The two most common contracts used by creative agencies throughout the world are the time and materials contract and the fixed bid contract. Agencies working under a time and materials contract will likely use online time tracking software. It’s the most efficient and accurate way to track billable hours. But, what about agencies working under a fixed bid contract?
Even if an agency is not billing a project by the hour, there are three good reasons to still use software to track time on fixed bid projects. Here they are…
1) Measuring profitability
In order for a fixed bid project to be profitable the margins have to be in excess of employee costs and any overhead such as rent, insurance, and other small business expenses. Unless you are tracking time and expenses on a project, you can’t know for sure if the project made a profit.
Many agencies have found success with the “win some, lose some” approach to project profitability because they end up with an overall net profit at the end of the year. This does save you the trouble of writing up more accurate estimates and tracking time, but, it does so at the expense of bigger profits.
Utilizing project managing software enables you to track the profitability of each project, so you can know exactly which projects lost money and why. Because knowledge is power, and the time tracking data you produce will empower your agency to avoid making the same mistakes twice. By reducing the numbers that lose money you will increase your net profits.
2) Measuring productivity
Some tasks take longer than others. And some people work slower than others. Tracking the amount of time each person spends on each project-related task can help address areas of inefficiency.
Good online time tracking software will provide useful reporting that shows exactly where the inefficiencies occur. Maybe a task took longer than it was supposed to, or someone worked took on too many hours instead of delegating them to another team member. The data will reveal bottlenecks that need to be resolved to increase productivity.
3) More accurate estimates
The key to success for agencies using flat bids is to start the out with the most accurate estimate possible. Unfortunately, time constraints and a lack of information from the client make this scenario unrealistic. There are ways to create a generalized estimate based on similar past projects or the market value of the project, but these approaches do not guarantee the project will be completed on time or under budget.
An agency that uses online time tracking software will have a trove of data to reference when creating estimates. The estimation process is then simplified by breaking the project down into individual tasks and referencing each one against similar completed tasks. The obvious benefit is that each estimate is more accurate than the previous one.
Increasing the odds
The downfall of most agencies has little to do with their creative abilities and more to do with failures in running a small business. Improving profitability, productivity, and accuracy will provide a solid foundation for any agency to build upon. Simple time tracking software provides the tools necessary to increase the odds of being a successful creative agency.
Photo credit: Stefan Ledwina