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Maximising your agency's profits

Writer's picture: Kubilay OzpalasKubilay Ozpalas

Updated: Feb 18, 2022


How about increasing your profits without signing up a single new client?


Before we go into the technical calculation of increasing profits, there are a few terminologies we need to be familiar with:


Chargeable days: These are the total number of days, in a given year, you expect your staff members to be working on projects. For example, if you identified 255 workings days, less 30 days of holidays for each employee, less five training days a year, your total chargeable days will be 220 for the year.


Utilisation rate: This is simply the chargeable days over the total billable days in the year. Looking at the example above, the utilisation rate would be 220/255x100 = 86% (rounded)


So you now know the utilisation rate for each of your staff members, and you also know how much profit you want by the end of the year.


This information, used appropriately, can help you identify how you can maximise your profits with the current resources you have.


So how do you do this?


There are two steps to it. Firstly, you need to identify if there is a capacity gap with your staff members. You’ll need to have a suitable timesheet procedure in your agency to analyse this kind of data.


You do this by looking at the actual days billed (per staff) over the number of billable days in that given period. This will provide you with the actual utilisation rate, which you can then compare to the expected utilisation rate.


This will show you if your current staff members have extra capacity. Therefore, when upselling to your existing clients, you know you already have the resources to meet the extra work without the additional staff cost.


The second step is to identify the daily rate you should be charging for each staff member to achieve your targeted profit margin.


If you are aiming for a 25% profit margin:

- you have total costs of £112.5k

- 2 staff members with a utilisation rate of 75%

- 220 working days and therefore a calculated 330 billable days in the year


This means that you should be aiming for a minimum revenue of £150k to achieve your 25% profit margin. To achieve that level of revenue, the daily rate charged per staff member should be £455 (rounded). The higher the daily rate, the more profits for your agency.


Therefore by analysing the extra capacity of your staff and the minimum daily rate, you could maximise your profits with the current resources you have.


To give you a kickstart, we have a Capacity Gap & Daily Rate Calculator spreadsheet template (with detailed instructions on how to use it). Click here if you would like a copy, and we’ll be happy to send it over to you.


We’d love to hear the results on the capacity gap of your staff and the impact of identifying your minimum daily rate, so do let us know how you get along and if you need any support.


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