Setting team capacity benchmarks for your agency

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

Gini Dietrich: And I’m Gini Dietrich.

Chip Griffin: And we’re gonna talk about targets today. We’re putting a bullseye on your employees-

Gini Dietrich: Oh, boy …

Chip Griffin: right after this.

Hopefully we will not get banned from YouTube for that opening, but-

Gini Dietrich: Right. It’s like I told a friend of mine that I was gonna kick his butt in a bike race, and Facebook told me that I … They took, they took the comment down and told me that I was, inciting violence. And I was like-

Chip Griffin: Oh, yeah … “

Gini Dietrich: Okay. Right.

Yeah.”

Chip Griffin: Okay. I love algorithms.

Gini Dietrich: Right.

Chip Griffin: They are so good. Th- this is why the, automated measurement was always the bane of my existence when I was in the media intelligence space because people- For sure,

Gini Dietrich: yeah …

Chip Griffin: people always said, “Oh, yes, the computers can do almost as good a job.” Yeah, not really.

Gini Dietrich: No.

Chip Griffin: Mm-mm. Yeah. Not, not really, ’cause they can’t figure out that that’s really not a threat of violence.

Gini Dietrich: That is not a threat of violence.

Chip Griffin: No.

Gini Dietrich: I will kick his butt as well.

Chip Griffin: Yeah. And, we’re not talking about putting an actual bullseye on your employee. We’re not. We’re not. But we’re talking about the targets that you set for your employees for billable hours, because this is a topic of conversation that frequently comes up in the agency space, and recently came up in the Spin Sucks community.

Gini Dietrich: Yeah, so the question was, “My agency is currently taking a look at industry standards and benchmarks for team capacity or the percentage of time dedicated to client work versus agency o- overhead. I’m wondering if any of the agent- agency folks here would be willing to share your capacity requirements in the thread below or via DM,” or on the Agency Leadership podcast.

Chip Griffin: Why not? I mean …

Gini Dietrich: Right.

Chip Griffin: Why, why answer privately what you can answer publicly?

Gini Dietrich: Right.

Chip Griffin: That’s, my perspective. Although, I, did, of course, answer privately because, you know, I can’t help myself. This is a topic that I am- Oh, you a- I, I-

Gini Dietrich: You answer, yeah, you, have-

Chip Griffin: I have no opinions … strong opinions on this.

No opinions whatsoever. I- Yeah … you know.

Gini Dietrich: Mm-hmm.

Chip Griffin: Yeah.

Gini Dietrich: Yeah. Well, I will say that when I worked for FleishmanHillard, we had targets. The account coordinator through assistant account executive was, you had to be 95% billable. from account exec to senior account exec, you had to be 90% billable. And, that ti- the time that you reduced in billables had to be made up in new business.

From account sup- to managing supervisor was 85%. From VP through junior partner it was 75%, and once you made partner, you became 50% billable. But still, like, 50% billable as a partner? It’s insane. 37, 30 … I ne- I’ll never forget this as long as I live. When I started my career there was, you had to bill 37 and a half hours a week to a client.

Chip Griffin: Seems totally reasonable.

Gini Dietrich: You are not. Yes, if you wanna burn people out

Chip Griffin: Yeah. I, just, I don’t understand the fascination/obsession with establishing these arbitrary numbers for anything, whether it’s this or in an early episode of this podcast we talked about revenue per employee. F- everybody just wants the easy answer, I think.

They just want … They, just tell me what the numbers should be and then I’ll get to them. That’s not how life works and it’s not how agencies work. Not successful ones at least.

Gini Dietrich: Yeah, I think it’s … Well, the big agencies are successful and they do this, but I think the, challenge is that-

Chip Griffin: I … Well, we, I mean, we, could have an argument at some point about how successful the big agencies really are.

Gini Dietrich: Okay, fair. They’re big and they have lots of employees.

Chip Griffin: Yes.

Gini Dietrich: I th- I think the challenge is, is that in many other businesses, and we see this with, our clients, it’s you can say, “Okay, if we do this, we know we’re going to get this.” And it’s because usually other businesses are, have product, right? So you can create those metrics.

In an agency business where it’s reliant on time and people, that’s harder to do because as it turns out, we’re not robots. We can’t work 24/7, and, as much as I try, and it’s, im- it makes it impossible to create those kinds of, benchmarks. And I think that’s the challenge is you look at other businesses as, a business owner and you go, where should I be focused and how should I be focused on making sure that my team is hitting their goals so that we can hit our goals as a business?

And I think that’s why, because you’re right, people ne- need that kind of structure to be able to, grow their business.

Chip Griffin: But see, here’s the thing. Agencies are different shapes and sizes. Sure. They’re at different stages in their life cycle. Sure. They, have different business models. And so to try to come up with these one-size-fits-all- Fair

type answers, to me just, it’s, nonsensical. And, it, causes bad decision-making because you say, “Okay, well, I’ve been told that I should hire when I get to this num- this amount of revenue per employee,” or, I should force my employees to get this percentage of billable hours.” And so what is it, All of these things have side effects.

Gini Dietrich: Right.

Chip Griffin: And it’s, it … You know, if someone comes to you as an agency and says, “What’s a good open rate for my email?” Or, “How much should I pay per click?” Or, “How many, responses to a PR pitch should I get to know that I have a good pitch?” You would tell them, “It depends.”

Right. You would. There are so many factors. Right. Yeah. You would not, you would not just say, “Well, you need to have a 10% open rate,” or, “a 20% open rate,” or, “a 1% click rate.” You would, you never in your wildest dreams would ever give a client that answer, and yet you’re looking for that answer yourself.

Gini Dietrich: That’s very fair.

But- In that same genre, there are industry standards and benchmarks for those kinds of things. So if you’re in healthcare, you know the open and click-through rates on emails are X, and if you’re in financial services, you know that, so, but, and there doesn’t seem to be a benchmark or a standard by industry or agency size.

And so the, people can’t get that answer, which is why they keep asking for it.

Chip Griffin: But even when within those spaces, it will vary based on the size of your list, for example. Sure. So if you’re at an early stage of your list, and it’s mostly friends, family, close connections, that kind of stuff- Your click-through rate is high

you’re, gonna have a much higher open and click-through rate- Right … even though you’re in the same industry. And it’s the same thing with agencies. And so to, to try to sort of shoehorn it into that just doesn’t make sense, and it’s why I’m so big on, on looking at, two major things, which is, first of all, look at each individual client and project and make sure that they are profitable in and of themselves, right?

So you make sure the individual components are. And then I am in favor of looking at, a macro level what the profitability of your agency is. Not the revenue, not how many hours you’re billing, but how much money you’re actually taking home. Because at the end of the day, if you own a small agency, what matters?

How much you make- … how much you work, and the kind of work you’re doing. And if you’re not focused on those three things, you’re missing the boat.

Gini Dietrich: Yeah. A- and I think that’s very fair, because most agency owners, myself included, start out with the idea that they’re gonna build this business, and they’re gonna make all this money, and they’re gonna have all these employees.

And, so they try to figure those things out as they go, and- Then they end up not taking a salary or not paying themselves what they would make if they worked for somebody, and they hire people they shouldn’t hire because they need the help. And so it gets, it- they’re, focused on the wrong things.

So I think you’re right. If you focus on, are you making money, profit? Are your client- are the clients profitable, and are you managing the scope appropriately? Then you can start to, to grow from there.

Chip Griffin: Right. and the problem is if you say, “Okay, you know, I want this, I want my, most junior employees to be 90, 95% billable,” whatever arbitrary number you come up with, you’re now putting them in a box because usually you’ll communicate it to them, right?

Because if you just have it for yourself, you know, what good is it really doing, right? You’re really trying to communicate to them how you want them to be spending their time, which typically leads to fudging of the numbers in some fashion, right? Yeah. We’ve talked about this before. Yep. if you incentivize someone, either financially or through scolding to, to hit certain targets, they will hit certain targets, not necessarily in the way that you intend however.

Right.

Gini Dietrich: Right.

Chip Griffin: On top of that, if you start pushing for these high billable targets, you’re neglecting all of the other value that those employees, even junior ones, could be bringing you. And so you need to look at each member of your team and figure out what, how can they contribute best at a given point in time, right?

So I mean, let’s say that, you are in a growth stage, and so you are trying to, really focus on business development as an agency. Those junior folks, particularly in a small agency, might have an important role to play. And so while a very junior person at an Edelman, it might be totally legitimate to ask them to be 90% billable, in a small agency, maybe not, ’cause maybe they’re actually helping out with proposals.

Maybe they’re helping out with, you know, getting ready to pitch things to, potential clients. There’s a lot of things that in a small agency are very different, and so if you try to apply those medium and large size agency metrics, you’re, gonna lose out on that. More to the point, you’re gonna lose out on the ability to have them focus on things like professional development-

Gini Dietrich: Right

Chip Griffin: which, which might be really important, particularly at a, an individual employee’s current role within the, business. Maybe they need to know more about analytics, and so you want them to spend 10 or 20% of their time developing those skills because it will pay off 6 or 12 months down the road. But if you’ve got an arbitrary 90% metric, how do you do that?

Gini Dietrich: Right. I agree with that, and, that’s one of the biggest lessons I learned early on, early in my agency life is I had all these young professionals who I said to them, “You sh-” Because of my experience, and that’s what I thought you did, you need to be 95% billable. And then I also wanted to, pull them in on new business because it was important for them to, know the prospect before they became a client.

It was important for them to be bought in on the ideas, the proposal. It was important for them to, start to build that relationship. And soon, you know, people were working 60, 65, 70 hours a week, and there was a riot. There was… It, did not end well. Right. And, because of my experience, we never rioted.

Like, we didn’t… We worked 100 hours a week, and we didn’t complain. And so when that happened, I was like, “What do you mean? This is just the job.” And it took me a long time to figure out that my experience was not correct, and I couldn’t ask people to work like that. It, took me a long time to figure that out.

Chip Griffin: Right. And, for anyone who’s listening to this and taking away that what I’m saying is that billable hours don’t matter- Oh, no, they matter … and, the time sheets don’t matter, you’re wrong. You know, l- l- listen, listen to what I’ve said previously. I, always say that time sheets are important.

You absolutely need to know what your, team is spending time on, how much time they’re spending on certain things. You should absolutely know what their billable percentage is. But you shouldn’t set an arbitrary standard. You should be looking at it and saying, “Okay, you know, if, I’m looking at all of my account executives and I’ve got, you know, one of them that’s significantly more or less billable than everybody else, I wanna know why.

I wanna f- Right … I wanna f- ” And there might be a really good reason. Maybe they’re, currently between clients as far as what you’ve assigned to them, or maybe you’ve got them working on some special long-term project or whatever. Doesn’t matter. Y- you wanna use the data to inform your decision-making and to ask questions, not to have these goalposts that have to be met, otherwise, you know, you’re gonna go in and say, “Tsk, tsk, shame on you.”

And, we know that happens. I, mean- Yeah … we know it happens. Yeah, yeah, yeah. 100%. I mean, when, I was a junior account executive, I’ve told this story multiple times on this show and elsewhere, when I was a junior account executive, we worked for some clients. We had one client in particular. We were very clear about the exact number of hours that we were supposed to be spending per week on that client, no more or no less, right?

We were really supposed to be hitting those numbers. Almost impossible to do without ticking off somebody, whether that’s the agency owner or the client. So what did we do? We made sure that the time sheets reflected those numbers, and then we just did what we felt had to be done in order to- Right … to get the job done.

I, mean, it’s just, it’s, nonsense to, use those kinds of standards, and instead encourage honest reporting. Use that to fuel your decision-making. Look at whether you’re pricing correctly. Look at whether you’re using your team correctly. And if you do that, things will work out.

Gini Dietrich: Yeah, and I also think there’s something to be said for, you know, if you say internally, you say, “Okay, we’re going, we’re, we have this, client, and we need to do X, Y, and Z, and these are the results we have to get.

We think it’s gonna take us 60 hours a month to do that.” 15 hours a week. If it ends up that you’re spending 20 hours, 25, 30 hours a week as a team versus 15, then one, one of two things has to happen. Either people are spending way too much time and it’s taking longer than you thought and you didn’t project time and fees appropriately, or the client is asking you to do all sorts of out-of-scope things.

And if it’s the latter, if you’re doing all sorts of out-of-scope things, you have to go back to the client and have that conversation.

Chip Griffin: Absolutely.

Gini Dietrich: But if you didn’t scope it correctly or pe- it’s taking people longer than it should, that gives you information for the next time, right? But you also can’t go back to the client and go, “Yeah, I sort of screwed this up, and it’s c-

it’s, double- Right … what we thought it would be.” Like, that’s not gonna happen either. So I think th- that kind of data gives you that information, too.

Chip Griffin: Right. And, the problem is that when I, when, agency owners talk about these percentages of availability for different kinds of roles, more often than not, they seem to be coming at it from the perception that, their employees aren’t doing what they’re supposed to be doing.

Hmm. It’s, it s- it’s somehow, it’s on the employee to fix their numbers. The reality is, if you have team members who are only 60% billable and you think they should be 80 or 90%, it’s on you. It’s not on them.

Gini Dietrich: Right. I

Chip Griffin: mean, employees don’t just sit around and say, “Yeah, you know, I think I’m gonna do some professional development for random purposes today.”

They don’t. They’re generally doing- Well … what you ask them to do, and if they’re not, the problem isn’t billability percentage, it’s that they’ve got a performance problem that you need to address in some fashion, either by resolving that or moving them along to greener pastures.

Gini Dietrich: Or it could be that it doesn’t take them as long as their peers.

Chip Griffin: Right.

Gini Dietrich: And, so they’re 60% billable because it takes them an hour versus two. I mean, th- Right … there’s all sorts of things, but I think you’re right that it, just like we would look at data for any other i- challenge or any other thing that we’re doing from a, from an execution standpoint, the data that you have inside your agency will give you that kind of information.

Now, if you have somebody who does, who’s working faster than everybody else, let’s give them more to do and, advance them, their careers faster because- That’s kind of awesome.

Chip Griffin: Right. I mean, I’ll tell you, very early in my career, I had a job where I worked, I literally worked basically two hours a day and then just screwed off at my desk for another six or seven be- because I was told I was being too productive and I was making other people look bad.

And so- Come

Gini Dietrich: on.

Chip Griffin: I swear to God. Mm. And so I would basically show up, I would do a couple hours of work, and then I would go surf the internet for six hours. And everybody was happy with my performance, because if I did more, it would cause backlogs in other parts of the system that couldn’t keep up with the work that I was doing.

It’s sort of a, you know, it, reminded me of the I Love Lucy episode where they’re doing the candy thing. The chocolates, yeah. You know, and it just, but- Yeah, yeah … and, a- and I’m like, “This is just- The best episode. … this is nonsense.” I mean, it’s, it, was not a, f- a fun way to work for me because I just, I couldn’t wrap my head around it.

But in any case, the, y- you need to understand that there are all sorts of different reasons that these things can be taking place. And instead of letting numbers drive your decisions, you need to have it to inform your decision-making and inform the processes that you’re creating, and figure that out instead of saying, “Well, industry standard is 90% for your account executives.”

Mm-hmm. “And so therefore you must do it.” And the corollary to this, by the way, that really sets me off, how many clients should an individual employee be able to handle? I, that’s a, I love that one. Now, I think this one came up in the discussion in the, Spin Sucks community, too. I don’t know whether it’s the same one or a related one, but, someone said, you know, basically, you know, “Well, I expect my account executives to be able to handle X number of clients.”

That’s, another nonsense metric, and I get asked that by agency owners. “How many clients do you think that, my project managers or account executives should be able to handle?” I don’t know. Right. Depends what kind of work they’re doing. Right.

Gini Dietrich: Yeah.

Chip Griffin: Right?

Gini Dietrich: And it d- yeah, because, you know, when, I was at the big agency, w- we essentially only had one client because the budgets were $2 or $3 million.

Right. But, you were, that was your full-time job.

Chip Griffin: Yep.

Gini Dietrich: If you had, if y- a- and then when I started my own, you know, the, budgets were not that big. And you could have cl- e- employees on two or three different clients because, you know, the budgets were 60 to $100,000. So it, just, it just depends. Like, you can’t- Right

you can’t dictate that. You, it has to be dictated based on the work that’s being done.

Chip Griffin: Right. There, there just, there aren’t these magic answers that are out there for you. There are all sorts of data points you can consume, but you have to figure out what works for you. The other related one that I love is how much should I pay an account executive?

I don’t know

Gini Dietrich: Right.

Chip Griffin: Where do you, where, do you- It depends on what skills you’re requiring- Where do you hang? … where they’re located. But I mean, I don’t know. Right. I, I mean, an account executive can be paid anywhere from like 40,000 to 80,000, depending on where they’re at and what kind of skill. And, you know, titles mean nothing these days anyway, so, you know, an account executive in one place isn’t the same as an account executive somewhere else.

I mean, so you just, you can’t think that there are all of these easy answers and simple numbers that you can use to figure out if you’re running things well. You really need to use some, wait for it, independent judgment. There’s a reason why you get the big bucks for sitting in the owner’s chair, and if you don’t get the big bucks, change up how you do things.

Gini Dietrich: So there, th- there was something else interesting in this conversation, and you had some good thoughts on it as well. we do use billable hour benchmarks and revenue per full-time employee, and I’ve been suspecting we’re ready to raise our rates. That said, we follow the AMI benchmarks. That means 55% payroll, 25% overhead, and 20% profit.

For hours benchmarks, we’re working towards 75% billable and 60% utilized overall. We re- recently divvied up what percentage each person in the agency is working toward. Entry level equals the most billable and CEO le- equals the least billable. There’s your softball

Chip Griffin: Sure. I mean, the, good place to start, right?

Yeah. I mean, you know, at the end of the day, I think that, that profitability matters more than looking at specific, you know, what’s your labor cost, what’s your overhead cost. ‘Cause there are, particularly these days, where there are more agencies using different models and contractors and full-time employees and remote and non-remote, so, your percentages are gonna be a little bit higher.

But sure, as, a rule of thumb, 50 to 60% labor costs, the rest in overhead, and then 20% is your profit target, sure. Why not start there? Should your CEO be paid the most, the owner be paid the most? Yeah, of course. Yeah, right. I mean, like- Yeah … you can’t figure that out. I mean, but I- I’ve seen plenty of agencies, as I’m sure you have, the owner doesn’t make the most money.

Gini Dietrich: Right. ‘

Chip Griffin: Cause they, ’cause they pay themselves last.

Gini Dietrich: Yes.

Chip Griffin: Nonsense.

Gini Dietrich: Right.

Chip Griffin: Nonsense. You’re, taking all the risk.

Gini Dietrich: All the

Chip Griffin: risk. Make sure, make sure, make sure you’re getting paid.

Gini Dietrich: You’re working the hardest.

Chip Griffin: Right.

Gini Dietrich: You’re putting everything into it. You’re the one- Right … who should be paid first. Absolutely.

That also was a hard lesson for me to learn.

Chip Griffin: Absolutely. It’s very difficult. Yeah. And it’s, and, once you get full-time employees, then you start feeling nervous. “Well, I gotta make payroll. I gotta, you know, I’m, responsible for somebody else.” And you are, right? So you can’t make reckless decisions, but you’re responsible for yourself first.

Yes. If you burn yourself out, if you run your business into the ground because you are trying to protect your employee or employees, you haven’t actually helped them, right? You’ve, simply put off the inevitable. So fix things as you need to fix them. If you wanna use, you know, those, general industry benchmarks of 50 to 60% labor, 20% profit, sure, great.

But those are gonna change too. For, I mean, even successful agencies, your profit percentage is going to shift depending on where you’re at in the life cycle of your business. Right. Because if you are in an accelerated growth stage, it’s going to be different- Yep … than if you are in a smooth, steady pattern.

It’s gonna be different if you’re in a pandemic year. Yeah. Like last, last- Yes … year, some agencies saw tremendous profit because they were hugely in demand. Yep. Some saw a dip in profit. That’s, doesn’t mean that they were running a, particularly good or particularly bad business. It’s the macroeconomic conditions that were driving that.

Right. And so if you sat there and said, “Well, you know, according to this model, I’m supposed to have 20% profit,” well, I mean, maybe 15% was great for you last year- Right … because you were a PR agency in the travel industry or something like that, and, you know, everything was on fire everywhere around you, and so you managed to generate 15% profit in a bad year.

I’d give you five stars for that. I

Gini Dietrich: would give you five stars for that too.

Chip Griffin: Right? If you’re a digital agency and you’re just getting slammed with business and you’ve got a 15% profit margin last year, I’m, eh, maybe- … maybe you should’ve squeaked out a little bit more, right? Supply and demand, you should’ve raised your prices so you had a higher margin.

It’s, I, mean, you just, you can’t use these arbitrary metrics to make decisions, and if you do, you’re going to be unhappy. I guarantee it.

Gini Dietrich: Yeah, I think you’re right. It’s, you know, you have, s- some of it’s trial and error. Some of it’s, you know, figuring out what works for you at the time. Some of it is, you know, looking to places like us and AMI and some other, industry organizations to help you understand where is a good starting point.

I will say that, you know, 20% profit when I started my business was good. If I hit 20% profit now, I’d be, I’d be like, “What are we doing wrong?” ‘Cause I want more than that. So- Right … I think, I think just having a good starting place, and then really if you don’t understand the data that’s in front of you or how to read the numbers to be able to make decisions, find somebody who can teach it to you, because that is the most important thing as a business owner, to understand that.

If you don’t understand it, you’ve gotta get that professional development for yourself.

Chip Griffin: Right, and at the end of the day, again, it all comes back to you. Mm-hmm. I mean, I- you can have a business that’s generating 30% profit, but it’s on s- such a small revenue number that you’re not taking home what you need to.

Gini Dietrich: Yeah, that’s

Chip Griffin: not okay. I can, I, I can have an account executive who is 99% billable and still be unprofitable.

Gini Dietrich: Mm-hmm.

Chip Griffin: Right? Mm-hmm. So, so if you use- Yep … these kinds of metrics- That’s a good point … I- in isolation, you aren’t guaranteeing yourself good results. You’re just guaranteeing that you got whatever number you were seeking to get.

Gini Dietrich: Yeah, that’s a really good point.

Chip Griffin: So put money in your pocket. Put the amount of time on your time sheet that you want to be working, and do the kind of work that you wanna do, and then figure out how you get there with everything around you. Don’t s- don’t start with these, you know, micro numbers and, and assume that that’s gonna give you success.

It’s probably not.

Gini Dietrich: It does not, based on my own experience.

Chip Griffin: And, and as well as mine. Yep. So with that, that will bring to a close this episode of the Agency Leadership Podcast, and I’m Chip Griffin.

Gini Dietrich: I’m Gini Dietrich.

Chip Griffin: And as we’ve just said, it depends.