Utilisation and Forecasting In Times of Uncertainty

The last couple of years have been economically uncertain for businesses.

Agencies have been putting their focus on key metrics and figures to help navigate the rocky terrains of the market. Most of us go into survival mode when things get rough, and agency owners and managers tend to keep a close eye on some 5-10 financial statements to give them a pulse on their business.

Focusing on profit, revenue, and securing new work is perfectly natural, but it’s not the only thing that should be tracked when a crisis hits.

Utilisation: The Key to Agency Growth

When we talk about resources in the agency world, we’re referring to people. They’re the main assets and providers of value in an agency, which is exactly why tracking utilisation is key.

So what is utilisation? Putting it simply, it’s the amount of billable hours you can pull out of the total available time of an employee. You’d probably think that 100% utilisation works best, but that’s not the case. We’ll explain optimal utilisation rates and what other rates might point to.

The ideal utilisation rates lie anywhere between 70% and 80%, at least that’s what one will see across most agencies. If your utilisation rates are going over 90%, or even approaching 100% — it means your team is overworked. At this point, you want to start looking into new hires or work reallocation.

If over-utilisation is a common occurrence, you can anticipate your team is headed for burnout. To help solve this, in the long run, you should reconsider your workflows and capacity planning.

According to one of the most recent agency industry reports by Promethean Research, which included over 45,000 digital agencies since 2015, under 40% of agencies track billable utilisation. Not tracking utilisation often leads to chaos while planning and a high employee turnover in the long run.

Balancing a team’s workload, especially during difficult times, is crucial for your team’s overall well-being. Sudden stress leaves and sick leaves due to burnout will impact your capacity planning, forecasted project deliveries, hiring, and even your cash flow. If you want to put your focus on business development and delivering high-quality services, you should be prioritizing your most valuable asset – your team.

Understanding and actively monitoring utilisation rates is fundamental for the health and growth of any agency. Utilisation rates offer a transparent lens through which agencies can gauge employee efficiency, balance workload, and identify potential stress points before they escalate into tangible issues. Overlooking this metric is not merely an oversight; it’s a missed opportunity to address challenges, refine operational strategies, and optimize resource allocation.

Moreover, agencies that prioritize their team’s well-being by keeping a watchful eye on utilisation foster a more sustainable, productive, and content workforce. By championing this approach, agencies not only safeguard their team’s mental and emotional health but also solidify their foundation for consistent high-quality service delivery and long-term success

Utilisation Forecasting

Agencies need to know if they have the resources they need available for their upcoming projects. Do you have the appropriate skills, seniority, and department function to get work done?

Most agencies think that forecasting can only be useful when looking at financials, but in reality, it’s much more than that:

• Sales will want to use utilisation forecasting to know which services to try to sell more.
• Operations will want to know which teams or teammates can take on more work.
• An evergreen question from HR: when do we need to start hiring and which role?

According to the same research mentioned earlier — only around 10% out of 45,000 agencies track forecasted utilisation and given the importance of this metric, that is a really small percentage.

Forecasting utilisation might seem like a tricky thing to do, but with the right tool — it should be a breeze. With Productive you can add bookings to your teammates using Scheduling and you’ll be able to make reports that will show your forecasted utilisation. The tool offers real-time insights, ensuring teams never overreach their capacity. By identifying potential over-utilisation early, agencies can reallocate tasks, preventing burnout and ensuring that workloads remain balanced. 

Revenue, Cost, Profit and Budget Burn: Forecasting Your Agency’s Future

Revenue, cost, and profit forecasting, as well as budget burn, are integral components of financial planning for agency businesses.

Revenue forecasting provides insights into potential future income streams based on historical data, market trends, and strategic initiatives. Another important thing that ties into revenue forecasting is revenue recognition. There are different preferences when it comes to revenue recognition. Some agencies like to spread out their revenue across the entire duration of the project, while others like to recognize revenue on a single date. Generally, experts suggest revenue to be spread across the duration of a project.

Cost forecasting looks at the expected outflows and expenses a company might incur, while profit forecasting combines both revenue and cost predictions to determine potential earnings. As the profit will be affected based on the seniority and cost rates of the allocated resources, it’s essential to know what the expected margin looks like early on. Why? If you realize that the project might be unprofitable after it’s already well underway, you’re risking much higher losses.

While looking at costs, one thing that tends to get overlooked is overheads. Some agencies bake it into their cost rates, and some add it as expenses on internal projects. The benefit of adding overheads on top of cost rates is that you’ll be able to drill down into net profitability on each project — other agencies prefer to focus on gross profit margins per project. Either way, the most important thing is to have those costs included in your P&L reports.

Meanwhile, understanding budget burn — the rate at which a company expends its resources — helps ensure that the company doesn’t outpace its funding and remains solvent. With forecasting you can predict budget overruns based on the current resource allocation. It’s worth noting that even if you go over budget, your projects can still be profitable.

After the project is complete, it’s wise to compare your actuals with the scheduled (or projected) time and revenue, as well as profitability. The idea behind this is to get a better understanding of what we could have planned or estimated differently, in order to apply these findings to the next project.

Monitoring metrics such as revenue, cost, profit forecasting, and budget burn is crucial for the sustained success of any agency business. They enable proactive decision-making, helping agencies adjust course in real-time to avoid potential financial disasters and capitalize on lucrative opportunities. Without these insights, an agency is akin to a ship sailing without a map — vulnerable to unforeseen storms and unable to navigate back to profitable shores.

Furthermore, in an ever-changing business landscape, where market dynamics can shift rapidly, having a granular understanding of these metrics is not just beneficial — it’s essential. By continuously evaluating, adapting, and iterating based on these financial indicators, agencies can ensure longevity and relevance in their respective markets.

Reach Optimal Utilisation Rates

In essence, while understanding utilisation is key, having a robust tool like Productive can amplify you efficiency and forecasting. By offering a streamlined, integrated solution, Productive ensures agencies can capitalize on their most valuable asset — their team — ultimately creating a healthier work environment and driving agency growth.