October 8, 2024 • 43 mins
Which metrics should you track, to run your agency as efficiently as possible?
In this episode we speak with Richard Brett. Rich is a seasoned FinOps professional with 15+ years of experience, including a decade in the agency world. Rich has played a key role in scaling agencies, setting up financial processes, and supporting sustainable growth.
Rich will take us into a deeper dive of agency finances, starting with revenue recognition – recording revenue when it's earned, not when payment is received – and explain why this is so important.
Next, we’ll discuss key metrics and the kind of decisions you’ll be able to make using each:
- Utilization: see how effectively your team’s time is allocated to billable work, helping identify resource optimization opportunities.
- Recovery: shows the actual revenue generated from billable hours worked, highlighting areas of over-servicing.
- Billable paid: shows the proportion of billable work that is successfully paid for, helping assess the financial health of client engagements.
- Future month work value: projects the expected revenue from booked hours in upcoming work, allowing for proactive resource and budget management.
Finally, Rich will tell us 5 ways we can influence margins through agency rate cards.
Rich now runs his own consultancy, Rich Brett FinOps, providing bespoke financial services to agencies.
Follow Richard on LinkedIn: https://www.linkedin.com/in/richard-brett-36903590/
Follow Harv on LinkedIn: https://www.linkedin.com/in/harvnagra/
Stay up to date with regular ops insights. Subscribe to The Handbook: The Operations Newsletter.
This podcast is brought to you by Scoro, where you can manage your projects, resources and finances in a single system.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Harv Nagra (00:00):
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(00:43):
Now, back to the episode.
(01:18):
Hey all, welcome back.
In previous episodes of thepodcast, we've talked to guests
about agency finances.
Most of us coming into agencyOps don't usually come to it
from a strong financebackground.
And in my case, there was a lotof learning on the job, and
getting some of the blanksfilled, in my knowledge, by my
partner in crime at my pastagency, our finance director.
All of that to say, it's okaynot to know everything.
(01:40):
We're on this journey together.
I'm learning from our guests ineach and every episode, and
hopefully you're able to takeaway some of the stuff that
you're learning and apply it aswell.
So today we're taking thatfinance conversation further.
We're going to be talking abouthow ops and finance work
together and diving deeper intokey metrics that you should be
striving to implement to helpyou get your agency running as
(02:00):
efficiently and smartly aspossible.
Our guest today is RichardBrett.
Rich is a seasoned FinOpsprofessional with over 15 years
experience, including a decadein the agency world.
He began his agency financecareer at We Are Social, where
he played an important role inscaling his company from 50 to
150 employees and implementedkey processes and systems over
(02:23):
his tenure.
In 2019, he joined Cayenne, adigital agency where he led
finance and operations,ultimately helping the agency
double its revenue and achieveits best year during the
pandemic.
Most recently, Rich has decidedto branch out on his own and
founded Rich Brett Finopsproviding bespoke financial
services to agencies.
(02:43):
I'm thrilled to have Rich on theshow today so he can share his
insights with us on agencyfinance management, sustainable
growth, and key metrics.
Rich, welcome to the podcast.
Thanks very much for being here.
Richard Brett (02:53):
Well, thanks for inviting me.
Harv Nagra (02:55):
Rich, I wanted to start by asking you about the
growth journey at one of theagencies that you worked at in
the past.
I read that you saw a triple insize to 150 people while you
were there.
Tell us about that.
What period of time was that?
What enabled that growth?
What did that look like?
Richard Brett (03:10):
Yeah.
I mean, I think, I think wejoined, I joined when we were
about 50 people and it was kindof just off the beginning of the
sort of social boom, I guess.
So we were in a great place andthe bigger agency network
agencies weren't quite doing it,but they were starting to see
that what we were doing wasgreat.
But we were still quite youngand it was basically just a
collection of really good peoplewho were good at what they did.
(03:32):
And I think as we got bigger, Imean, that was probably a six
year journey for me from, youknow, 50 people to 150.
And I went in as just amanagement accountant who had no
idea about agencies, didn'treally know about management
accounts either, but we werejust trying to figure things
out.
And I think thinking about thatquestion is that I think the
biggest change for me is that wegrew up over that time, and we
(03:53):
grew up fairly quickly after Ijoined in the way we hired
people, the way we talked aboutthings, but also the systems we
used.
Like it was, we had moregrownups, we used to say there's
more grownups in the room.
And I think we were all reallygood at the doing and creating
great work.
The back office stuff wasn'tthat great and I guess we
started asking more questionsabout what's this?
(04:14):
And then we were looking atthings and then a CFO came on
and they then said I see you'relooking at this, but have you
looked at this?
I think that was the progressionfor a lot of the company was, we
were all kind of doing stuff,but there was no one there
going, yeah, but have youthought about this and what that
means?
And then you go, ah, yeah, I didsee that, but I didn't do
anything about it.
Cause I wasn't sure what it wasshowing me or what I need to do
(04:35):
about it.
So I think a lot of the time forme, it was being able to go to
someone else who had experiencein the business, say, yeah,
you're doing it right, but whatabout this?
And what normally followed wasyou needed systems and processes
to then allow those thoughts tobecome, well, how are we going
to do that?
How are we going to make it evenbetter?
So I think a lot of it was justgrowing up and just hiring
(04:57):
slightly differently, you know,people with different skillsets
rather than just, you know, whatyou'd call just brilliant, like
geniuses.
And a lot of people I've workedwith in that time are now
running their own agencies andwere brilliant at what they did.
But weren't really asked to carethat much about finance.
So I think our average age waslike 23 at one point.
So they did not give much of adamn about timesheets.
(05:17):
So...
Harv Nagra (05:18):
Right.
Richard Brett (05:18):
That was a challenge, but I think gradually
you taught people why it wasimportant and over the years we
got to a good place.
Harv Nagra (05:24):
Hmm.
That's a really nice story.
I love that you talk aboutgrowing up and, you know, a lot
of agencies go through thatgrowth journey and that maturity
journey.
It sounds like you were askingthe right questions of each
other, was that just, was it theCFO coming?
Richard Brett (05:39):
We brought in a COO, a CFO, head of client
services, head of production.
And I think we brought in allthose sort of like C suite type
roles because the owners havemoved into a different space.
They weren't the best people todo that because they were more
creative.
So therefore it was a case ofgetting people in who could do
that skill set and run that bitreally well.
It just gave us a bitreassurance that we were doing
(05:59):
things right and then continueon it.
But also if we want to changeit, a COO would then help us
maybe implement that.
So it was kind of all thosedifferent bits allowed us to
say, well, we need to do this,I'm going to go and speak to the
head of production about howthey can help, how the head of
delivery can do that, how a headof client services can do that.
So, it was everyone challengingeach other while still
delivering great work withouthamstring, you didn't want to
(06:21):
stop that.
We still needed to create greatwork.
Harv Nagra (06:24):
That totally resonates.
So from there, you've nowstarted your own FinOps,
consultancy in the past coupleof years.
What kinds of things are youseeing in agencies?
Are there any common or typicalmistakes or issues that are
quite apparent these days?
Richard Brett (06:38):
I mean, it's exactly what we had at We Are
Social, really, was that peopleare doing what they need to do.
And often that's cash based.
It's like just making surethey've got enough money to pay
the bills, to pay staff, and notlooking forward that much.
And what I found is a lot of thetime what people are doing,
looking forward, is just newbusiness pipeline or pipeline.
(06:59):
It's not what costs are we goingto incur if we hire this person?
What about if we hire thisperson?
What does that impact on theP&L?
And I think that's completelynormal because a lot of people
become agency owners byaccident, like they're
freelancers who then hiresomebody else and they hire
somebody else.
Then suddenly they've got anagency and what they're really
good at is design or strategy orSEO or whatever it might be, and
(07:23):
then they just add people in andthere's no one who really brings
that together.
I think what I've seen fromdoing this, and obviously I come
from a big agency background.
When I first started, I was thenworking with a six or seven
person agency, I was like, theydidn't really need to do this
stuff.
But actually they do, because ifyou're doing that now.
You're going to be better thanall those other agencies that
aren't doing it.
(07:43):
And you'll be better placed tobe even better when you're going
forward.
It doesn't guarantee success,but I think it's that
reassurance of what do we needto do to grow sustainably rather
than just grow, but not know howwe did it.
Harv Nagra (07:56):
Right.
That leads me to our nextquestion, which I think in some
ways you've kind of beenalluding to there in your
response, but you know, when anagency grows, there might be an
assumption that things can getless efficient and more
complicated.
And you know, that very well maybe the case if you're not being
proactive in addressing some ofthose operational or financial
areas, but you talk aboutgrowing sustainably.
(08:19):
So talk us through a bit aboutthat.
What do you mean by that?
What does that mean?
Richard Brett (08:23):
I think, it's one of these things I, when I first
started thinking about doingthis, I saw a lot of people
talking about growth, justgenerally, like you need to
grow, you need to grow quickly,hire people, win as much work as
you can and worry about it.
And I think one of my pet hatephrases that one of my old
directors used to say is crossthat bridge when we come to it.
Well, I, I'd kind of like toprepare for that bridge.
And I think a lot of what I meanby sustainably is that you make
(08:46):
decisions that are not just ongut feel, but they're based on
as much knowledge as you can.
So that when you say, no, we doneed to hire this person, it's
not that a month later you go,Oh no, it turns out we only
needed them for a month and nowwe haven't got any more work.
So for me, growing sustainablyis making decisions that allow
you to make the agency bigger,grow revenue, but also keep
(09:07):
profit at the same level.
Because what will often happenis in that messiness, you might
grow revenue, but your profitdrops.
But you go, yeah, but at leastrevenue is growing.
So, yeah, but you could haveprobably kept revenue the same
and your profit would have beenbetter.
So a lot of the growingsustainably is, is about trying
to just make sure that you dothings that aren't going to hurt
you six months down the line.
So therefore it's really tryingto direct owners to think about
(09:30):
the decisions they make and i'llsay to them quite a lot is, it's
okay to spend money as long asit adds value and that value
might not seem that obvious butif it adds value then it's a
good thing, but equally you needto then say at some point, well,
it's not adding value anymore,so let's stop it and that might
be a license fee or it might bea system or it could be a person
(09:52):
or a freelancer, but you need tobe looking forward and going, we
don't need this.
And I think a lot of agenciesare guilty of looking at the
past and going, Oh, we, we didbrilliantly last month.
Harv Nagra (10:00):
hmm.
Richard Brett (10:00):
I don't really care if you did great last month
because the next three monthslook terrible.
Like what we're doing about thatwe can still impact and affect
change in those months, we can'tdo anything about what happened
last month.
So growing sustainably is abouttrying to work out.
What do we need to do tocontinue on the path we want to
go down whether it's growingrevenue or growing ebit or
hopefully both of those.
Harv Nagra (10:23):
Really good advice.
So we're going to get deeperinto what I'm calling metrics
that matter.
But before we get into that.
I know you wanted to speak aboutrevenue recognition.
Tell us, uh, what that means.
Why is it so important?
And how does it work?
Richard Brett (10:37):
I I mean, I think people know me that that's all I
talk about is revenuerecognition and it's it's just,
it's so important because Ifsomeone says to me i've done a
million pounds this month and itwas just an invoice they raised,
but they've delivered none ofthe work, then you just invoiced
a million pounds.
(10:58):
That's great.
It's still great, but it doesn'thelp you understand true
performance.
And what revenue recognitiondoes is it builds in way more
than just the numbers.
It gets the departments thinkingabout resourcing, what
timesheets actually mean, andtrue performance of the
business.
Because I always give an exampleto people when I'm talking about
(11:18):
it is that, if on the last dayof your financial year, you
invoice a million pounds forwork to be delivered next year,
you've booked that a millionpounds in this year, you're
doing all the work next year.
So you've taken all the revenue,but none of the cost.
And that's what you're trying todo with RevRec is to say, each
month, how much of what we haveinvoiced, have we actually
delivered, so we might haveinvoiced£20k, but actually it
(11:42):
was only done half the work, sowe should only recognize£10k of
that work.
And the reason for that is thatwhen you look at your P&L, and
look at staff costs, those staffcosts should relate to the month
you've just done.
And if you then compare thatagainst revenue, that is for
work for the next six months,it's going to look great.
And what you get then is youmight have peaks and troughs
(12:03):
months where you've invoicedloads because you forgot to
invoice for three months.
Well, didn't we have a greatmonth?
And then the next two months,God, why have we had such a
terrible month?
It's because if you recognize itwhen you invoice, unless you're
invoicing at the end of eachmonth based on what you've done,
it's not going to relate to yourstaff and what have actually
been delivered.
So then it really gets youfocused on, well, actually, have
(12:23):
we delivered this?
You know, if the client came tous at the month and said, I'm
only going to pay you for thework you've done, what's the
point?
How much of that budget have weactually spent?
So it really makes people thinkabout how they spend their time
about resourcing and it, then itreally helps your forecast and
it's just so important to getright and I don't think it's
easy to make those decisionsabout whether you need to hire
(12:45):
unless you do it because you'rehiring someone based on when you
invoice, not when you actuallyneed to do the work and you
know, a project of 100k, youmight invoice up front, but only
do 5k a month one, you might do50 in the next month and 45 in
the last month.
Harv Nagra (13:02):
Mm-Hmm.
Richard Brett (13:02):
You need to then maybe bring in extra people for
those bigger months, but not thefirst month or freelancers to
support it.
And that's where it all playsinto.
If you get that mindset of,well, how much work have we
actually done?
And then use timesheets to helpyou say, just to support that
number, you can start toactually see true performance
rather than just invoiceperformance.
And it's not doing it wrong.
(13:22):
You're completely allowed to doit.
But if you want to growsustainably, you have to
understand when is the work thatwe've sold going to actually be
delivered.
And that's when you need systemsand people to help you
understand that.
Harv Nagra (13:33):
I had a question there, if somebody is listening
to this and say, well, okay,that sounds great, but how do I
start?
Richard Brett (13:38):
I mean, I think I could probably massively over
engineer a really expensivesolution for you if you want
one, but I think if you are justa small agency, I think it's
about understanding it and thenjust building something in your
brain that says, Okay, if we'vegot a project that splits over,
it's a three month project,let's just put some rough
percentages as to when we thinkwe're going to deliver each of
(13:58):
those pieces of work.
Because normally you have anestimate that is broken down
into phases anyway.
So let's just say, Oh, we'vedone phase one in month one.
Let's just book the revenue forthat.
So for me, if you don't have thepeople in place to do it, it's
not the end of the world, butwhat you're trying to do is be
as accurate as possible.
So the more accurate you can be,when you look at timesheets or
resourcing plans, and thatlevels up to something, the
(14:20):
better, because then that thendescribes what you're seeing in
the P&L in terms of revenueyou've booked.
But as a simple approach, youwould just say, right, the end
of the month, let's look at allthe projects we've got, how much
revenue we think we've done oneach of those projects, and
let's just take that number andthat's fine because it's better
than not doing it.
And I think that's the mainthing is to just understand
those principles of let's onlylook at the revenue we've done
(14:44):
this month.
And let's make sure that thefreelancers, if we brought those
in, are also showing, becausewhat you don't want to do is
have the revenue in month one,one month, the freelancers, the
following months, because thenyou see revenue here, but costs
there, that month looks great,month two looks terrible.
And it's just about trying tohave that balance.
And as you get more used to it,you start to see how metrics
(15:06):
around EBIT and staff ratio andutilization and recovery all
play into that number when yougo even deeper, how that impacts
your rate card, because ifyou're looking at P&L that's
just made up numbers, what's thepoint?
What's the point of looking atit?
Harv Nagra (15:21):
Excellent.
So I can see how, everythingthat we're gonna be talking
about now kind of branches intothis and, and fits underneath.
So onto the metrics,utilization, and this gets
talked about a lot, let's startthere anyway, very briefly, at
least.
so over to yourself.
Richard Brett (15:36):
Utilization is one of those things that is
talked about a lot, but doesanyone actually really
understand what they're sayingwhen they say it?
I think actually a lot of peopleare probably wrong about how
they talk about it.
but my view is that utilizationis how is a person's time being
used in the agency?
And that should be broken downinto things that you need to
know about.
So for me, it's billableutilization.
(15:59):
Non billable utilization, newbusiness utilization and
internal.
And ideally from an agencyperspective, you would like
everyone to be as billable aspossible, because in theory,
that means that you're chargingthat back to the client and
straight away that levels up torevenue, because if everyone is
working full time, you'd expectto see revenue be really high.
(16:20):
Because more utilized people inan agency where you're charging
people for time, should seehigher revenue.
So the flip side of that is ifyou see really high utilization
and low revenue, something's up.
So you need to then uncoverthat.
But you need to have a strongbasis for how you set that
utilization up.
And for me, that is working daysin the month, less holiday.
(16:43):
That is your working hoursbecause you can't work when
you're on holiday.
So therefore every singleutilization percentage should be
run off working days, less thedays that then that person is
not in the office, because thenyou can roll it out to person,
role, department, skill andagency, and therefore you can
see it across the board andreally zero in on an agency
(17:03):
number that says 73%.
Yeah, but what does that meanfor design?
Actually, design did 90, butstrategy did 50.
Okay, that means strategy aren'tbusy.
Let's go and figure out what'sgoing on there, let's zero in on
that.
So, yeah, I think that's it.
It's really important, bututilization is also historic.
So it only really helps you tounderstand what happened.
What you really want to do istry and get ahead of that.
(17:24):
And that's why you need to beresourcing because resourcing
defines how someone's utilized.
And a lot of people do notutilize or do not resource
enough.
Harv Nagra (17:33):
hmm.
Richard Brett (17:33):
They rely on timesheets to tell you what they
did when actually you shouldknow, because you booked it in
the first place.
Harv Nagra (17:38):
hmm.
Mm hmm.
And then you can actually see,you know, your, your capacity to
take on more work or whetheryou've got too much on and you
need to bring in the freelancersor whatever, or at least turn
something down and so on.
So yeah.
Richard Brett (17:49):
And if you get really good at it, you times
that time you've booked on eachof those clients by the rate
card.
And that tells you what revenueyou should be doing next month.
Harv Nagra (17:55):
Mm.
Excellent.
So utilization, now we're movinginto recovery.
So what is recovery?
Richard Brett (18:01):
So I don't know if this is my old CFO, we, we
call it recovery, which iseffectively how much of that
time that you spent on clientwork is actually paid for by the
client.
So if you work 10 days for aclient and they pay you for
those 10 days, you've got ahundred percent recovery.
So it links up to utilizationand it's a really crude example,
(18:22):
but if someone's a hundredpercent utilized and does 20
days on a client, but the clientonly pays you for 10, yes,
you're a hundred percentutilized, but you're only 50
percent recovered.
So technically you're only 50percent utilized because
although you're doing it, you'renot getting paid for it.
That could be over service or itcould be for whatever reason,
but recovery allows you to thentake that data of how much time
(18:43):
did we actually spend intimesheets or however you want
to do it, you could do it quitecrudely if you're not doing
timesheets.
And compare that to the revenueyou booked through revenue
recognition.
You can then say, well, we, webooked£20,000 worth of revenue,
but we did£22,000 worth of time.
Okay, we over serviced.
Why is that?
It could be that you overrecognized or you had to do a
(19:03):
bit of extra work out of scope.
But equally the other side ofthat is you did£20,000 worth of
revenue in the month, but youbooked£18,000 worth of time.
It could be because we managedto use a junior designer rather
than the designer that we sold.
We still delivered the work andthe client was still happy about
it.
We were just able to use someonewho was a bit cheaper, but
that's going off the rate card,it's not cost, it's rate card.
(19:24):
And again, you can see that, youdo that properly and if your
system's up, you can see that byproject, by client, by
department, by agency, acrossthe whole group.
So you can really zero in on it.
If you're not doing RevRec, youcan't do it because you're
comparing£20,000 pounds oftimesheets to a£100,000 invoice
that you raised, doesn't meananything.
So again, it comes back to, ifyou're not doing RevRec, those
(19:45):
utilization statistics andreport and recovery reporting
that you're doing don't reallymean anything because you're not
comparing apples to apples.
Harv Nagra (19:52):
Got you.
So we were then moving intobillable paid.
So again, what does that mean?
Richard Brett (19:58):
So it's kind of what we talked about already,
which is you basically multiplyyour utilization by your
recovery.
And I actually remember when westarted doing this at, one of
our agencies and we just went,what should we call it?
And I think it might've beenthat we were doing it already,
but, or we already knew aboutit, but we hadn't called it
anything or we weren't maybetracking it properly.
But it was like, how comeutilization is so high?
(20:18):
And revenue is, you know, whereit is, but we know the recovery.
We know utilisation.
So if we times those two thingstogether, actually get to a
place where we can see whatactually every hour that we
work, that's billable, how muchof it is paid for.
And that's what billable pay istelling us.
Because if we times utilisationby recovery, and it's a hundred
percent times a hundred percent.
(20:40):
Then your billable paid is ahundred percent.
If you times a hundred percentby 50% recovery, your billable
paid is 50.
The other side of that is ifutilization is 50%, but recovery
is a hundred percent, you'restill at 50.
Which one of those is betterbecause that might be better
because at least when people areworking on it, they're getting
paid rather than the other wayis recovery is bad.
(21:01):
Yeah.
They're all working on stuff,but they're not getting paid for
it.
And that's when it's really upto an ops person and a finance
person to work together withclient services and project
managers to go, why is thishappening?
What are we seeing here?
But again, you're trying topredict it by using resourcing,
because if you resourcecorrectly, you'll see it coming
because you'll see£20,000 worthof revenue but only the£25,000
(21:24):
worth of timesheets plusresource booked means you're
going to overservice.
You can then try and get aheadof it and try and reduce that
down.
So billable paid is kind of justa metric that takes into account
both of those things and shouldexplain what you're seeing in
the P&L.
A fairly classic thing thatagency owners say is everyone's
really busy, but we're notmaking any money.
(21:44):
Well, it's probably becauseeveryone's on client work, but
it's not paid for, or you're notcharging enough.
And that's why you, you want totry and rule the things out that
you can to then dig into it.
And if it's actually, we areactually this busy, we are
actually recovering a hundredpercent, then that then directs
you towards, well, then the ratecard must be wrong, or we've got
too many costs in another place.
Because if you're getting paidfor all the work you're doing
(22:07):
and you're working all that timeon client you should be making
money.
It's then trying to work out,well, what is the reason for it
then and you're always justtrying to work out why?
And that's where data becomes soimportant and using good systems
to help you do that and goodpeople to understand why are we
seeing what we're seeing and youcan't have one without the
other, you know It's impossibleto have really great profit
(22:27):
without seeing high utilizationand high recovery in theory
unless you're doing valuepricing in which case recovery
would be off the scales becauseyou're not doing any timesheets,
but you're booking loads ofrevenue.
Harv Nagra (22:38):
Right.
I think the the gist here, isthat you can collect a lot of
good data, but you really haveto have it set up to actually
help guide you.
And you can get to a place whereyou're steering your
organization in a really smartway.
We are going to talk about rightcards as well, but there was one
more thing we had highlighted,previously to talk about, and
that was future month workvalue.
Richard Brett (22:58):
That's, yeah, again, I mean, this is why it
all works so nicely because itall streams from RevRec to
forecasting to utilization totimesheets and how you want to
do it is that a lot of stuff youread is about, yeah, we've got
timesheets in, but no one'stalking about resourcing and
then, you know, what is the bestsystem for resourcing is...
Harv Nagra (23:17):
hmm.
hmm
Richard Brett (23:17):
I'm sure there are plenty out there, Harv, I'm
sure.
uh, And everyone needs it indifferent ways.
But I'm spreadsheet spreadsheetshappy.
It's good enough for me becauseif it does the job, you need it
to do, then that's completelyfine.
Obviously, the more you automateit, the better.
But future work value isbasically saying, okay, if I
times every single hour I've gotbooked in October by the amount
I sold that person for to thatclient, I can see the value of
(23:40):
work that we're supposed to bedelivering next month.
And you can then compare that ifyou're doing revenue recognition
and forecasting to go, well,then how come I've got£50,000 of
work booked in my system, butI'm saying I'm doing£100,000
worth of work.
Or the other way around, I'vegot£100,000 worth of work
booked, but I've only got£50,000in the forecast, because it
(24:01):
could be that you've forgottento book something in, or it
could be that you've overrecognized something.
And that's, that's what you wantto try and do, because you want
to try and get ahead of that.
You know, if you're only lookingat timesheets, the time to
change things is gone.
If you're resourcing, you canstill affect change on those
numbers because you could, youknow, pare someone back and say,
can you stop working on that?
We've run out of budget, or weneed to go back to the client
and ask for more budget, oractually we can throw a bit more
(24:23):
resource at that because we'vegot a bit more budget.
You can't do that if you look attimesheets because it's already
happened.
So it's trying to get ahead andgo what is the future work value
and when's it going to hit inour numbers because If you see a
big peak where you have loads ofdesign in November, but all your
designers are fully booked, youmight need to get a freelancer
in and that's going to hit yourP&L because you've got the cost
that needs to be brought in toservice it.
(24:44):
Otherwise you're inflating yournumbers and you won't be able to
deliver.
Harv Nagra (24:47):
Absolutely.
Excellent.
All right, Rich.
Next, we're going to talk aboutrate cards.
I've heard you say that there'sa number of levers you can pull
in your rate cards that canboost your agency margin before
we get into it.
Can you tell us what thoselevers are?
Richard Brett (25:00):
Yeah, so, it's the price, utilization,
recovery, the role thatsomeone's doing and then the
overheads.
Harv Nagra (25:07):
Excellent.
Okay.
Let's, let's get into each ofthose a little bit deeper,
starting with price.
How does that relate?
Richard Brett (25:15):
Well, I mean, it's obvious if you build a rate
card on a price, and if youdon't sell it at that price,
you're not going to make themargin that you did your rate
card on.
So it seems fairly simple, thatif you're going to try and sell
something, you try and sell itat the price you want to, and I
think I woke up one night andwas like, huh, actually, if you
discount your price by 5%, youactually have to do 5 percent
(25:35):
less time if you're on that sortof basis to try and make the
same margin back that you wouldhave done a full price.
So, if you're going to discountyour rate, only do it on 2
basis, like, maybe it's a longterm contract where it's been
secured for longer, or it's afull time person.
So you can actually then managethat price a little bit.
And also know where that marginis because different roles
should have different margins.
(25:55):
So it might be that you candiscount some roles and still
make a 20 percent margin andanother one.
You can't, but it's just aboutmanaging that number and knowing
where you've got those thoselevers.
Harv Nagra (26:04):
Excellent.
Okay.
So then you were going intoutilization.
Richard Brett (26:09):
Yeah.
So utilization is I build myrate cards and say, well, I'm
expecting this person to spend80 percent of the year or their
month or whatever time period,on client work.
When you do that calculation,you have to be really clear
because if they're not going tohit 80%, then they're not going
to be working on client times,therefore not going to pay for
themselves as easily because ifyou then if they only then do 50
(26:30):
percent have to pay forthemselves with only 50 percent
of their time and thereforetheir time they're not spending
on client work has to be paid byother people.
So when you set your rate card,it's important to set a rate
card with the utilization that'srealistic.
And in theory, if you can getaway with it, have it lower than
you need it to be.
Because then if someone hitsmore than what you set at 70
percent and they hit 80, thenyou should make more money
(26:52):
because suddenly that person isnow paying for more of their
full salary as well as otherpeople's.
Harv Nagra (26:57):
Yeah, that makes sense.
And you get into kind of adangerous space if you're
overestimating what your targetsare across the board, you're
just fooling yourself and you'regoing to be in a lot of hot
water at the end of the year.
Richard Brett (27:09):
Yeah.
And as I think I've said itbefore, but I also don't like
utilization target as a thingeither.
It should be a minimumrequirement because people hit
targets, they stop.
And it's like, no, if you domore than 70 percent that's
great because that means you'regoing to make more money for the
business and that goes back intoinvestment for the business.
So I think it's, yeah, you justdon't want to go too high
because if you go high, itshould mean your rate card could
(27:32):
come down.
If you're spreading, you'remaking people are paying for
more of themselves.
If they can't achieve it, thenthat's just, it's not real.
And they're not going to be ableto pay for as much of
themselves.
So yeah, you just have to bemore realistic.
And that's where the data is soimportant to make sure that it's
not just, I think it's 70%, it'slike, no, it's based on fact.
This is what we did last year.
So we're tracking to this year.
So let's go with that.
Harv Nagra (27:51):
Absolutely.
All right.
Excellent.
Okay.
Then over to recovery.
Richard Brett (27:57):
I mean, it's, it links into price in some ways.
If, if you sell 10 days and youdo 11, you're going to reduce
your margin.
Because that day that you're notbeing paid for, it's not going
to be sold somewhere else.
So it's just really importantthat you just are aware of how
many days you've sold or howmuch time you sold and to track
it, especially if you'vediscounted as well.
If you discount a rate and thenover service, you're just
(28:19):
doubling up on margin hit.
So I wouldn't say that justbecause you discounted, you
should be more aware of that,you should always be aware of
over service, and just track itand know that, that's a way to
do it because it is so, you loseso much margin from just
spending more time than youshould do, because that's not
how your rate card would becalculated.
It's on the basis that you getpaid for your work.
(28:40):
I actually build in a recoveryinto my rate card calculation to
say, I don't expect to get fullrecovery.
And then it gives you a littlebit of extra buffer that, you
know, if you set that at 90, 95percent and everyone hits 100,
then you know, you're going tomake margin back in a different
place.
Harv Nagra (28:52):
Nice.
That's a really good tip.
Okay.
And then we are onto the roleand how that factors in.
Richard Brett (28:59):
The role for me is that if you sell a senior
designer, try and use amidweight.
It's not as simple as that, andI think often you'd say, well,
if it's five days of a senior,then it must be eight days of a
junior, or if it's eight days ofa junior, then it's five days.
That's not how it works.
Like that's very simplisticapproach to resourcing, but it's
a case of saying, if we can sellsomething as a senior designer
(29:22):
rate, and that rate's higher,but we could use a midweight and
then we can get the seniordesigner doing something else.
Actually, again, you can makemargin in both places because
you're making it on the seniordesigner doing their work, and
the midweight is then on asenior designer rate card, but
it does come down to how yousolve that work.
It's a value piece.
It's obviously the quicker youcan do it, but to the standard
(29:42):
that the client wants, thenyou're going to do well.
So I think it's just aboutunderstanding where those roles
are, and then filling capacity.
If someone's free, then youmight as well just use them on
that piece of work as well.
Doesn't mean that we had tofinish it, but it might just
speed things along a little bit.
So it's just being aware of whatyou sold and then trying to
sometimes go under it.
And if you need to go over it,then maybe give them less time
(30:02):
to do it and see if they can.
If they can't, they can't, butat least try and take that
approach.
Harv Nagra (30:07):
And then onto overheads.
Richard Brett (30:11):
I mean, it's obvious if, if your rate card is
set with overheads in thebusiness of an amount and you
spend more than that, thenyou're just taking it straight
out of margin.
And you don't know what bumps,you know, when you set a rate
card, maybe at the beginning ofthe year, it's really hard to
know that, you know, electricityand rates might go up by 10%.
So you would always factor thatin some sort of way in a budget,
(30:32):
but you just need to try and bein control of it.
It's the only thing in some waysthat you can control to a point
is what you're going to spend onthe business.
You can't control a client beingdifficult about time or budget.
Whereas if you can controloverheads and know that we've
got X to spend on overheads thisyear, if you maintain that or go
below it, it should help yourmargin on a rate card as well.
Harv Nagra (30:51):
Excellent.
Thanks very much for taking usinto that, Rich, and that leads
us really nicely into our nextquestion.
When it comes to, when it comesto reviewing your rate cards, is
this something you recommendquarterly, annually, what are
your thoughts?
Richard Brett (31:05):
I mean, I think if you can have something that
is kind of ticking over in thebackground and checking you, as
you progress, as, you know,overheads might increase.
I think to do it as a point intime is good because often you
will have agreements incontracts with clients that say
you can negotiate a rate cardonce a year.
I think what you can't just dois constantly change a rate card
because it just becomes an opsheadache for one thing is, well,
what did we charge that one outat what, what rate card was it?
(31:27):
I think it's good for me to doa, an annual rate card review,
and you might then do a part ofa six month,'are we still doing
okay?' Did we get thoseutilization rates right?
But really what you're doing isyou're not going to change the
rate card necessarily.
You're just saying, well,actually we need to try and push
up utilization or we need tofocus on recovery.
So it's not about necessarilychanging the rate.
(31:47):
The only reason you might changethe rate is if you suddenly have
a big increase in overheads andyou have to factor that in, or
you have three new hires thatyou hadn't accounted for.
You might need to just maybetweak a couple of rates, but
just because you set a rate cardup on a basis doesn't mean you
can sell it, you know, I couldgo into business and say, this
is the charge.
This is based on yourcalculations, this is what you
should charge your client.
(32:08):
And this gets you 30 percentmargin if you achieve it.
But if you can't sell it, it'sirrelevant.
Like, you know, you need to havea rate card that is built in the
correct way.
You understand where the marginis.
But it could be sold and thatmight be blended rates.
It might be rates by seniority.
It might be just one rate forthe whole business.
Whatever you choose, you have tomake sure you understand how
(32:30):
that's put together and then putpeople in place who know what
their job is.
And ultimately it's, if you'vesold 40 hours at a hundred
pounds an hour, don't do morethan 40 hours because they won't
make money.
Harv Nagra (32:42):
I think there can be that misalignment, you've got
these senior level people, soyou build rate cards around
that, but then when it comes tobuilding your quotes, you're
like, well, I can't get awaywith charging that, so I'm going
to use this kind of reduced rateand then everything gets thrown
off and, there's no point indesigning your price structure,
around that kind of model.
Richard Brett (33:02):
People who know, have spoken to me, know I'm not
a big fan of gross profit forexactly that reason is that you
can manipulate it.
And fundamentally, for me, aproject is if we've sold£10,000
worth of time based on, hoursand roles of someone, at the end
of the day, good projectmanagement or management of that
project is that we still stickwithin 10,000.
Even if we're using differentpeople, we still stick within
(33:23):
that 10,000.
If we've sold 40 hours, let'snot do more than 40 hours if we
can help it.
If we are going to need morethan 40 hours, can we try and
change the team slightly sothat, it's more junior people or
me of a blend.
This is why FinOps is a thingis, this is really going quite
into ops, but has a realfinancial impact.
A finance person will set up arate card, but if you're not
(33:44):
working with ops to know, well,what's our recovery, what's our
utilization, you know, can weactually even sell that?
A finance person setting up arate card and saying, go and
sell it for this is irrelevantbecause if you can't sell it, or
it's set on the paces thateveryone's 90 percent utilized,
but actually most people are 75,it's not going to work.
So that's why I think FinOps ingeneral is that, you know, the
(34:07):
two circles of the Venn diagram,it's that bit in the middle of
going, yeah, okay, but how arewe actually going to do that?
Because, I'm not resourcingpeople, you are.
Tell me what you're having withresource in that project.
Oh, we didn't sell enough hours.
Okay.
Then next time, let's make surewe sell more hours where they
didn't want to pay for more.
Okay.
Well, that's a challenge we'vegot that needs to go to sales.
(34:27):
And I think that's just how itall links in together.
It's finance and ops do need towork together really closely
because there's no point oneside of that doing something
that doesn't help the other orfinance doing something that
doesn't help ops or that theyjust completely butt heads.
It's about trying to make it thebest it can be that gives
everyone the ability to make theright decisions.
And that's why I think it'simportant to try and be as close
(34:48):
to the numbers.
And understand how it actuallysits on the ground and not just
be sat there, saying, well, howcome the numbers are rubbish?
Well, actually, I need tounderstand why they're rubbish
and to do that I need tounderstand how we booked that
in, how we sold it, how we builtthe rate card, how utilized
people are.
And it's digging into thatdetail.
I used to sit on, probablybothered our traffic manager way
(35:09):
too much back in the daybecause,
Harv Nagra (35:10):
Hmm.
Richard Brett (35:11):
You know, ultimately, if I looked at the
resource bookings and saw anumber that was different to
what I was seeing in my numbers,I was the one who had to answer
that to say, well, how comewe're not hitting our numbers?
But I can see loads of peoplework really busy, but our
numbers aren't good.
If you just then throw that ontoops or a resource manager or a
traffic manager, it's not goodenough.
I think you do need to be ableto understand both sides of it.
And I think you have to worktogether to understand what are
(35:33):
those issues.
It's not as simple as justsaying, well, we've only got 40
hours, so only book 40 hours.
Because if you need to do more,you need to do more in an
agency, you have to deliver tothe client.
So then it's about ops andresource and delivery and
everybody else going, we acceptthat we're going to have to over
service on that one.
It's going to impact ournumbers, but we have to do it.
Otherwise we might lose theclient.
(35:54):
So it's making that commercialdecision to make sure that
you're all aligned.
It can't just be, well, financesaid we had to do it because
then the rest of the businesswill be annoyed because suddenly
it's about the numbers, butactually most agency people want
to deliver great work.
Unfortunately, we also have tomake money.
So you can't do one without theother because soon it'll start
(36:16):
to impact the quality of thework or it'll start to destroy
the quality of the numbers.
Really, you want both of thosethings'cause they need to be
aligned together.
And I mean, I did, I probablydid spend too much time
resourcing, but it gave me areal good understanding.
And when I implemented, the ERPsystem, it meant that I had an
idea of how it should work andwe worked really hard to make
sure that it helped thebusiness.
(36:36):
But it also gave the data tofinance that made us be able to
make decisions as well.
And if you didn't do that, itwould be a system that was
really good for one, but not theother.
Harv Nagra (36:46):
Rich, before we wrap up, you talked about ERP systems
and then there's, there's alsothe kind of, set up where you
could just have a lot ofseparate systems.
Do you have a point of view onthat?
Do you, do you prefer the all inone or...
Richard Brett (37:00):
I mean, I, I think I prefer the all in one
because I think if you're goingto create estimates, do
timesheets and resourcing all inone place, you're surely going
to see efficiencies therebecause all that data, it's
matched up.
Challenge is, can smalleragencies afford it and do they
need to?
(37:20):
It's part of that growing upphase is, as you start to hire
people who are more senior, it'slikely they'll start asking more
questions and the systems you'vegot in place will probably be
able to be fudged to give youwhat you want, not the most
efficient.
So I think up to a certain size,using different bolt on services
to give you what you need, youknow, maybe a resourcing piece
(37:41):
of software, a timesheetsoftware, a CRM, your accounts,
Xero or QuickBooks or whateverit is you use.
But there is a point in timewhere it's like, this is
becoming a bit of a headachebecause how things join up.
And it's at that point, you thenneed to go, is there a system
that solves all these things inone place?
And what I kind of see it as youcould probably get a system that
(38:04):
can solve a hundred percent ofyour problems, but you only use
20 percent of it, or you coulduse a hundred percent of a
system and it solves five lotsof 20%.
So what's the right place to dothat?
A tipping point isunderstanding, no, we probably
need to now embed a system, butthat really also depends on what
the future looks like becauseit's in quite stable growth and
(38:27):
low EBIT, it's probably not thetime to embed a system because
it's a big workload associatedto do that properly and get it
set up properly.
Harv Nagra (38:36):
Mm hmm.
Yeah, I think I agree with youthere.
There comes a point a lot of thethings that you know, we talked
about also is about beingproactive.
So I think there there is a timebased on what your goals and
objectives are as an agency thatyou need to look forward and say
are going to wait for for awhile.
But I don't think you ever wantto be in a position where you
wait for things to startcreaking or or worse before you
(38:59):
make that decision.
So
Richard Brett (39:01):
And,
Harv Nagra (39:01):
I like how you put that.
Richard Brett (39:02):
and often like if you've got your processes set up
and then you embed a system,that system will probably be
implemented better anyway.
Harv Nagra (39:09):
Mm
Richard Brett (39:09):
But if you've got kind of sketchy processes,
putting a system in will nothelp it because systems are run.
In ways that well, how do you dothis if you don't know you'll
either don't do it properly oryou'll then start embedding a
system where the processes don'tmatch to how you do stuff.
So there's the growing pointwhere the people start saying,
well, I need to do it this way,so I've embedded the process.
(39:32):
We now need to get the systemthat matches up to it because a
spreadsheet is not good enough.
You know, I was an agency wherewe had a Google sheet for a lot
longer than we should have done.
It worked, gave us what wewanted in some ways, but it got
to a point where it was startingto creak.
And it's like, well, actuallythis only gives us certain bits
of what we want.
And it's not efficient of usenough to then go, let's take
(39:55):
this data and use it.
And that is when we put in anERP and that was a huge project.
That was ongoing for a longperiod of time, we just had to
get it right.
And if you don't get it right,it's a big waste of money.
Harv Nagra (40:07):
Definitely.
Thank you for going on thattangent with me,
Richard Brett (40:10):
That was a tangent, wasn't it?
Harv Nagra (40:13):
Rich, so if someone's listening to this and
thinking, okay, there's a lotthere that we need help with,
whether it's fractional stuff orjust getting their heads around
a lot of the things that you'vetalked about today, RevRec and
these metrics and getting all ofthat set up, where can they find
you?
Richard Brett (40:26):
I mean, the best place is through LinkedIn where
I very sporadically have adecision to post something
because it feels important.
And if you went down to my feed,you'll see a lot of this stuff.
I'm very focused on RevRec andmetrics and then just reach out
to me.
I'm hoping to launch somethingin the next few months which is
to do that product of a reviewaudit and triage and help people
just get that view of, do youknow what I could do with
(40:48):
understanding where we are inthat journey and be guided
towards what we need to do.
So I'm already hoping to sort oflaunch that over the next few
weeks and months.
And for me, that allows me tojust contact and help more
agencies, which fractional stuffcan't do because I just can't be
stretched that thin.
So it's really about trying tohelp as many people as I can.
But give them the tools theyneed to go and fix it themselves
(41:10):
and then support them on thatjourney.
So yeah, the best way to do itis that LinkedIn at the moment.
Yeah, that's it really.
Harv Nagra (41:15):
Excellent.
We'll put a link to Rich'sLinkedIn in the episode notes,
of course and Rich, once youlaunch that new auditing process
or tool, great to have you backat some point to talk us through
it.
Richard Brett (41:27):
That'd be great.
Harv Nagra (41:28):
Tell us how it works and all that kind of stuff.
Richard Brett (41:29):
I need to figure that out first.
So yeah.
Harv Nagra (41:31):
Well, thanks very much for joining us today.
Richard Brett (41:34):
Thanks Harv.
It's great to meet you.
And thanks for all thequestions.
Really good.
Harv Nagra (41:37):
Absolutely.
Hey all, loads of greattakeaways there from Rich on how
to bring better FinOps to youragency, including how essential
he views revenue recognition isto every agency and how
utilization, recovery, billablepaid, future month work value
all plug in help you makesmarter decisions.
We also spoke about the factorsthat can influence the margin on
(41:59):
your rate cards fromutilization, recovery, roles,
overhead, and pricing.
And Rich also spoke aboutsystems.
He was using the term ERP, whichmeans Enterprise Resource
Planning.
It sometimes getsinterchangeably used with PSA,
Professional ServicesAutomation.
Overall, what these terms referto are systems that bring
together your quoting, projectand financial tracking, resource
(42:22):
planning, time tracking,invoicing, and reporting all
into one place, rather thanseparate systems that do just
one piece of the puzzle.
Before I go, a reminder that youcan sign up for The Handbook:
Operations Newsletter atscoro.com/podcast, scroll down
and you'll see a newslettersignup form, and you'll get the
takeaways from every episode inyour inbox every other week.
(42:44):
That's it for me.
Thank you so much for joining usand we'll see you in the next
episode.
This podcast is brought to you by Scoro.
Scoro is an agency platform thatbrings together your quoting,
project tracking, invoicing, andagency reporting into one place.
Imagine building your quote inthe same place where you're
tracking your budget, includingtime, expenses, and supplier
purchases.
Sending invoices that let yousee how much you have left to
(00:21):
bill, and knowing when you getpaid, and being able to monitor
your project margins.
That's next level automation,and you don't get that in
spreadsheets.
Bonus, it's got a beautiful userinterface.
That's why I brought Scoro intomy past agency.
Sign up for a free trial atScoro.Com or if you arrange a
demo call, tell them Harv sentyou.
(00:43):
Now, back to the episode.
(01:18):
Hey all, welcome back.
In previous episodes of thepodcast, we've talked to guests
about agency finances.
Most of us coming into agencyOps don't usually come to it
from a strong financebackground.
And in my case, there was a lotof learning on the job, and
getting some of the blanksfilled, in my knowledge, by my
partner in crime at my pastagency, our finance director.
All of that to say, it's okaynot to know everything.
(01:40):
We're on this journey together.
I'm learning from our guests ineach and every episode, and
hopefully you're able to takeaway some of the stuff that
you're learning and apply it aswell.
So today we're taking thatfinance conversation further.
We're going to be talking abouthow ops and finance work
together and diving deeper intokey metrics that you should be
striving to implement to helpyou get your agency running as
(02:00):
efficiently and smartly aspossible.
Our guest today is RichardBrett.
Rich is a seasoned FinOpsprofessional with over 15 years
experience, including a decadein the agency world.
He began his agency financecareer at We Are Social, where
he played an important role inscaling his company from 50 to
150 employees and implementedkey processes and systems over
(02:23):
his tenure.
In 2019, he joined Cayenne, adigital agency where he led
finance and operations,ultimately helping the agency
double its revenue and achieveits best year during the
pandemic.
Most recently, Rich has decidedto branch out on his own and
founded Rich Brett Finopsproviding bespoke financial
services to agencies.
(02:43):
I'm thrilled to have Rich on theshow today so he can share his
insights with us on agencyfinance management, sustainable
growth, and key metrics.
Rich, welcome to the podcast.
Thanks very much for being here.
Richard Brett (02:53):
Well, thanks for inviting me.
Harv Nagra (02:55):
Rich, I wanted to start by asking you about the
growth journey at one of theagencies that you worked at in
the past.
I read that you saw a triple insize to 150 people while you
were there.
Tell us about that.
What period of time was that?
What enabled that growth?
What did that look like?
Richard Brett (03:10):
Yeah.
I mean, I think, I think wejoined, I joined when we were
about 50 people and it was kindof just off the beginning of the
sort of social boom, I guess.
So we were in a great place andthe bigger agency network
agencies weren't quite doing it,but they were starting to see
that what we were doing wasgreat.
But we were still quite youngand it was basically just a
collection of really good peoplewho were good at what they did.
(03:32):
And I think as we got bigger, Imean, that was probably a six
year journey for me from, youknow, 50 people to 150.
And I went in as just amanagement accountant who had no
idea about agencies, didn'treally know about management
accounts either, but we werejust trying to figure things
out.
And I think thinking about thatquestion is that I think the
biggest change for me is that wegrew up over that time, and we
(03:53):
grew up fairly quickly after Ijoined in the way we hired
people, the way we talked aboutthings, but also the systems we
used.
Like it was, we had moregrownups, we used to say there's
more grownups in the room.
And I think we were all reallygood at the doing and creating
great work.
The back office stuff wasn'tthat great and I guess we
started asking more questionsabout what's this?
(04:14):
And then we were looking atthings and then a CFO came on
and they then said I see you'relooking at this, but have you
looked at this?
I think that was the progressionfor a lot of the company was, we
were all kind of doing stuff,but there was no one there
going, yeah, but have youthought about this and what that
means?
And then you go, ah, yeah, I didsee that, but I didn't do
anything about it.
Cause I wasn't sure what it wasshowing me or what I need to do
(04:35):
about it.
So I think a lot of the time forme, it was being able to go to
someone else who had experiencein the business, say, yeah,
you're doing it right, but whatabout this?
And what normally followed wasyou needed systems and processes
to then allow those thoughts tobecome, well, how are we going
to do that?
How are we going to make it evenbetter?
So I think a lot of it was justgrowing up and just hiring
(04:57):
slightly differently, you know,people with different skillsets
rather than just, you know, whatyou'd call just brilliant, like
geniuses.
And a lot of people I've workedwith in that time are now
running their own agencies andwere brilliant at what they did.
But weren't really asked to carethat much about finance.
So I think our average age waslike 23 at one point.
So they did not give much of adamn about timesheets.
(05:17):
So...
Harv Nagra (05:18):
Right.
Richard Brett (05:18):
That was a challenge, but I think gradually
you taught people why it wasimportant and over the years we
got to a good place.
Harv Nagra (05:24):
Hmm.
That's a really nice story.
I love that you talk aboutgrowing up and, you know, a lot
of agencies go through thatgrowth journey and that maturity
journey.
It sounds like you were askingthe right questions of each
other, was that just, was it theCFO coming?
Richard Brett (05:39):
We brought in a COO, a CFO, head of client
services, head of production.
And I think we brought in allthose sort of like C suite type
roles because the owners havemoved into a different space.
They weren't the best people todo that because they were more
creative.
So therefore it was a case ofgetting people in who could do
that skill set and run that bitreally well.
It just gave us a bitreassurance that we were doing
(05:59):
things right and then continueon it.
But also if we want to changeit, a COO would then help us
maybe implement that.
So it was kind of all thosedifferent bits allowed us to
say, well, we need to do this,I'm going to go and speak to the
head of production about howthey can help, how the head of
delivery can do that, how a headof client services can do that.
So, it was everyone challengingeach other while still
delivering great work withouthamstring, you didn't want to
(06:21):
stop that.
We still needed to create greatwork.
Harv Nagra (06:24):
That totally resonates.
So from there, you've nowstarted your own FinOps,
consultancy in the past coupleof years.
What kinds of things are youseeing in agencies?
Are there any common or typicalmistakes or issues that are
quite apparent these days?
Richard Brett (06:38):
I mean, it's exactly what we had at We Are
Social, really, was that peopleare doing what they need to do.
And often that's cash based.
It's like just making surethey've got enough money to pay
the bills, to pay staff, and notlooking forward that much.
And what I found is a lot of thetime what people are doing,
looking forward, is just newbusiness pipeline or pipeline.
(06:59):
It's not what costs are we goingto incur if we hire this person?
What about if we hire thisperson?
What does that impact on theP&L?
And I think that's completelynormal because a lot of people
become agency owners byaccident, like they're
freelancers who then hiresomebody else and they hire
somebody else.
Then suddenly they've got anagency and what they're really
good at is design or strategy orSEO or whatever it might be, and
(07:23):
then they just add people in andthere's no one who really brings
that together.
I think what I've seen fromdoing this, and obviously I come
from a big agency background.
When I first started, I was thenworking with a six or seven
person agency, I was like, theydidn't really need to do this
stuff.
But actually they do, because ifyou're doing that now.
You're going to be better thanall those other agencies that
aren't doing it.
(07:43):
And you'll be better placed tobe even better when you're going
forward.
It doesn't guarantee success,but I think it's that
reassurance of what do we needto do to grow sustainably rather
than just grow, but not know howwe did it.
Harv Nagra (07:56):
Right.
That leads me to our nextquestion, which I think in some
ways you've kind of beenalluding to there in your
response, but you know, when anagency grows, there might be an
assumption that things can getless efficient and more
complicated.
And you know, that very well maybe the case if you're not being
proactive in addressing some ofthose operational or financial
areas, but you talk aboutgrowing sustainably.
(08:19):
So talk us through a bit aboutthat.
What do you mean by that?
What does that mean?
Richard Brett (08:23):
I think, it's one of these things I, when I first
started thinking about doingthis, I saw a lot of people
talking about growth, justgenerally, like you need to
grow, you need to grow quickly,hire people, win as much work as
you can and worry about it.
And I think one of my pet hatephrases that one of my old
directors used to say is crossthat bridge when we come to it.
Well, I, I'd kind of like toprepare for that bridge.
And I think a lot of what I meanby sustainably is that you make
(08:46):
decisions that are not just ongut feel, but they're based on
as much knowledge as you can.
So that when you say, no, we doneed to hire this person, it's
not that a month later you go,Oh no, it turns out we only
needed them for a month and nowwe haven't got any more work.
So for me, growing sustainablyis making decisions that allow
you to make the agency bigger,grow revenue, but also keep
(09:07):
profit at the same level.
Because what will often happenis in that messiness, you might
grow revenue, but your profitdrops.
But you go, yeah, but at leastrevenue is growing.
So, yeah, but you could haveprobably kept revenue the same
and your profit would have beenbetter.
So a lot of the growingsustainably is, is about trying
to just make sure that you dothings that aren't going to hurt
you six months down the line.
So therefore it's really tryingto direct owners to think about
(09:30):
the decisions they make and i'llsay to them quite a lot is, it's
okay to spend money as long asit adds value and that value
might not seem that obvious butif it adds value then it's a
good thing, but equally you needto then say at some point, well,
it's not adding value anymore,so let's stop it and that might
be a license fee or it might bea system or it could be a person
(09:52):
or a freelancer, but you need tobe looking forward and going, we
don't need this.
And I think a lot of agenciesare guilty of looking at the
past and going, Oh, we, we didbrilliantly last month.
Harv Nagra (10:00):
hmm.
Richard Brett (10:00):
I don't really care if you did great last month
because the next three monthslook terrible.
Like what we're doing about thatwe can still impact and affect
change in those months, we can'tdo anything about what happened
last month.
So growing sustainably is abouttrying to work out.
What do we need to do tocontinue on the path we want to
go down whether it's growingrevenue or growing ebit or
hopefully both of those.
Harv Nagra (10:23):
Really good advice.
So we're going to get deeperinto what I'm calling metrics
that matter.
But before we get into that.
I know you wanted to speak aboutrevenue recognition.
Tell us, uh, what that means.
Why is it so important?
And how does it work?
Richard Brett (10:37):
I I mean, I think people know me that that's all I
talk about is revenuerecognition and it's it's just,
it's so important because Ifsomeone says to me i've done a
million pounds this month and itwas just an invoice they raised,
but they've delivered none ofthe work, then you just invoiced
a million pounds.
(10:58):
That's great.
It's still great, but it doesn'thelp you understand true
performance.
And what revenue recognitiondoes is it builds in way more
than just the numbers.
It gets the departments thinkingabout resourcing, what
timesheets actually mean, andtrue performance of the
business.
Because I always give an exampleto people when I'm talking about
(11:18):
it is that, if on the last dayof your financial year, you
invoice a million pounds forwork to be delivered next year,
you've booked that a millionpounds in this year, you're
doing all the work next year.
So you've taken all the revenue,but none of the cost.
And that's what you're trying todo with RevRec is to say, each
month, how much of what we haveinvoiced, have we actually
delivered, so we might haveinvoiced£20k, but actually it
(11:42):
was only done half the work, sowe should only recognize£10k of
that work.
And the reason for that is thatwhen you look at your P&L, and
look at staff costs, those staffcosts should relate to the month
you've just done.
And if you then compare thatagainst revenue, that is for
work for the next six months,it's going to look great.
And what you get then is youmight have peaks and troughs
(12:03):
months where you've invoicedloads because you forgot to
invoice for three months.
Well, didn't we have a greatmonth?
And then the next two months,God, why have we had such a
terrible month?
It's because if you recognize itwhen you invoice, unless you're
invoicing at the end of eachmonth based on what you've done,
it's not going to relate to yourstaff and what have actually
been delivered.
So then it really gets youfocused on, well, actually, have
(12:23):
we delivered this?
You know, if the client came tous at the month and said, I'm
only going to pay you for thework you've done, what's the
point?
How much of that budget have weactually spent?
So it really makes people thinkabout how they spend their time
about resourcing and it, then itreally helps your forecast and
it's just so important to getright and I don't think it's
easy to make those decisionsabout whether you need to hire
(12:45):
unless you do it because you'rehiring someone based on when you
invoice, not when you actuallyneed to do the work and you
know, a project of 100k, youmight invoice up front, but only
do 5k a month one, you might do50 in the next month and 45 in
the last month.
Harv Nagra (13:02):
Mm-Hmm.
Richard Brett (13:02):
You need to then maybe bring in extra people for
those bigger months, but not thefirst month or freelancers to
support it.
And that's where it all playsinto.
If you get that mindset of,well, how much work have we
actually done?
And then use timesheets to helpyou say, just to support that
number, you can start toactually see true performance
rather than just invoiceperformance.
And it's not doing it wrong.
(13:22):
You're completely allowed to doit.
But if you want to growsustainably, you have to
understand when is the work thatwe've sold going to actually be
delivered.
And that's when you need systemsand people to help you
understand that.
Harv Nagra (13:33):
I had a question there, if somebody is listening
to this and say, well, okay,that sounds great, but how do I
start?
Richard Brett (13:38):
I mean, I think I could probably massively over
engineer a really expensivesolution for you if you want
one, but I think if you are justa small agency, I think it's
about understanding it and thenjust building something in your
brain that says, Okay, if we'vegot a project that splits over,
it's a three month project,let's just put some rough
percentages as to when we thinkwe're going to deliver each of
(13:58):
those pieces of work.
Because normally you have anestimate that is broken down
into phases anyway.
So let's just say, Oh, we'vedone phase one in month one.
Let's just book the revenue forthat.
So for me, if you don't have thepeople in place to do it, it's
not the end of the world, butwhat you're trying to do is be
as accurate as possible.
So the more accurate you can be,when you look at timesheets or
resourcing plans, and thatlevels up to something, the
(14:20):
better, because then that thendescribes what you're seeing in
the P&L in terms of revenueyou've booked.
But as a simple approach, youwould just say, right, the end
of the month, let's look at allthe projects we've got, how much
revenue we think we've done oneach of those projects, and
let's just take that number andthat's fine because it's better
than not doing it.
And I think that's the mainthing is to just understand
those principles of let's onlylook at the revenue we've done
(14:44):
this month.
And let's make sure that thefreelancers, if we brought those
in, are also showing, becausewhat you don't want to do is
have the revenue in month one,one month, the freelancers, the
following months, because thenyou see revenue here, but costs
there, that month looks great,month two looks terrible.
And it's just about trying tohave that balance.
And as you get more used to it,you start to see how metrics
(15:06):
around EBIT and staff ratio andutilization and recovery all
play into that number when yougo even deeper, how that impacts
your rate card, because ifyou're looking at P&L that's
just made up numbers, what's thepoint?
What's the point of looking atit?
Harv Nagra (15:21):
Excellent.
So I can see how, everythingthat we're gonna be talking
about now kind of branches intothis and, and fits underneath.
So onto the metrics,utilization, and this gets
talked about a lot, let's startthere anyway, very briefly, at
least.
so over to yourself.
Richard Brett (15:36):
Utilization is one of those things that is
talked about a lot, but doesanyone actually really
understand what they're sayingwhen they say it?
I think actually a lot of peopleare probably wrong about how
they talk about it.
but my view is that utilizationis how is a person's time being
used in the agency?
And that should be broken downinto things that you need to
know about.
So for me, it's billableutilization.
(15:59):
Non billable utilization, newbusiness utilization and
internal.
And ideally from an agencyperspective, you would like
everyone to be as billable aspossible, because in theory,
that means that you're chargingthat back to the client and
straight away that levels up torevenue, because if everyone is
working full time, you'd expectto see revenue be really high.
(16:20):
Because more utilized people inan agency where you're charging
people for time, should seehigher revenue.
So the flip side of that is ifyou see really high utilization
and low revenue, something's up.
So you need to then uncoverthat.
But you need to have a strongbasis for how you set that
utilization up.
And for me, that is working daysin the month, less holiday.
(16:43):
That is your working hoursbecause you can't work when
you're on holiday.
So therefore every singleutilization percentage should be
run off working days, less thedays that then that person is
not in the office, because thenyou can roll it out to person,
role, department, skill andagency, and therefore you can
see it across the board andreally zero in on an agency
(17:03):
number that says 73%.
Yeah, but what does that meanfor design?
Actually, design did 90, butstrategy did 50.
Okay, that means strategy aren'tbusy.
Let's go and figure out what'sgoing on there, let's zero in on
that.
So, yeah, I think that's it.
It's really important, bututilization is also historic.
So it only really helps you tounderstand what happened.
What you really want to do istry and get ahead of that.
(17:24):
And that's why you need to beresourcing because resourcing
defines how someone's utilized.
And a lot of people do notutilize or do not resource
enough.
Harv Nagra (17:33):
hmm.
Richard Brett (17:33):
They rely on timesheets to tell you what they
did when actually you shouldknow, because you booked it in
the first place.
Harv Nagra (17:38):
hmm.
Mm hmm.
And then you can actually see,you know, your, your capacity to
take on more work or whetheryou've got too much on and you
need to bring in the freelancersor whatever, or at least turn
something down and so on.
So yeah.
Richard Brett (17:49):
And if you get really good at it, you times
that time you've booked on eachof those clients by the rate
card.
And that tells you what revenueyou should be doing next month.
Harv Nagra (17:55):
Mm.
Excellent.
So utilization, now we're movinginto recovery.
So what is recovery?
Richard Brett (18:01):
So I don't know if this is my old CFO, we, we
call it recovery, which iseffectively how much of that
time that you spent on clientwork is actually paid for by the
client.
So if you work 10 days for aclient and they pay you for
those 10 days, you've got ahundred percent recovery.
So it links up to utilizationand it's a really crude example,
(18:22):
but if someone's a hundredpercent utilized and does 20
days on a client, but the clientonly pays you for 10, yes,
you're a hundred percentutilized, but you're only 50
percent recovered.
So technically you're only 50percent utilized because
although you're doing it, you'renot getting paid for it.
That could be over service or itcould be for whatever reason,
but recovery allows you to thentake that data of how much time
(18:43):
did we actually spend intimesheets or however you want
to do it, you could do it quitecrudely if you're not doing
timesheets.
And compare that to the revenueyou booked through revenue
recognition.
You can then say, well, we, webooked£20,000 worth of revenue,
but we did£22,000 worth of time.
Okay, we over serviced.
Why is that?
It could be that you overrecognized or you had to do a
(19:03):
bit of extra work out of scope.
But equally the other side ofthat is you did£20,000 worth of
revenue in the month, but youbooked£18,000 worth of time.
It could be because we managedto use a junior designer rather
than the designer that we sold.
We still delivered the work andthe client was still happy about
it.
We were just able to use someonewho was a bit cheaper, but
that's going off the rate card,it's not cost, it's rate card.
(19:24):
And again, you can see that, youdo that properly and if your
system's up, you can see that byproject, by client, by
department, by agency, acrossthe whole group.
So you can really zero in on it.
If you're not doing RevRec, youcan't do it because you're
comparing£20,000 pounds oftimesheets to a£100,000 invoice
that you raised, doesn't meananything.
So again, it comes back to, ifyou're not doing RevRec, those
(19:45):
utilization statistics andreport and recovery reporting
that you're doing don't reallymean anything because you're not
comparing apples to apples.
Harv Nagra (19:52):
Got you.
So we were then moving intobillable paid.
So again, what does that mean?
Richard Brett (19:58):
So it's kind of what we talked about already,
which is you basically multiplyyour utilization by your
recovery.
And I actually remember when westarted doing this at, one of
our agencies and we just went,what should we call it?
And I think it might've beenthat we were doing it already,
but, or we already knew aboutit, but we hadn't called it
anything or we weren't maybetracking it properly.
But it was like, how comeutilization is so high?
(20:18):
And revenue is, you know, whereit is, but we know the recovery.
We know utilisation.
So if we times those two thingstogether, actually get to a
place where we can see whatactually every hour that we
work, that's billable, how muchof it is paid for.
And that's what billable pay istelling us.
Because if we times utilisationby recovery, and it's a hundred
percent times a hundred percent.
(20:40):
Then your billable paid is ahundred percent.
If you times a hundred percentby 50% recovery, your billable
paid is 50.
The other side of that is ifutilization is 50%, but recovery
is a hundred percent, you'restill at 50.
Which one of those is betterbecause that might be better
because at least when people areworking on it, they're getting
paid rather than the other wayis recovery is bad.
(21:01):
Yeah.
They're all working on stuff,but they're not getting paid for
it.
And that's when it's really upto an ops person and a finance
person to work together withclient services and project
managers to go, why is thishappening?
What are we seeing here?
But again, you're trying topredict it by using resourcing,
because if you resourcecorrectly, you'll see it coming
because you'll see£20,000 worthof revenue but only the£25,000
(21:24):
worth of timesheets plusresource booked means you're
going to overservice.
You can then try and get aheadof it and try and reduce that
down.
So billable paid is kind of justa metric that takes into account
both of those things and shouldexplain what you're seeing in
the P&L.
A fairly classic thing thatagency owners say is everyone's
really busy, but we're notmaking any money.
(21:44):
Well, it's probably becauseeveryone's on client work, but
it's not paid for, or you're notcharging enough.
And that's why you, you want totry and rule the things out that
you can to then dig into it.
And if it's actually, we areactually this busy, we are
actually recovering a hundredpercent, then that then directs
you towards, well, then the ratecard must be wrong, or we've got
too many costs in another place.
Because if you're getting paidfor all the work you're doing
(22:07):
and you're working all that timeon client you should be making
money.
It's then trying to work out,well, what is the reason for it
then and you're always justtrying to work out why?
And that's where data becomes soimportant and using good systems
to help you do that and goodpeople to understand why are we
seeing what we're seeing and youcan't have one without the
other, you know It's impossibleto have really great profit
(22:27):
without seeing high utilizationand high recovery in theory
unless you're doing valuepricing in which case recovery
would be off the scales becauseyou're not doing any timesheets,
but you're booking loads ofrevenue.
Harv Nagra (22:38):
Right.
I think the the gist here, isthat you can collect a lot of
good data, but you really haveto have it set up to actually
help guide you.
And you can get to a place whereyou're steering your
organization in a really smartway.
We are going to talk about rightcards as well, but there was one
more thing we had highlighted,previously to talk about, and
that was future month workvalue.
Richard Brett (22:58):
That's, yeah, again, I mean, this is why it
all works so nicely because itall streams from RevRec to
forecasting to utilization totimesheets and how you want to
do it is that a lot of stuff youread is about, yeah, we've got
timesheets in, but no one'stalking about resourcing and
then, you know, what is the bestsystem for resourcing is...
Harv Nagra (23:17):
hmm.
hmm
Richard Brett (23:17):
I'm sure there are plenty out there, Harv, I'm
sure.
uh, And everyone needs it indifferent ways.
But I'm spreadsheet spreadsheetshappy.
It's good enough for me becauseif it does the job, you need it
to do, then that's completelyfine.
Obviously, the more you automateit, the better.
But future work value isbasically saying, okay, if I
times every single hour I've gotbooked in October by the amount
I sold that person for to thatclient, I can see the value of
(23:40):
work that we're supposed to bedelivering next month.
And you can then compare that ifyou're doing revenue recognition
and forecasting to go, well,then how come I've got£50,000 of
work booked in my system, butI'm saying I'm doing£100,000
worth of work.
Or the other way around, I'vegot£100,000 worth of work
booked, but I've only got£50,000in the forecast, because it
(24:01):
could be that you've forgottento book something in, or it
could be that you've overrecognized something.
And that's, that's what you wantto try and do, because you want
to try and get ahead of that.
You know, if you're only lookingat timesheets, the time to
change things is gone.
If you're resourcing, you canstill affect change on those
numbers because you could, youknow, pare someone back and say,
can you stop working on that?
We've run out of budget, or weneed to go back to the client
and ask for more budget, oractually we can throw a bit more
(24:23):
resource at that because we'vegot a bit more budget.
You can't do that if you look attimesheets because it's already
happened.
So it's trying to get ahead andgo what is the future work value
and when's it going to hit inour numbers because If you see a
big peak where you have loads ofdesign in November, but all your
designers are fully booked, youmight need to get a freelancer
in and that's going to hit yourP&L because you've got the cost
that needs to be brought in toservice it.
(24:44):
Otherwise you're inflating yournumbers and you won't be able to
deliver.
Harv Nagra (24:47):
Absolutely.
Excellent.
All right, Rich.
Next, we're going to talk aboutrate cards.
I've heard you say that there'sa number of levers you can pull
in your rate cards that canboost your agency margin before
we get into it.
Can you tell us what thoselevers are?
Richard Brett (25:00):
Yeah, so, it's the price, utilization,
recovery, the role thatsomeone's doing and then the
overheads.
Harv Nagra (25:07):
Excellent.
Okay.
Let's, let's get into each ofthose a little bit deeper,
starting with price.
How does that relate?
Richard Brett (25:15):
Well, I mean, it's obvious if you build a rate
card on a price, and if youdon't sell it at that price,
you're not going to make themargin that you did your rate
card on.
So it seems fairly simple, thatif you're going to try and sell
something, you try and sell itat the price you want to, and I
think I woke up one night andwas like, huh, actually, if you
discount your price by 5%, youactually have to do 5 percent
(25:35):
less time if you're on that sortof basis to try and make the
same margin back that you wouldhave done a full price.
So, if you're going to discountyour rate, only do it on 2
basis, like, maybe it's a longterm contract where it's been
secured for longer, or it's afull time person.
So you can actually then managethat price a little bit.
And also know where that marginis because different roles
should have different margins.
(25:55):
So it might be that you candiscount some roles and still
make a 20 percent margin andanother one.
You can't, but it's just aboutmanaging that number and knowing
where you've got those thoselevers.
Harv Nagra (26:04):
Excellent.
Okay.
So then you were going intoutilization.
Richard Brett (26:09):
Yeah.
So utilization is I build myrate cards and say, well, I'm
expecting this person to spend80 percent of the year or their
month or whatever time period,on client work.
When you do that calculation,you have to be really clear
because if they're not going tohit 80%, then they're not going
to be working on client times,therefore not going to pay for
themselves as easily because ifyou then if they only then do 50
(26:30):
percent have to pay forthemselves with only 50 percent
of their time and thereforetheir time they're not spending
on client work has to be paid byother people.
So when you set your rate card,it's important to set a rate
card with the utilization that'srealistic.
And in theory, if you can getaway with it, have it lower than
you need it to be.
Because then if someone hitsmore than what you set at 70
percent and they hit 80, thenyou should make more money
(26:52):
because suddenly that person isnow paying for more of their
full salary as well as otherpeople's.
Harv Nagra (26:57):
Yeah, that makes sense.
And you get into kind of adangerous space if you're
overestimating what your targetsare across the board, you're
just fooling yourself and you'regoing to be in a lot of hot
water at the end of the year.
Richard Brett (27:09):
Yeah.
And as I think I've said itbefore, but I also don't like
utilization target as a thingeither.
It should be a minimumrequirement because people hit
targets, they stop.
And it's like, no, if you domore than 70 percent that's
great because that means you'regoing to make more money for the
business and that goes back intoinvestment for the business.
So I think it's, yeah, you justdon't want to go too high
because if you go high, itshould mean your rate card could
(27:32):
come down.
If you're spreading, you'remaking people are paying for
more of themselves.
If they can't achieve it, thenthat's just, it's not real.
And they're not going to be ableto pay for as much of
themselves.
So yeah, you just have to bemore realistic.
And that's where the data is soimportant to make sure that it's
not just, I think it's 70%, it'slike, no, it's based on fact.
This is what we did last year.
So we're tracking to this year.
So let's go with that.
Harv Nagra (27:51):
Absolutely.
All right.
Excellent.
Okay.
Then over to recovery.
Richard Brett (27:57):
I mean, it's, it links into price in some ways.
If, if you sell 10 days and youdo 11, you're going to reduce
your margin.
Because that day that you're notbeing paid for, it's not going
to be sold somewhere else.
So it's just really importantthat you just are aware of how
many days you've sold or howmuch time you sold and to track
it, especially if you'vediscounted as well.
If you discount a rate and thenover service, you're just
(28:19):
doubling up on margin hit.
So I wouldn't say that justbecause you discounted, you
should be more aware of that,you should always be aware of
over service, and just track itand know that, that's a way to
do it because it is so, you loseso much margin from just
spending more time than youshould do, because that's not
how your rate card would becalculated.
It's on the basis that you getpaid for your work.
(28:40):
I actually build in a recoveryinto my rate card calculation to
say, I don't expect to get fullrecovery.
And then it gives you a littlebit of extra buffer that, you
know, if you set that at 90, 95percent and everyone hits 100,
then you know, you're going tomake margin back in a different
place.
Harv Nagra (28:52):
Nice.
That's a really good tip.
Okay.
And then we are onto the roleand how that factors in.
Richard Brett (28:59):
The role for me is that if you sell a senior
designer, try and use amidweight.
It's not as simple as that, andI think often you'd say, well,
if it's five days of a senior,then it must be eight days of a
junior, or if it's eight days ofa junior, then it's five days.
That's not how it works.
Like that's very simplisticapproach to resourcing, but it's
a case of saying, if we can sellsomething as a senior designer
(29:22):
rate, and that rate's higher,but we could use a midweight and
then we can get the seniordesigner doing something else.
Actually, again, you can makemargin in both places because
you're making it on the seniordesigner doing their work, and
the midweight is then on asenior designer rate card, but
it does come down to how yousolve that work.
It's a value piece.
It's obviously the quicker youcan do it, but to the standard
(29:42):
that the client wants, thenyou're going to do well.
So I think it's just aboutunderstanding where those roles
are, and then filling capacity.
If someone's free, then youmight as well just use them on
that piece of work as well.
Doesn't mean that we had tofinish it, but it might just
speed things along a little bit.
So it's just being aware of whatyou sold and then trying to
sometimes go under it.
And if you need to go over it,then maybe give them less time
(30:02):
to do it and see if they can.
If they can't, they can't, butat least try and take that
approach.
Harv Nagra (30:07):
And then onto overheads.
Richard Brett (30:11):
I mean, it's obvious if, if your rate card is
set with overheads in thebusiness of an amount and you
spend more than that, thenyou're just taking it straight
out of margin.
And you don't know what bumps,you know, when you set a rate
card, maybe at the beginning ofthe year, it's really hard to
know that, you know, electricityand rates might go up by 10%.
So you would always factor thatin some sort of way in a budget,
(30:32):
but you just need to try and bein control of it.
It's the only thing in some waysthat you can control to a point
is what you're going to spend onthe business.
You can't control a client beingdifficult about time or budget.
Whereas if you can controloverheads and know that we've
got X to spend on overheads thisyear, if you maintain that or go
below it, it should help yourmargin on a rate card as well.
Harv Nagra (30:51):
Excellent.
Thanks very much for taking usinto that, Rich, and that leads
us really nicely into our nextquestion.
When it comes to, when it comesto reviewing your rate cards, is
this something you recommendquarterly, annually, what are
your thoughts?
Richard Brett (31:05):
I mean, I think if you can have something that
is kind of ticking over in thebackground and checking you, as
you progress, as, you know,overheads might increase.
I think to do it as a point intime is good because often you
will have agreements incontracts with clients that say
you can negotiate a rate cardonce a year.
I think what you can't just dois constantly change a rate card
because it just becomes an opsheadache for one thing is, well,
what did we charge that one outat what, what rate card was it?
(31:27):
I think it's good for me to doa, an annual rate card review,
and you might then do a part ofa six month,'are we still doing
okay?' Did we get thoseutilization rates right?
But really what you're doing isyou're not going to change the
rate card necessarily.
You're just saying, well,actually we need to try and push
up utilization or we need tofocus on recovery.
So it's not about necessarilychanging the rate.
(31:47):
The only reason you might changethe rate is if you suddenly have
a big increase in overheads andyou have to factor that in, or
you have three new hires thatyou hadn't accounted for.
You might need to just maybetweak a couple of rates, but
just because you set a rate cardup on a basis doesn't mean you
can sell it, you know, I couldgo into business and say, this
is the charge.
This is based on yourcalculations, this is what you
should charge your client.
(32:08):
And this gets you 30 percentmargin if you achieve it.
But if you can't sell it, it'sirrelevant.
Like, you know, you need to havea rate card that is built in the
correct way.
You understand where the marginis.
But it could be sold and thatmight be blended rates.
It might be rates by seniority.
It might be just one rate forthe whole business.
Whatever you choose, you have tomake sure you understand how
(32:30):
that's put together and then putpeople in place who know what
their job is.
And ultimately it's, if you'vesold 40 hours at a hundred
pounds an hour, don't do morethan 40 hours because they won't
make money.
Harv Nagra (32:42):
I think there can be that misalignment, you've got
these senior level people, soyou build rate cards around
that, but then when it comes tobuilding your quotes, you're
like, well, I can't get awaywith charging that, so I'm going
to use this kind of reduced rateand then everything gets thrown
off and, there's no point indesigning your price structure,
around that kind of model.
Richard Brett (33:02):
People who know, have spoken to me, know I'm not
a big fan of gross profit forexactly that reason is that you
can manipulate it.
And fundamentally, for me, aproject is if we've sold£10,000
worth of time based on, hoursand roles of someone, at the end
of the day, good projectmanagement or management of that
project is that we still stickwithin 10,000.
Even if we're using differentpeople, we still stick within
(33:23):
that 10,000.
If we've sold 40 hours, let'snot do more than 40 hours if we
can help it.
If we are going to need morethan 40 hours, can we try and
change the team slightly sothat, it's more junior people or
me of a blend.
This is why FinOps is a thingis, this is really going quite
into ops, but has a realfinancial impact.
A finance person will set up arate card, but if you're not
(33:44):
working with ops to know, well,what's our recovery, what's our
utilization, you know, can weactually even sell that?
A finance person setting up arate card and saying, go and
sell it for this is irrelevantbecause if you can't sell it, or
it's set on the paces thateveryone's 90 percent utilized,
but actually most people are 75,it's not going to work.
So that's why I think FinOps ingeneral is that, you know, the
(34:07):
two circles of the Venn diagram,it's that bit in the middle of
going, yeah, okay, but how arewe actually going to do that?
Because, I'm not resourcingpeople, you are.
Tell me what you're having withresource in that project.
Oh, we didn't sell enough hours.
Okay.
Then next time, let's make surewe sell more hours where they
didn't want to pay for more.
Okay.
Well, that's a challenge we'vegot that needs to go to sales.
(34:27):
And I think that's just how itall links in together.
It's finance and ops do need towork together really closely
because there's no point oneside of that doing something
that doesn't help the other orfinance doing something that
doesn't help ops or that theyjust completely butt heads.
It's about trying to make it thebest it can be that gives
everyone the ability to make theright decisions.
And that's why I think it'simportant to try and be as close
(34:48):
to the numbers.
And understand how it actuallysits on the ground and not just
be sat there, saying, well, howcome the numbers are rubbish?
Well, actually, I need tounderstand why they're rubbish
and to do that I need tounderstand how we booked that
in, how we sold it, how we builtthe rate card, how utilized
people are.
And it's digging into thatdetail.
I used to sit on, probablybothered our traffic manager way
(35:09):
too much back in the daybecause,
Harv Nagra (35:10):
Hmm.
Richard Brett (35:11):
You know, ultimately, if I looked at the
resource bookings and saw anumber that was different to
what I was seeing in my numbers,I was the one who had to answer
that to say, well, how comewe're not hitting our numbers?
But I can see loads of peoplework really busy, but our
numbers aren't good.
If you just then throw that ontoops or a resource manager or a
traffic manager, it's not goodenough.
I think you do need to be ableto understand both sides of it.
And I think you have to worktogether to understand what are
(35:33):
those issues.
It's not as simple as justsaying, well, we've only got 40
hours, so only book 40 hours.
Because if you need to do more,you need to do more in an
agency, you have to deliver tothe client.
So then it's about ops andresource and delivery and
everybody else going, we acceptthat we're going to have to over
service on that one.
It's going to impact ournumbers, but we have to do it.
Otherwise we might lose theclient.
(35:54):
So it's making that commercialdecision to make sure that
you're all aligned.
It can't just be, well, financesaid we had to do it because
then the rest of the businesswill be annoyed because suddenly
it's about the numbers, butactually most agency people want
to deliver great work.
Unfortunately, we also have tomake money.
So you can't do one without theother because soon it'll start
(36:16):
to impact the quality of thework or it'll start to destroy
the quality of the numbers.
Really, you want both of thosethings'cause they need to be
aligned together.
And I mean, I did, I probablydid spend too much time
resourcing, but it gave me areal good understanding.
And when I implemented, the ERPsystem, it meant that I had an
idea of how it should work andwe worked really hard to make
sure that it helped thebusiness.
(36:36):
But it also gave the data tofinance that made us be able to
make decisions as well.
And if you didn't do that, itwould be a system that was
really good for one, but not theother.
Harv Nagra (36:46):
Rich, before we wrap up, you talked about ERP systems
and then there's, there's alsothe kind of, set up where you
could just have a lot ofseparate systems.
Do you have a point of view onthat?
Do you, do you prefer the all inone or...
Richard Brett (37:00):
I mean, I, I think I prefer the all in one
because I think if you're goingto create estimates, do
timesheets and resourcing all inone place, you're surely going
to see efficiencies therebecause all that data, it's
matched up.
Challenge is, can smalleragencies afford it and do they
need to?
(37:20):
It's part of that growing upphase is, as you start to hire
people who are more senior, it'slikely they'll start asking more
questions and the systems you'vegot in place will probably be
able to be fudged to give youwhat you want, not the most
efficient.
So I think up to a certain size,using different bolt on services
to give you what you need, youknow, maybe a resourcing piece
(37:41):
of software, a timesheetsoftware, a CRM, your accounts,
Xero or QuickBooks or whateverit is you use.
But there is a point in timewhere it's like, this is
becoming a bit of a headachebecause how things join up.
And it's at that point, you thenneed to go, is there a system
that solves all these things inone place?
And what I kind of see it as youcould probably get a system that
(38:04):
can solve a hundred percent ofyour problems, but you only use
20 percent of it, or you coulduse a hundred percent of a
system and it solves five lotsof 20%.
So what's the right place to dothat?
A tipping point isunderstanding, no, we probably
need to now embed a system, butthat really also depends on what
the future looks like becauseit's in quite stable growth and
(38:27):
low EBIT, it's probably not thetime to embed a system because
it's a big workload associatedto do that properly and get it
set up properly.
Harv Nagra (38:36):
Mm hmm.
Yeah, I think I agree with youthere.
There comes a point a lot of thethings that you know, we talked
about also is about beingproactive.
So I think there there is a timebased on what your goals and
objectives are as an agency thatyou need to look forward and say
are going to wait for for awhile.
But I don't think you ever wantto be in a position where you
wait for things to startcreaking or or worse before you
(38:59):
make that decision.
So
Richard Brett (39:01):
And,
Harv Nagra (39:01):
I like how you put that.
Richard Brett (39:02):
and often like if you've got your processes set up
and then you embed a system,that system will probably be
implemented better anyway.
Harv Nagra (39:09):
Mm
Richard Brett (39:09):
But if you've got kind of sketchy processes,
putting a system in will nothelp it because systems are run.
In ways that well, how do you dothis if you don't know you'll
either don't do it properly oryou'll then start embedding a
system where the processes don'tmatch to how you do stuff.
So there's the growing pointwhere the people start saying,
well, I need to do it this way,so I've embedded the process.
(39:32):
We now need to get the systemthat matches up to it because a
spreadsheet is not good enough.
You know, I was an agency wherewe had a Google sheet for a lot
longer than we should have done.
It worked, gave us what wewanted in some ways, but it got
to a point where it was startingto creak.
And it's like, well, actuallythis only gives us certain bits
of what we want.
And it's not efficient of usenough to then go, let's take
(39:55):
this data and use it.
And that is when we put in anERP and that was a huge project.
That was ongoing for a longperiod of time, we just had to
get it right.
And if you don't get it right,it's a big waste of money.
Harv Nagra (40:07):
Definitely.
Thank you for going on thattangent with me,
Richard Brett (40:10):
That was a tangent, wasn't it?
Harv Nagra (40:13):
Rich, so if someone's listening to this and
thinking, okay, there's a lotthere that we need help with,
whether it's fractional stuff orjust getting their heads around
a lot of the things that you'vetalked about today, RevRec and
these metrics and getting all ofthat set up, where can they find
you?
Richard Brett (40:26):
I mean, the best place is through LinkedIn where
I very sporadically have adecision to post something
because it feels important.
And if you went down to my feed,you'll see a lot of this stuff.
I'm very focused on RevRec andmetrics and then just reach out
to me.
I'm hoping to launch somethingin the next few months which is
to do that product of a reviewaudit and triage and help people
just get that view of, do youknow what I could do with
(40:48):
understanding where we are inthat journey and be guided
towards what we need to do.
So I'm already hoping to sort oflaunch that over the next few
weeks and months.
And for me, that allows me tojust contact and help more
agencies, which fractional stuffcan't do because I just can't be
stretched that thin.
So it's really about trying tohelp as many people as I can.
But give them the tools theyneed to go and fix it themselves
(41:10):
and then support them on thatjourney.
So yeah, the best way to do itis that LinkedIn at the moment.
Yeah, that's it really.
Harv Nagra (41:15):
Excellent.
We'll put a link to Rich'sLinkedIn in the episode notes,
of course and Rich, once youlaunch that new auditing process
or tool, great to have you backat some point to talk us through
it.
Richard Brett (41:27):
That'd be great.
Harv Nagra (41:28):
Tell us how it works and all that kind of stuff.
Richard Brett (41:29):
I need to figure that out first.
So yeah.
Harv Nagra (41:31):
Well, thanks very much for joining us today.
Richard Brett (41:34):
Thanks Harv.
It's great to meet you.
And thanks for all thequestions.
Really good.
Harv Nagra (41:37):
Absolutely.
Hey all, loads of greattakeaways there from Rich on how
to bring better FinOps to youragency, including how essential
he views revenue recognition isto every agency and how
utilization, recovery, billablepaid, future month work value
all plug in help you makesmarter decisions.
We also spoke about the factorsthat can influence the margin on
(41:59):
your rate cards fromutilization, recovery, roles,
overhead, and pricing.
And Rich also spoke aboutsystems.
He was using the term ERP, whichmeans Enterprise Resource
Planning.
It sometimes getsinterchangeably used with PSA,
Professional ServicesAutomation.
Overall, what these terms referto are systems that bring
together your quoting, projectand financial tracking, resource
(42:22):
planning, time tracking,invoicing, and reporting all
into one place, rather thanseparate systems that do just
one piece of the puzzle.
Before I go, a reminder that youcan sign up for The Handbook:
Operations Newsletter atscoro.com/podcast, scroll down
and you'll see a newslettersignup form, and you'll get the
takeaways from every episode inyour inbox every other week.
(42:44):
That's it for me.
Thank you so much for joining usand we'll see you in the next
episode.
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