As an agency founder you can identify as lots of things.
- Entrepreneur (hard to spell but nice to say)
- Leader (for the LinkedIn)
- Imposter (not a real syndrome btw, just a belief)
Probably the most important thing you are… is an allocator of resource.
However many people are on your team, however many clients you have, however you bill, you are deciding where effort goes and for how long.
To know if you’re doing that well, you need to measure it.
Knowing how you’re allocating resource means knowing your profitability. It’s how you grow. And it’s how you eventually get out of delivery.
And ultimately this is your job.
You’re taking an asset your business has and investing it.
Are you doing that well?
What’s your unit of resource?
Let me save you some time. It’s time.
You might not do hourly billing. You might think/know/wonder if the billable hour is dead. You might do value-based pricing or performance-based pricing or any-based pricing.
None of that matters for this conversation.
We’re not talking about how you bill. We’re talking about how you allocate resource. And for that, time is your unit.
Not because it’s perfect.
It very much isn’t.
Time is flawed
If I spend an hour on your project first thing in the morning after good night’s sleep, no interruptions, genuinely struck by inspiration, that hour is worth quite a lot.
The hour the following day, after a heavy lunch, when something’s gone wrong with the API and I can’t get it to urgh igiveup… that hour is worth considerably less. The bit of work I did turns out to be pretty meaningless. The hour isn’t worth the clock it ticked around.
Those two units are not the same.
Time is blunt, imprecise, and occasionally infuriating. But energy and inspiration have no measurements.
But value is the output. We need to track the input. (Because the difference is profit)
So time is far from perfect but it’s the best thing we have.
Knowing what each unit costs
The other thing you need to know is what you pay for each unit of resource.
This is a bit easier for your team or freelancers. It’s the salary or the invoice.
It’s harder when it’s you. What even is your pay? Profit? The random amounts you withdraw depending on how you’re doing?
An hour of effort in a month where you paid yourself less is not cheaper than an hour in a month where you paid yourself a bonus. The cost of your time doesn’t change because your cashflow did.
Base it on what your salary should be.
Does that mean you aren’t making a profit anymore? Well that’s unpleasant, certainly. But knowing it is how you grow.
What all of this gives you
When you know how many hours everyone spends, and what those hours cost, you can work out which of your clients makes you the big money. And which of them barely makes you any money at all.
You can fix clients and rates and get yourself to a position where all the resource you need is other people. You know what it costs. You know it makes money. You can choose the clients and price the projects that build a business that doesn’t rely on you billing.
And if you’re not allocating yourself as a resource and you’ve genuinely stepped out of delivery then congratulations.
You don’t have to track your time anymore (but your team do).
But I do value-based pricing
Great. I like you for that. Please continue to read my newsletter.
Here’s the thing. A 10K workshop where you’ve imparted a day’s worth of knowledge that transforms someone’s strategy. That is still a day of your time.
You could have spent that time on something else. You were wise not to. But you still allocated your time.
And hopefully at some point you’ll have to choose between the client doing 10K workshops and the one doing 15K. But those 15K workshops take a bit longer to prep for.
Which one is actually more profitable?
You need to know.
This article has a shelf life
I want to end on something we’re still working out.
Everything above applies to human resource. But there’s a new kind of resource creeping into agency delivery.
AI tokens.
Right now, if you’re using AI tools across your business, you’re probably treating the cost as software overhead. That’s fine. Honestly, it’s probably the right call for now. But you should know what you’re spending.
The LLM providers are in land grab mode, making a loss on those tokens in exchange for getting you hooked on their software.
There’s 2 ways this plays out. They work out how to deliver cheaper or they start upping those prices. It’s happening already. Notice the “fast” modes that are appearing. Known also as “we don’t want to say that normal mode is a bit slow now”.
Token allocation per project will be on your reports soon.
Can’t wait.
Until then, track your time.