I recently had a very interesting conversation with a Marketing Director who had worked at an agency earlier in his career. The Marketing Director told me that he never trusted the time sheets he got from his agencies. When he was agency-side, he recalls multiple occasions when an Account Director had told him, and others who worked on a particular account, to bump up the time on their time sheets in order to meet the number of hours on the quote.
It confirmed what I’d suspected for a long time could be happening…
Agency time sheets can be ‘massaged’. How easy is it in practice, however, to insist on accurate time sheets? After all, when I was in training at Coopers & Lybrand and submitting time sheets every 2 weeks, I, and pretty much everyone else, saw it as an administrative burden. Whilst I’m not suggesting for a moment that any of us fiddled our time sheets, there were definitely times when the time recorded may have not been absolutely accurate.
The hardest thing in my job is getting people to do their time sheets in the first place. The second hardest thing is making sure they are accurate. – Agency Finance Director
How do agencies earn their money?
Let’s get into some numbers here. Most agencies base their business model around each fee-earner having 2,000 usable hours in a year. Typically, agencies then budget for about 10% non-billable hours for things such as business development, holidays, training. So most agencies need their staff to be billing 1,800 hours a year for the agency achieve its profit targets.
If a member of staff only has 1,600 hours on the clock for a client, and the contract states that they will be full-time on that account (let’s ignore TUPE), then there is a shortfall of 200 hours. That could be the difference between that person making or losing money for the agency or even the difference between a profitable account and an unprofitable account. Consequently, and particularly if the agency contract states that time is reconcilable, there is inevitably pressure for the time sheets to be massaged upwards to make sure that every single hour of quoted time is billed…
Very often the problem is not chargeable hours being artificially massaged upwards: it can be exactly the opposite.
Every Agency Finance Director you speak to will moan about the number of hours they are having to write off.
Many of our potential clients are often worried that if they bring us in to do an audit then their relationship with their agency will be irrevocably damaged. This is almost always not the case. For example, we audited an agency where there was a huge amount of over-burnt hours (i.e. ones which could not be billed to the client and hence were subsequently written-off). So, we asked the agency’s account team and FD ‘why?’. They told us, as we were expecting, that our mutual client was very poor at briefing them. As a result it would typically take them three iterations to get the right creative for the client. These multiple iterations were making a mockery of the budgeted time for a job. The agency was suffering as a result, particularly as the fees were project based. We fed this back to the client and they took our comments on board. Within six months they had trained all their marketing teams on how to brief agencies properly. When we audited the same agency a year later, they were visibly delighted at the quality of the briefs they were now receiving. As a result, the number of creative iterations had fallen to just over one and recoverability of time had increased significantly.
One of the roles we fulfil for our clients is to identify potential risk factors for them. For example, one client was being serviced by a dedicated agency team, which had a third of its time not billable to the client. In this instance there was no hint of timesheet massaging. Knowing what we know about agencies, we realised they would not be able to sustain this level of under recoverability for much longer and then timesheet massaging would become a distinct possibility. As a result, we made a recommendation to the agency to look at their staffing levels on the account. By reallocating resource and setting up better account planning processes with the client, they were able to eliminate most of that inefficiency within three months. After all, our client could not afford to work with an agency that risked becoming financially unstable to deliver a level of service which was not actually required.
Getting to know how your agency makes its money on your account and how profitable you are as a client is vitally important for managing and controlling your relationship over the long term.