Departmental revenue reporting: should your agency do it?

Image for Kate Bastable By Kate Bastable

Looking at how each department is operating commercially can seem like a good idea when you’re setting up your agency software system. In fact, it’s something that our clients often ask for almost straight away. And my answer is always the same. It’s not actually a great idea, why do you want to do it?

Why do I say this? This type of department comparison can be something finance managers and accountants are very fond of and it can certainly have its place in commercial reporting. But agencies are extremely different animals to many other organisations, and this effective pitting of one team against another can lead you down some time-consuming blind alleys.

Capacity planning vs revenue tracking

When we install Synergist into an agency, a lot of the reasons people ask for departmental comparison is to see capacity. But this is already reported on through the estimating element. If you’re estimating for a project, you can see if you’re heading over capacity and need to employ a freelancer. Or if it’s a long-term over capacity, whether you need to invest in another team member.

But trying to assign numbers and revenue and profits to each specific team working on a project can be a holy nightmare, to put it bluntly. It can be really difficult to break up time spent into realistic revenue streams. For example, you might be building a website and allocate x number of hours for design, but in fact digital end up picking up more. So really, you’d have to reassign that revenue. But at what stage do you do this?

Sometimes you might also apply a discount to a project. Where do you draw this from? Do you take it evenly from all departments, or is the discount applied only to one area? In which case, this can be incredibly unfair on hardworking team members if you’re then saying they haven’t brought in enough revenue on a project.

Driving your decision making

Going back to my earlier question: why do you want to do this? And here I mean, what will you do with this information? Are you going to say your design studio brings in less revenue than your digital team, or your copywriters are bringing in less than design? Because unless you want to simply stop offering these services (which is very difficult for a full-service agency), the information won’t really get you anywhere. If you do decide to reduce your headcount, it’s very likely you’ll simply have to replace team members with more expensive freelancers anyway.

Really, it’s about getting your capacity forecasting right. And the best way to do this is to use charge codes. Nailing down if you’re selling the right hours and have the right number of team members – and possibly freelancers and new recruits – is a much more accurate way to keep your processes tight.

Phase crazy

Let me give you an example of why departmental reporting can be hazy, to say the least. You break down each project into phases, and you have a number of teams working on each phase. If you’re monitoring exact revenue per department, you need to have a phase for each deliverable for each department.

Using pre-production, production, and post-production as an example. If you have three teams working on the project, each deliverable will need three phases. That’s nine phases just for one project… not easy for anyone to navigate.

Yes, you need to know how much profit each job is making and if you’re estimating correctly. But the type of insights you’d get from this kind of reporting will likely not be very accurate and won’t particularly drive good decision making. If your studio doesn’t bring in a high proportion of revenue on each project, are you really going to get rid of it?!

I would never say never, and if this is something an agency really wants then it’s certainly not an impossibility. But I’d always challenge the reasoning. If, as in most cases, it’s to determine whether you need more team members, then capacity reporting is going to be the most accurate way forward. Setting your own departments up in direct competition with each other can actually be quite a demoralising way for them to work. And doesn’t promote a collaborative ‘one team’ environment.

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