Managing and planning your resource is a vital part of keeping your agency profitable. Allocating ‘charge codes’ to your activities is a great way of forecasting capacity, assigning rates and assessing profitability. But what exactly is a charge code?
Think of managing your agency’s resource as being similar to managing stock. You need to know how much of each item you have, how much you’ve sold, what’s still available and what brings you the best profit margins. If you don’t know all this, you could easily over or undersell your stock.
But you’re not selling products. You’re selling people’s time. And when you’re estimating a job, you’re unlikely to know exactly which person will be working on the project. So essentially, you’re estimating the time required for each role involved.
This is where assigning categories — or charge codes — comes in.
Charge codes group together the activities you offer so you can assign the right hourly or daily rate for each one.
It’s a balancing act, though. Too many categories and it becomes very complex. Too few and you won’t have the right data to inform decisions.
You team will need to be able to choose the right category to use for estimates and timesheets, so you need to keep it simple and straightforward if you want to get the right data.
First, identify the key activities or roles your agency performs and group them together. For example, design, copywriting, project management, marketing direction.
Then you can decide your charge-out rate for each code. These could be:
- A flat ‘blended’ rate (either the average rate or highest possible rate for that activity)
- Different levels based on experience, for example junior, mid-weight, senior, director
- Based on specialisms – for example a type of developer.
Ultimately, this then becomes your agency’s rate card.
You could also calculate and assign a ‘charge cost’ to each charge code, so when you estimate a job, you can estimate profit at the same time.
When the project’s finished and you know exactly who worked on the job, you can calculate the actual profit based on the true staff costs using their timesheets. See How to accurately calculate an employees’ cost rate (aka profitable cost per hour).
You can either use a system like Synergist to automatically calculate estimated and actual profit on your jobs or set up a spreadsheet and do the calculations yourself.
Remember your non-charge codes, too.
Inevitably there will be some non-chargeable costs attached to a project. You could create ‘non-charge codes,’ for these, so you can track activities and identify potential profit leaks. Again, keep it simple and think about what you want to analyse. I recommend as few categories as possible. For example:
- Business building: marketing, new business etc
- Professional development: training, courses, mentoring
- Admin: general admin and meetings
- Absence: holidays, sickness, maternity/paternity leave and other absence
Soon you’ll have a steady supply of accurate data, which you can use to forecast capacity requirements and make better-informed decisions. Which in turn, can help keep the profits flowing.