This post was updated on October 24, 2018 to reflect more recent developments in the advertising industry.
Specifically as the number of billable hours per year is central to the agency human resource approach to fees it has been revealed that many agency staff are working ridiculously long hours of overtime, typically without pay, and on several occasions has been implicated in the death of agency employees. This is often considered to be a cultural issue, but in fact as you will read below, this behaviour also rewards the agency financially.
One of the criteria in developing a resource based retainer model is the number of hours one person could be reasonably expected to bill in a year. This becomes their 100% billable time level or one FTE (Full time equivalent).
Take a year = 52 weeks.
In Australia 4 weeks of that year are for annual leave (so no billing there)
2 weeks a year, or more precisely ten working days, for sick leave (heaven forbid)
A week of public holidays (go on count them up, in most states there is a little more than five)
Suddenly we are down to 45 weeks of work a year.
In an average week how much of the time is it reasonable to bill? 30 hours? 40 hours? 50 hours? 60 hours?
Remember this is not how much time the person is at work, it is how much time of that work time could they be productively and actively on your business. That is removing all the internal non billable meetings, toilet breaks, general non-business discussion, internal administration (like timesheets) etc, how much truly billable, productive time is left.
Well at thirty-six hours and forty minutes this equates to 1650 hours a year. Which is reasonably well accepted. Some people use 1600.
The lowest we have seen is 1,200 a year and the highest is 2,080 a year.
To make this even easier we have created a calculator for working out billable hours per year and more here.
But why is this important?
There are two very important reasons why billable hours need to be calculated and managed effectively.
The first is to ensure that the advertiser is getting what they pay for in their agency retainer.
If the agency is using 1600 hours and the end of year review says the person did 1870 hours or 13% over the FTE does this mean 1.13 FTE should be charged? No, it just means that the person involved did not take their annual leave or sick leave and kept working at the same billable rate 51 weeks of the year.
Or is the retainer is based on a group Account Director at 100% or 1650 hours a year and they 3060 hours a year does this mean that you need almost two Group Account Directors on your business? No, it is more likely that rather than keeping a real timesheet they recorded 12 hours a day, five days a week for 51 weeks. But the work was done and the GAD did not get paid overtime, so it cost the agency no more. Besides, the problem in this case was not resourcing, it was poor timesheet process.
By understanding how FTEs are based on billable hours you can start to see how to interpret the agencies’ timesheet and resource utilisation reports.
The second is to ensure that the agency is providing the level of resourcing required. In 2017 this report showed that agencies were regularly overworking their staff, particularly in Asia. The phenomenal unpaid overtime hours worked by some agency staff members lead to the death of a few and ill health for many.
The fact is that the agency fee model actually rewarded the agency for having their resources work these ridiculous hours of unpaid overtime, which the agency then billed to the advertiser client.
If you are still confused by the way to calculate and use the billable hours per year then perhaps this Golden Minute video “How many billable hours in a year?” will help you. It will take just a minute to watch but could make a difference to your whole year ahead.
Author: Darren Woolley