,080 billable pa.
That’s realistically the amount you can bill in a year.
Yep, may be too simplistic for some but a life-line for others.
The reality check
Use last year’s Profit and Loss statement to compare what you billed (total income not profit) with our back of the envelope calculation.
If you billed more, you’re on the right track.
If you billed less than the calculation it could mean:
- there wasn’t enough work. That’s often the case even if you felt busy because designers are experts at making the work fill the time (and we’re also experts at the opposite – meeting deadlines). For 3 people you can bill 3,830 total hours (28 hrs x 3 people x 45.6 weeks). Did you have that much work in the studio last year?
- your hourly rate used to calculate estimates is not high enough to cover your cost rate. (The Costing, pricing and profit toolkit* includes a more sophisticated calculator to analyse your rates.)
- projects ran overscope and the extra work was not billed
- you overservice clients and are not paid for that extra work.
So what?
The next step is to focus on one of these two things:
- Targeted new business. If there is not enough paying work focus on better positioning and/or lead generation. If you have a team, and this has been going on a long time, the sad fact might be it’s time for a staff reduction.
- Better management. If everybody is generally busy, you have a different problem: under-pricing and/or over-servicing. Your focus needs to be project and client management. Analyse your numbers to find the profit leak. (That’s also part of our Costing, pricing and profit toolkit*.)
Neither of these challenges can be fixed with a magic wand but at least you know where to focus your time.
As always, happy to discuss further, just email me.
*‘Direct quote from Studio owner after buying our Costing. Pricing, Profit toolkit: For starters, the business costing and pricing calculator is a TOTAL eye-opener and honestly worth the $100 alone (turns out we’ve been chronically undercharging for while 😬). I’ve never quite been savvy enough to work out what our hourly rate should be, so being able to plug in our real overheads and reverse-engineer a rate (with margin!) has been incredibly illuminating.’
Carol Mackay
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About Carol
If you’re a female founder looking for a female business mentor to help bridge that gap between design and business, you’ve found what you’re looking for.
I love that intersection. I co-founded and built a 30+ year career building a successful, sustainable design studio. My clients included Ombudsman schemes, the Emergency Services sector and the Courts. My special power has always been an ability to use design to translate the difficult to understand or the unpalatable message.
I now use exactly the same skills with creative business owners. I translate the indigestible into bite-sized chunks of information. I share insights, introduce tools and embed processes to help others build confidence business decision-making skills. More confidence makes it easier to grasp opportunities. More confidence makes it easier to recognise a good client from the bad.
Outside DBC I have mentored with Womentor, AGDA The Aunties, and most recently Regional Arts NSW.
And I’m a proud volunteer and board member of Never Not Creative.
Always happy to chat, I can be contacted here.
