You are not managing an agency if you do not do time tracking
Almost 4 years ago, these days, I was at the Christmas party organised by Google Greece.
It was less than 1 year that I had left Google and started my own digital agency. Within these months I had managed to form a team of 4, get us an office and start working for various Clients (including Workable, that was then launching and now is the most popular recruiting software in the world). Business was growing fast and we could barely keep up.
While I was having a drink at the party and enjoying various informal discussions, I stumble upon Giorgos Vareloglou (co-founder of the most successful digital agency in Greece and former Business Development Director at iProspect). Giorgos is asking mehow is the business doing and at some point asks “Are you doing time-tracking?” and I reply that I am not. Then he says “start doing time tracking tomorrow!”. And this was one of the most important advice I have received that made an impact at my agency.
Agencies sell hours. Period.
The reason we have not been tracking our time is that I originally thought that we were selling value. And I was thinking like this because I was biased from the way we were charging our Clients. That days we were mostly doing Google AdWords management and a common pricing model for this service is to charge a percentage fee on the monthly advertising spend (for example 10% on media spend). So I was not thinking about hours.
But this is not the only pricing model that does not include hours. You also have fixed-fee projects, monthly retainers, performance based pricing and even usage-based pricing. All these pricing models hide the one and only truth; that what we are selling is hours.
You see if you are a retailer you know what you are buying and what you are selling because it is tangible; they are products. But when we are talking about service business then we move to the sphere of intangible and this perplexes the things. But if you go at a helicopter view of a service business you will notice that what the business is buying (and ultimately selling) is employee hours. If you wanted to talk “accounting” goods sold are the employee hours, COGS is the fully loaded employee cost/hour and revenue is the Total Revenue/billable hours. The difference between the revenue/hour and the cost/hour is the gross margin of the business.
The marketing person in me will come out and say “cost-based” pricing is not the best way to price a product and if you are selling something of higher quality or something that involves innovation, you are underselling; you should instead sell “value”. And I would agree 100%. The thing, however, is that I am not telling you that you should price your product based on your costs or that you should use hours-based pricing. What I am just telling is that you should understand that no matter how you sell, at the end of the day you buy and sell hours.
Why you should do time-tracking
Now that we are talking at the same level and that we both agree that what you are actually selling is hours, I would move and tell you that you should track these hours, you should do time-tracking.
And there are many reasons why you should do it.
- need to know what is the cost of what you are selling (billables — non-billables, hidden time as emails/calls/travel, etc)
- decide how much time you should invest on different projects(time allocation to harmonise profit margin)
- put a value in the founders’ time (your time is not free and this is something that founders do not take into account up until the time they want to sell the business and people ask them what is the “real profit”)
- knowing these numbers helps you in a negotiation (if a price seems high, now you have a way to explain the effort and set the discussion at scope, not perception)
- have history so you can do better planning (plan your next project based on insights)
- have history so you can do benchmarking (are we improving?)
As it is more than clear from the sheer number, there are many reasons. But even if it was just for the #1 (know the cost of what you are selling), you should do it. And do it now, as Giorgos advised me.
How to do time-tracking
But how are you going to do time-tracking?
If you are really old-school, you can just do it with pen and paper. Although this is easy and simple, this method has a big disadvantage, which is summarising the data. If I ask you for example “how many hours have you spent in the last 30 days to do X for Y Client”, then you would need to go over your paper notes. Does not sound really cool!
A more useful way to do this would be to create a spreadsheet (Microsoft Excel or Google Apps) and fill your time there. It will be way easier to retrieve information and summarise. You would not even need to design this spreadsheet as there are many pre-made templates online (for Excel, for Google Apps). But still reporting would not be easy. And the whole experience is not stream-lined.
Given that time-tracking is not a problem for a niche but a big problem for many people, different Teams have created standadlone time-tracking applications. When we were preparing to launch time-tracking for our agency, we did a research (check the actual research document we used!) and concluded to toggl. And after those years of using it, we are more than happy and fully recommend!
For me the main benefits of using a time-tracking app (and more specifically toggl) are:
- Fast logging of hours on desktop and mobile
- Harmonisation of tracked hours between different team members as the admin can define Clients and Projects
- Powerful and fast reporting across any dimension (time, user, client, project, etc)
To summarise up to here you should start time tracking now and the best way to do this is a time-tracking application. This will be the higher ROI activity you have done as a small business manager for quite some time.
Tips from the experience
To close my post, I will give you some tips in order to do a good start in this new activity based on our experience, both good and bad.
- Start small: Do not try to design the ultimate system with all possible tasks and countless reports. If I were you, I would just start doing time-tracking for each project you are billing Clients for. Then at the end of the month I would pull a really simple report that says how much time the whole Team has allocated for this project. Then I would divide the revenue from this project with the hours and I would have the value/hour. This is the number that I would compare with the fully loaded cost/hour to see profitability per Client.
- Do not use in a big-brother way: One of the reasons we are starting a business is to create an environment where people can enjoy working. You should use the small size at your advantage and do not bring processes from big corporations at your agency. Do not use time-tracking as a way to monitor how each of your employees spend every hour of the day, this is not cool. This is micromanagement and you do not want it. In our agency, we just track effort per Client and periodically look at total employee output, we never go deeper than this.
- Set someone as “time manager”: In an ideal world everyone would track all their time and assign it to the correct project. But things are moving fast, and sometimes this does not happen. Assign a person the responsibility of reviewing the time tracked and ask for adjustments from each person.
- Use the data: Working in the performance advertising and analytics industry, I have quite some obsession with data. And the most common issue with data is that we all strive to collect them, but few companies actually use them. Use the data. If you do not plan to use them, do not do the whole effort. In order not to fail on this dimension, just follow #1, start small. A monthly review is good for starters.
If you are not doing time-tracking, what are you waiting for? If you actually do, do you have any tips from your experience?