The State of Agency Operations Report: Make your agency run smoothly with these 5 takeaways

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How would you describe your agency’s operations right now? Chaotic? Falling short? Missing a little something (organization, transparency, alignment)? If you recognize room for improvement, you’re in good company with two-thirds of the agency leaders who participated in our recent agency operations research.

With so many external and internal factors impacting agencies right now, we wanted to establish a year-over-year deep dive into the state of agency operations to give agency leaders like you a clear pathway to operational excellence, plus an opportunity to compare and contrast your processes with your peers. 

We know you’re short on time, so we’ve compiled our top five takeaways from the report below in an easy-to-skim format. Read on to see how your agency stacks up.

1. Most agencies lost clients in the first half of 2023

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Over 75% of agency leaders told us their agencies lost clients between January and June 2023. If your client retention rate was 100% during that time, you were in the minority amongst agencies. Keeping clients is tough these days, especially when some pretty substantial forces pull them away — marketing budget cuts, internal misalignment, mergers and acquisitions, and more. There’s a lot out of your control as an agency, but if you reflect on the clients you lost this year, you can take steps to keep current and future clients satisfied. 

The solution? 

As Director of APCO Worldwide, Jason Ewing, touches on in our Agency Life podcast, one way to combat client churn may surprise you: Invest in your team. By anticipating client needs far in advance, agencies can seek out and hire skilled team members with deep technical expertise or industry experience to knock projects out of the park. 

Satisfied clients are far more likely to sign up for more work or recommend you to other industry contacts.   

2. Two-thirds of agencies say their projects come in over budget at least some of the time 

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Only one in 10 agency leaders say their projects never or almost never come in over budget. That means most agencies are losing money by the end of a project lifecycle, whether it’s because of scoping issues, pressure to meet client expectations, operational disorganization, or other bumps in the road. 

When budgets are loose, agencies can get into sticky situations, like overservicing clients, which one in three agencies say they frequently do. Over half of agencies get stuck overservicing to keep clients happy, and about one in three do it because they’ve failed to address scope creep with clients or have a hard time saying no. Can you relate? 

With short-term profits and long-term stability at risk, agencies must have ways to head off budgeting issues before they become major roadblocks.

As Shauna Nuckles, Founder of Advocation, explains below, overservicing clients by as little as 10% can be the equivalent of working the whole of December for free.

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The solution? 

“There are two underrated best practices to battle misaligned client expectations. Firstly, avoid miscommunication or a lack of consistent communication (especially at key milestones like onboarding, strategic planning, campaign endings, etc.). Secondly, establishing more clarity in the sales and onboarding process to ensure clients that aren’t a good fit are eliminated by your sales team during the qualifying process.”

~ Shauna Nuckles, Founder of Advocation 

When agencies are in the middle of workflows, it’s easy to get swept up in the inertia of alignment meetings, client reviews, deadlines, and handoffs. But it pays to reassess your process and ensure you’re preventing these issues, especially assessing how your agency navigates client expectations.

3. Only one in three agencies’ employees submit time-tracking data on time, most of the time

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When it comes to how often agency employees submit their timesheets, there doesn’t seem to be a one-size-fits-all approach, and few have access to data on time, most of the time. Considering 77% of agencies are actively tracking employees’ time, there’s a significant gap between having a system in place and being able to use that system to its fullest capabilities. The longer employees go between doing the work and logging their time, the higher the chance of inaccuracies. Bad data can pose serious operational problems, such as underpriced proposals, impossible project timelines, poor utilization, inefficient resource planning, and overestimated profitability. 

The solution? 

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As Marcel Petitpas, Co-Founder of Parakeeto, mentions above, there are a few reasons why an agency might choose not to track time. But for those that do, it's time to persuade your people to log those hours promptly so you have full access to your data.

Step one in resolving ineffective or delayed employee time tracking is to get everybody on the same page. Agencies track time differently, and that’s fine. Regardless of whether you track billable vs. non-billable, down to the minute or in 15-minute increments, everybody needs to be rowing in the same direction. Ensure everybody on your team knows:

  1. How often they should be tracking their time (hourly, daily, weekly). 

  2. How detailed to be with their submissions (projects, tasks, subtasks). 

  3. What metadata they need to capture (tags, descriptions, etc.). 

Every employee should track their time as outlined in your answers to the above questions. That way, you have the data you want when you want it, and there’s no need to cross-reference or follow up with individual entries. 

4. Only 15% of agencies always reach billable vs. non-billable time targets

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Our research shows that agencies are trying very hard to establish metrics and aim for higher productivity and profitability, but they’re struggling to reach them. If you can relate, what’s getting in the way of hitting your goals? Are agency leaders measuring performance against these targets? Are they having conversations with managers and team members about these issues? It can be quite challenging for an agency to stay profitable when it's not achieving the ideal 70:30 billable vs. non-billable ratio. 

One in two agencies also struggles to achieve average billable utilization benchmarks over 50%, meaning many agency team members are falling short in contributing the billable hours necessary to keep an agency profitable. 

“Your goal for utilization is 60% of the total hours. Why those numbers? First, the billable people have to cover the costs of the non-billable team members. That is why you can only afford one non-billable person (someone who bills less than 50% of their time) for every five employees. Second – you shoot for 75% billable/60% utilized because not every billable hour is going to get charged to a client. There are several reasons for that, but it most likely comes down to overservicing clients, inaccurate estimates, or inefficient work time.”

~ Drew McLellan, agency owner and CEO of Agency Management Institute 

The solution? 

Tipping your overall agency hours into 60% billable territory is necessary to stave off the frequent ups and downs you’re probably experiencing and get to more solid ground where you can focus more on growth. Our top tips include: 

  1. Scope accurately and generously. It’s better to build extra time to the scope than to undershoot it and scramble from behind. Adding an extra 30% on the top to accommodate setbacks, delays, and realignments is vital. 

  2. Maintain a ratio of one employee focusing on non-billable work to five working on billable. It’s a built-in safeguard for keeping your billable hours at your target. 

  3. Stress the importance of billable hours, train staff to monitor their contributions, and create a culture that keeps billable hours at the forefront of your agency's activities

  4. Cultivate billable mindsets amongst your team members by setting expectations (e.g., “Carla, you have eight hours to design this PDF. You can deliver a high-quality report in that time; there’s no need to spend 12 hours on it.”) 

5. Most (71%) agency leaders are struggling with burnout  

When we asked 40 agency leaders to tell us about their experience with burnout, we learned that the mileage may vary, but all agreed there are steps you can take to prevent this nearly universal challenge. Our research adds another layer of insight, showing that many agency leaders struggle with burnout, and operational challenges may be a culprit. 

Only 36% of agency leaders who participated in our study say their operations run like a well-oiled machine, and over 70% confirm they feel burned out. Nearly half (46%) of agency leaders work more than 40 hours weekly, increasing their risk of burnout. Long hours, too many responsibilities, and fixing the problems inefficient operations create would leave anybody in a tough spot. The moving pieces are not moving well together just yet. 

But agency owners have always been a resilient bunch, and with a few minor adjustments, we believe agencies can turn the corner on their operations. 

The solution? 

“If they don’t have the right approach, anyone working in an agency can burn out at any time. It can happen during a recession or when times are the best they have ever been. It is probably more likely to happen when an agency is really busy, but it’s important to realize you are always going to have busy weeks and slow weeks. It’s all about organizing your time, energy, and projects in a way that works best for you and your clients.”

~ John Lincoln, Co-Owner and CEO of Ignite Visibility 

Rest assured, there are plenty of ways to stop burnout in its tracks. 

  1. Create balance for your team members. By streamlining operations and offloading administrative tasks to the appropriate people, you free up time for everybody to be productive and work on the projects that fulfill them the most. 

  2. Treat everybody like individuals. Everyone at your agency has different personalities, perspectives, wants, and needs. One of the best ways to prevent burnout is to meet people where they are. 

  3. Ensure everybody has plenty of time to rest and be away from everyday responsibilities. You can incorporate that through unlimited vacation time, one-on-ones just to check in, no-questions-asked mental health days, built-in agency-wide breaks throughout the day, or other sanity-preserving options. 

  4. Communicate openly, honestly, and thoroughly both internally with your team and externally with clients. Exceptional communication can prevent misalignments and miscommunications, which tend to cause stress, delays, and bottlenecks. 

  5. Automate as much as you can. The more smoothly your systems run, the less pressure on your team. 

  6. Offer support outside your HR department, such as counseling services or coaches. Knowing they have somebody they can talk to and receive help from can prevent or reduce burnout amongst your staff. 

Ready to master your agency operations? Access the full research report now 

Despite agencies' many challenges – client and employee turnover, difficulty keeping projects on budget and schedule, and operational inefficiencies – the future looks promising. Nearly two in three agency leaders anticipate their agencies will be more profitable in 2024. But how do you get there? 

Agency operations require maintenance and working parts to run smoothly, and reaching well-oiled status is hard with all the forces agencies have to deal with. With a little time, energy, and intention, your agency can address the challenges and alleviate your operations-induced stressors.  

Download The State of Agency Operations to learn how to improve your agency operations, so employees have what they need to do their best work, clients are satisfied with the work you’re doing for them, and your agency can be successful. 

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