Among many KPIs at your disposal, there’s a vital metric that often goes unnoticed yet is crucial for your agency’s financial health: the recovery rate.
Recovery rate provides a clear lens through which you can view how effectively your team’s time and effort are being translated into revenue-generating activities. A strong recovery rate means you’re maximizing your agency’s billable potential, ensuring that every hour worked moves the needle in your favour. In contrast, a lower rate signals that valuable resources might be slipping through the cracks, invested in tasks that, while necessary, don’t directly contribute to your bottom line.
What’s Recovery Rate and Why It Matters?
Picture you’re fuelling up for a long drive. You need fuel to keep going, similar to how your agency needs your team’s time to power through projects. But what if not all that fuel is actually propelling you forward? Some of it just evaporates. That’s akin to when the time spent by your team isn’t translating into billable work. The recovery rate measures precisely how much of this ‘fuel’ is pushing you ‘miles,’ or in our context, how much of your team’s effort is directly feeding into your bottom line.
Aiming for a recovery rate around 90% is the norm within our UK industry. This signifies that 90% of your team’s time is billable and contributing to your revenue, leaving the other 10% for necessary activities like admin, training, and meetings.
Why Aim for 90%?
A 100% rate might seem ideal, but striking a balance is key. You want the bulk of your team’s time to be billable while also investing in the non-billable activities essential for growth and innovation.
The Bottom Line Impact
Consider an agency with annual revenues of £1 million. Boosting the recovery rate from 80% to 90% could potentially add another £125,000 to your profit margins, assuming a direct link between billable hours and revenue. This illustrates how small efficiency gains can significantly enhance your agency’s profitability.
Take a look at this case study
Let’s look at a common scenario faced by many agencies. A digital marketing agency, after a period of stagnant growth and declining profits, decided to scrutinize its operations. They found their recovery rate to be around 75%, well below the 90% benchmark. By adopting better project tracking tools, refining project estimates, and enhancing team efficiency, they managed to boost their recovery rate to 88%, leading to a 20% profit increase without expanding their client base or significantly raising prices. The key was optimizing existing operations.
Boosting Your Recovery Rate
- Track and analyze: Employ project management and time tracking tools for clear visibility on where your team’s time is spent.
- Set clear expectations: Ensure your team understands the value of billable work while also fostering an environment that values creativity and innovation.
- Optimize non-billable activities: Organize training and other non-billable activities during slower periods, or find ways to make these billable.
- Review regularly: Incorporate recovery rate tracking into your monthly review process to spot trends, solve issues, and acknowledge improvements.
- Ensure correct budgeting and scoping: Accurately scope and budget for client projects. This involves setting realistic timelines and deliverables that align with your team’s capacity to ensure projects are profitable and manageable.
Improving your recovery rate is a strategic choice towards a more profitable and sustainable agency. It’s not merely about enhancing numbers; it’s about creating a more efficient, productive, and content workplace. Balancing profitability with a supportive work environment and growth opportunities is the true mark of success
Get in touch
Dealing with the intricacies of recovery rates, project budgeting, and operational efficiency is something we specialize in. We offer Virtual FD and outsourced finance department services tailored specifically for agencies like yours. Working with our portfolio of agencies, we’ve seen first-hand the transformative impact of optimizing these areas. Let us help you navigate these challenges, freeing you to focus on what you do best: delivering exceptional service to your clients.
