AGENCY MANAGEMENT GUIDE

No one can fully predict the future of their business. Multiple software and spreadsheets will be no help in predicting the future either, though. In the rapidly shifting digital world, the right agency management system will synchronize your entire team.

Your agency management software needs to tell you how well your resources are being utilized, how profitable your agency is, and what the upcoming few quarters hold, to some extent. Because that’s where all your agency’s most important decisions will come from—your business reports. 

In the following chapters, we cover how to get the most out of your agency system so you can future-proof your agency business. This guidebook is meant to provide information to all—from novices to agency leaders.

The term end-to-end agency management refers to leading and running complete workflows that happen within an agency business. Managing an agency end-to-end means having a 360-degree view of your organization—from sales activities, task management, and analytics to billing projects.

The core business of every agency—regardless of the industry it serves, be it full-service or specialized—is to provide services to other businesses.  

Since agencies offer services to clients, much of their success depends on meeting client expectations. Also, what’s common for most agency-type businesses is delivering services through workflows. Agency workflows are typically called projects.

So, you might believe that the success of projects relies on project management. But there’s much more to project management than delivering tasks quickly and efficiently. The success of most projects relies on your agency’s ability to deliver them in a way that positively impacts your agency’s overall financial picture. 

Will you make money from that project or not? Will your teammates burn out in the process? Do you have more work scheduled after this project, or will you deliver it and have nothing left to work on? An end-to-end agency management system helps you answer all these questions and keep your business afloat. 

Examples of agencies and service businesses:

The core business of every agency—regardless of the industry it serves, be it full-service or specialized—is to provide services to other businesses.

Generally speaking, the biggest overall challenge in agency management is optimizing project management workflow. Your business will want to make sure that:

In the following chapters, we’ll cover all the key aspects of agency management: from project workflows and resource planning to monitoring your profitability and billing clients.

Because effectively managing operations is the pillar of successful project management and a foundation for increasing agency profit margins, running daily operations on a single platform with advanced features is key to your agency’s success.

In the next five chapters, we’ll cover the pillars of running your business in agency project management software:

New business acquisition is a crucial component of successfully running an agency. After all, if you don’t have new projects coming in, you will quickly see the consequences on your bank account.

When your agency management system has an embedded sales solution in it, you can forecast revenue, and planning resources gets easier. Not only will an embedded sales funnel let you quickly turn won deals into projects, but it’ll also help you save time on passing new customers onto project managers. With a detailed history of communication with prospects and new clients, you’ll have much more transparency in managing customer relationships.

When everyone in your agency has access to details regarding the entire sales cycle, you’ll avoid major issues like misalignment, overpromising, or lack of consistency within your team.

To balance your incoming workload and forecast potential hiring, agencies typically use different sales management techniques. Part of the reason why is to streamline CRM and resource planning with upcoming project management. At the start of a relationship with a customer, sales managers will work with the prospect to get a clear picture of their vision and priorities. Then they come up with a strategy that would work best. 

After that, sales managers will consult operations or project managers about their strategy to make sure that they can deliver within the proposed time frame. The sales team will then collate and communicate with the client and move the deal along in the sales pipeline.

Still curious? Click here to learn more about managing customer relationships.

Sales managers use sales metrics to track progress towards sales goals. Sales data shows individual, team, or business performance and sales pipeline metrics show the health of your sales pipeline.

What’s the average length of the sales cycle, your average customer value, or conversation rate by sales funnel stage? You can measure these metrics for individuals and/or for the team. With these numbers, you’ll understand what’s working in your sales process—and what’s not.

If you get 500 leads per month and on average, 50 leads per month buy your services, your monthly average win rate is 10%. 

If you keep track of your win rate over time, you can understand whether your sales team is overachieving or underachieving. If your win rate is dropping, pay closer attention to your sales processes and make some changes in order to raise the win rate.

1. Find out your total number of days for all sales combined.
2. Divide your total number of days for all sales combined with the number of deals you won.
3. Voilà! You now have your average closing time.

In the context of agencies, lead time is the period of time between a customer’s service purchase and the agency completing the service purchased. This info is mostly useful to your Sales department when talking to potential clients about when you can start working on a new project. Agencies can minimize lead time by hiring new people. If Customer Lead Time reduces, it can mean winning more business.

Customer Lead Time is the amount of time it takes for a customer to receive a service from the time they requested the service, i.e. placed an order. Lead time is an important metric to take into consideration when talking about customer satisfaction, as customers usually want services delivered as quickly as possible. 

With the demand for embracing new technologies and meeting time and budget restrictions, after laying the foundation of your operations, you need to manage resources and track employees’ productivity. As utilization is one of the most important metrics in an agency business, knowing your resource utilization rates in real-time is essential.

When compared to other businesses, one of the biggest challenges that agencies face is optimizing project management workflow. Why? Quite simply because the complexity of delivering projects grows with the size and number of projects that agencies have on their plates.

Since project management and delivery typically requires suddenly needing to hire cross-functional teams, onboard, align, and manage them, your agency’s most valuable resources are your people, their knowledge, and skills.

What’s more, delivering complex projects such as creative or technological services almost always involves several stakeholders. Those stakeholders regularly have a say in the output of each project.

Collaborative workplaces see increased levels of trust, a more engaged workforce, and better performance. But running a collaborative team environment is not simple at all. 

In terms of team collaboration, remote working is a concept embraced by businesses around the world. The benefits of remote working that many employers may not have considered before are reduced overhead costs, increased flexibility, and greater employee satisfaction.

Here are some keys for making your remote team collaboration more effective for your company:

Trust is also a crucial component of team collaboration. When working remotely, using a platform that will help you effectively manage your entire team is just as important as taking time to understand how your teammates are doing on a personal level, and organizing team building activities.

The future of long status update emails and meetings with clients is inviting them into your agency management tool to collaborate. Simply onboard your clients to the projects you’re working on for them, and let them monitor your progress in real-time.

As of 2020, remote working has become the new normal. To save time that you and your teammates spend on switching between different platforms to find updates on projects, tasks, budgets, and resources—use one tool to virtually manage your entire business, anywhere.

If you’re looking for ways to improve your team’s collaboration, what you need are fewer software solutions and a fast user interface. Ensuring optimal collaboration depends on enabling effective communication. When all your projects and tasks, time, and resource management are centralized and available in real time, everyone is more focused on priorities, and projects can run smoothly.

Agency projects typically involve processes that have a similar workflow. Creating a template for your best practices and setting them up in stages in your agency management system will lay a foundation for your agency’s growth.

Still curious? Click here to learn more about how to streamline workflow.

In today’s competitive market, profitability is one of every agency’s top priorities. You need to focus your agency’s energy on increasing profitability to be able to run a more stable company. Agencies often struggle with understanding where time was spent: billable, or non-billable projects? Using an agency management system gives your agency control over non-billable hours and the ability to focus on billable projects.

When using an end-to-end agency management system, you can predict your agency’s revenue based on project budgets and scheduled resources. What’s more, your agency can allocate existing or plan to hire new resources using Scheduling features. With Scheduling, predicting the completion of a project within an agreed time frame is easier, as you can drag and drop resources before and during a project as your team makes progress.

In the agency world, billing projects can easily become problematic because of the complexity and duration of certain projects and not having information linked with invoices. For this reason, using a platform that connects tracked time on projects and services with invoice building is a timesaver for project managers. Also, using a platform like Productive, you can create unique invoices that combine various projects and budgets if they belong to the same client and are in the same currency.

Your agency is most likely pursuing growth that is sustainable, predictable, and scalable—growth that won’t negatively impact the quality of your services. To achieve scalable growth in services, people, and profitability, you need to streamline your workflow in an agency management tool.

Scaling your agency brings organizational challenges. Example: Your agency wins a new deal and you’re kicking off a new project. Initially, starting a new job and hiring new team members to deliver it may seem like sustainable growth, but onboarding new people without properly managing resources can create operational issues. Scalable agency growth requires standardized processes, centralized and effective communication, and a platform that enables productivity.

Using an agency management system instead of just a project management tool helps improve business intelligence, enables better overall workflow management, and accelerates company growth. 

In the next chapter, we’ll talk about overcoming project management challenges by successfully managing your agency’s resources.

When we talk about resources in the agency world, we’re mainly talking about human resources.

The term resource planning is an industry-standard way to say planning out work for your team, to your best advantage. Resource management is when you pre-plan, schedule, and allocate your teammates to maximize efficiency. It’s a process that goes hand-in-hand with project planning, which focuses primarily on tasks and timelines.

Unlike other types of businesses, agencies’ profitability rates heavily rely on the utilization of their resources.

Is there a resource that’s underused? Is any teammate overbooked? Answering these questions is much easier using a scheduling tool that links your agency’s services and time tracking to specific people.

Naturally, there are other types of important resources in the agency business, too. They can be broken down into two groups: tangible and intangible resources.

While planning offers reporting and optimal utilization, the planning process itself is a major challenge for agency owners and project managers. Shifting deadlines and evolving priorities make resource planning incredibly complex for agencies.

Project complexity and the inability to always accurately predict how teammates will master certain tasks make it difficult to forecast how long each project will last. Because timelines and client requests can change daily, it’s easiest to keep track of changes in one software. 

When implemented right, time tracking is good for everyone in an agency, including your creative team members who typically dread it.

For a lot of workers, time tracking is not considered fun. From the uneasy feeling of being watched, questioned, and potentially micromanaged, to dealing with technology hassles—many creatives even see this simple obligation as a task that degrades their work.

Related: The Best Creative Agency Project Management Software

But reasonable project managers understand that not all creative hours are the same. If you have a tool that offers you multiple options for tracking time, “clocking” doesn’t have to have all those negative associations. Read some of our tips on getting rid of the psychological barrier of time tracking.

The key behind time tracking is building trust. If you foster open communication in your agency, time tracking will be less of a burden for your teammates because they will know that those few minutes of their time will provide the entire business a wealth of information. Not only will you be able to optimally manage resources with a truthful answer regarding where billable and non-billable time was spent, but financial metrics will be clearer, too.

In the end, this small, daily habit will help employees streamline repetitive tasks, support management in making great business decisions, and shape the future of your agency.

With centralized planning, you can remove overhead from other employees and allow your agency to scale your operations team while improving service quality and speed of delivery, and potentially client feedback and client retention.

When it comes to planning, it’s important to choose a single point person to lead the charge. Planning efforts should be organized around one person, which offers several advantages:

Resource planning should be overseen by one point person for several reasons:

Many agencies will follow gut feelings to tell them if and when they need to hire for upcoming months. Yet, why wonder if you can forecast and schedule upcoming work using an agency project management system? With rapid changes in project management, you need to have a clear perspective on current and upcoming work. Forecasting and scheduling will tell you whether your agency needs to hire new talent or contractors in the near future.

Imagine your employee gets sick, goes on vacation, or even quits their job in the middle of a project. Or think of what it’s like when your agency hires new staff members. It takes them time to adjust to the new company and projects. For reasons like leave management and onboarding, allocating and managing resources can get pretty tricky, and you can end up losing precious time on projects if all your resources aren’t managed in one place.

Planning in advance will show you a key metric you need to follow for future-proofing your business: forecasted utilization. Because agencies revolve around delivering services to clients, billable utilization, also known as “client time”, is a crucial rate to follow. For example, software development agencies aim to keep their billable utilization rates at around 75-85%. You might already know your overall profit, but drilling it down to profitability by client is necessary to see if you’re charging your clients correctly.

Those were some of our pro resource planning tips from industry experts, now let’s move on to the important stuff: your agency’s key metrics.

In the agency and professional services world, staying profitable is a balancing act. Once your agency resource management has been set up for success, you can focus on the crucial mission every company needs to work towards to thrive in the long term: increasing agency profit margin.

Let’s take a look at what you need to simultaneously balance while facing customers and internally during the pre-sales, sales, and delivery phases of a project:

Even while you successfully manage expectations and project delivery, having the right pricing strategy is what will end up setting your agency apart from your competition. As an agency, you need to determine and often reevaluate how much to charge for your services to ensure profit margins are steadily rising. To do that, you’ll need to:

To know where your agency is losing money, the first question is always whether or not your teammates are consistently tracking time. When looking at how to track productivity, time tracking is the alpha and omega of monitoring and calculating profitability.

Another cost that greatly affects agency profitability, especially because this business model generates many non-billable expenses, are overhead costs. Overhead is any agency expense that doesn’t directly generate revenue. These costs are unavoidable. However, you can reduce overhead by monitoring it and reevaluating certain non-billable costs as investments, and including them into your service rates.

Let’s take digital marketing agencies as an example. Tracking time and knowing your utilization and actual profitability will also help you calculate your average marketing agency hourly rate.

Still curious? Click here to learn more about how much to charge for your services.

Overhead costs are all your agency’s costs that don’t directly generate revenue, yet greatly affect your agency’s profitability. 
Typical expenses that fall into any agency’s overhead bucket are rent, utilities, cleaning services, office supplies. However, unlike different industries, agencies and service providers have many variable costs that are inevitable for their long-term growth. To make sure marketing and sales activities, event and networking organization, training, education, and similar expenses don’t drain your agency’s profit, it’s key to reconsider whether you should bill these services, i.e. factor otherwise non-billable costs into service rates as overhead costs, too.

Examples of agency costs are facility costs, salaries of non-billable employees, licenses, phone plans, equipment maintenance, travel expenses, and more.
If you monitor your overhead costs (and otherwise non-billable activities) in an agency management system, you can factor your agency overhead rate into your profit calculations. 

As we get into how Productive factors overhead costs into profit margin calculations, let’s cover the major expense categories that agencies are faced with: project expenses and salaries.

Project expenses: unique costs for every project. Examples are software licenses, advertising budgets, or travel expenses

Salaries: usually your agency’s biggest expense, and the main reason why high billable utilization rates per employee are paramount

In Productive, overhead costs fall into two categories:

1. Facility cost: utilities, office space rent, equipment, etc.
2. Internal cost: the expense of time spent on internal work

Productive uses a proprietary algorithm that calculates your agency’s overhead as a combination of facility cost and internal projects. To give you an understanding of your agency’s true profit per project, Productive’s algorithm calculates overhead costs per hour. It does this by adding the overhead costs on top of each employee’s standard hourly cost rate. In this way, the tool spreads your agency’s overhead across all your existing projects.

In agency businesses one KPI does not exclude another—or should any get ignored, for that matter. You need to be able to see your agency’s financial performance in real time, at any given time. When you have company-wide views of your expenses, revenue, profitability, and utilization, you’ve got everything you need to check your agency’s pulse. 

Still curious? Click here to learn more about how to calculate overhead costs for an agency.

Most agencies need reports that give them a real-time glance of their key metrics:

Check out the different report templates Productive offers here.

Custom fields allow you to zoom in on a specific metric or set of information that isn’t available in a report template by default. By adding a custom field to a certain report, you tailor it to your agency’s needs. Adding custom fields to your reports gives you more flexibility to monitor various metrics, analytics, numbers, and graphs that show you the pulse of your agency. 

You can use custom fields to set up reports that will generate real-time metrics that are important for your agency specifically, for example:

Generally, you should be able to add a custom field to:

You can add a custom category to any one of your reports to help you separate reports based on key business areas. Example: you can add categories for utilization or profitability, and then group more specific reports within each key metric “bucket”.

Professional service businesses need to keep track of certain metrics at all times. Those are utilization, how much time you’re spending on billed vs. client time, how much you’re working overtime, and your most vital digit: profit.

Utilization is defined as the amount of billable time can you pull out of the total available time of an employee. Utilization rates show you the percentage of time an employee is spending working on tasks for client work compared with the total amount of time that an employee is available to work.

Because this metric gives you reports on how effectively your employees are working or being applied to different projects, utilization is one of the most important metrics for any agency-type business.

To calculate your agency utilization rate you need to track your employees’ time on a daily basis. The easiest way to monitor both billable and nonbillable hours is by clocking hours in a time-tracking tool. When your employees track their time with a tool that links time tracking to project budgets, you can automatically see exactly how many hours they spent on client work (billable hours) and how many they spent on, for example, admin or networking (non-billable hours).

If you have an agency utilization rate of 100%, that means your billable employees spend all their time working on client projects. But don’t pat yourself on the back just yet—a 100% utilization rate isn’t necessarily a good thing. In fact, it probably means you don’t invest in employee education and research, let alone allow time for team-building. In the long run, a 100% utilization rate could be harmful to both your employees and your business.

On the other hand, if your utilization rate is very low, this could tell you two things:

Let’s say you’re developing a new website for the client and you give your employees extra non-billable time for research. With these additional research hours, your employees can renew their knowledge and explore new technologies, which will ultimately bring value to your business. 

Internal time is an investment. That goes for Marketing Teams, Sales, HR, Administration, research and any other non-client-facing roles or work done in your agency.

After defeating a competitor, famous athletes will often tell reporters on the sidelines, “We won because we gave 110%!” While that sounds impressive, when it comes to utilization rates, extra credit isn’t always a good thing. If your agency utilization rate is more than 100%, your employees are probably working overtime.

Billed vs. client time often indicates the quality of an employee. It shows how “billable” your employee is. Measuring your staff utilization rate can help maximize the profitability of your projects. The goal of analyzing employee utilization is to gain a clear perspective of each employee’s workload. This information will allow you to make smart, well-informed business decisions for your agency.

Basically, a high utilization rate will generally show how “healthy” your company’s processes are. However, you shouldn’t try to compare your company’s utilization rate with a competing agency. This rate will be different for each company, depending on approaches and processes.

Overtime is the amount of time someone works beyond normal working hours. Long-term overtime leads to unsatisfied employees who tend to start looking for other solutions and will eventually leave a stressful job.

According to another study, 41% of PR employees work 49 to 79 hours a week. To make matters worse, 84% have to take work-related calls or respond to emails during out of office hours. What’s the result of all these overtime hours? One in five of these employees quit their job every year. (PRWeek)

Companies often try to squeeze a six-month project into a three-month timeline. This is why it’s critical to plan in advance and create a realistic project delivery assumption. Keep in mind: these plans aren’t written in stone. If changes occur in a project (and there will always be some changes along the way, such as sick leave, vacations, unexpected issues, etc.), revisit your plan and adapt. Dedicating a couple of hours to walk through a project plan each Monday and revamping it if necessary is a good way to avoid employees working overtime.  

In our experience, we’ve seen many clients not spending enough time planning or properly measuring results. As soon as these clients started scheduling and measuring results through Productive, they saw a significant upward shift in employee satisfaction.

The bottom line: an agency can’t expect to be effective without a good scheduling tool. The right tool will allow you to properly schedule tasks because it helps you understand the important details—who’s sick, who’s on vacation, or the number of projects each employee is currently working on.

With Productive, you know exactly who works on what, and for how long. Using the Scheduling feature, you see which employees are working overtime and you can easily calculate the overtime average for your entire agency. With this valuable report, effectively distributing workload, preventing burnout, and boosting employee satisfaction become easier.

An increase in revenue won’t necessarily get you far if you can’t manage your costs well. Your profit margin highlights your ability to increase revenue while managing costs.

To keep your agency healthy and thriving, you should be making at least 15% in profit margins at the end of the year outside of your salaries. This keeps agency businesses running.

Calculate your total monthly expenses (salaries, contractors, rent, supplies, etc.).

Let’s say your monthly expenses are $150,000 and your goal is to invoice $170,000. That leaves you with a profit of $20,000 at the end of the month, or $240,000 at the end of the year.  

The first thing you have to do is track your profit margins for each client. 

In Productive you can define hourly cost per employee and your employees can track time on projects. For calculating your margins you have to take paid holidays and sick leave days into consideration. 

An employee with an annual salary of $50,000 and $12,000 in benefits costs you $32.29. To calculate net margins, you need to estimate your overall expenses per year. Keep in mind that all indirect costs (costs that are not the result of producing services) are overhead.

Agencies often bill their services per hour or by a fixed total rate. They also bill different services (graphic design, illustration, creative copywriting) at different hourly rates. The rates usually vary based on market demand and the experience of the person working on the project. 

On the other hand, more and more agencies have a “blended rate”, a rough average rate for all their services and skill levels. 

Mixing it all together has its pros and cons. The pro is definitely that you could be able to sell more of your services and have more clients, which is good for your book of business. The cons for the agency (and a pro for the client) are they will get even senior-level staff involvement at an average rate.

1. Keep track of the hourly rate of every hourly employee. 

Example:

2. Sum up the total hourly compensation and divide it by the total number of hourly employees.

Billing is rarely as easy as it should be, especially in the agency business. Your customers may forget to pay, misplace the bill, or simply put off the payment until the last moment possible. Unlike selling different goods that usually get paid for on the spot, service providers typically have ongoing contracts or long-term projects that aren’t as quickly billable. Before you know it, your agency’s revenue is fading—all because of missed due dates on invoices you’ve already sent out. Cash flow disruptions can severely impact your day-to-day operations, investment opportunities, and existing client relationships.

An outstanding or overdue invoice is when you’ve sent an invoice to your customer but it hasn’t been paid yet. Usually, past due invoices appear on a customer’s accounts payable report and may carry a late fee that customers need to pay in addition to the overdue invoice itself.

Just because an invoice is unpaid, that doesn’t mean that the invoice is outstanding or overdue yet. An unpaid invoice is an issued invoice that has yet to be paid by the customer.

In Productive, you can create unique invoices that combine different Projects and Budgets, as long as they belong to the same client. The benefit of multi-budget invoicing is that you have the flexibility to organize your budgets and finances in the way that’s easiest for you and your clients.

Using end-to-end software for agency management isn’t just about supporting your operational efficiency. It’s about finding what your agency does best and taking that further while identifying areas for potential growth and improvements. 

Consolidating your processes through a single solution for agencies can be a powerful tool for staying competitive and driving innovation. Both smaller and larger agencies can benefit from having a single source of truth for their operations. Some potential benefits include standardized workflows, a reduced tech stack, and more reliable data.

To invest in your agency’s future, book a demo with Productive and start running a more effective agency today.