Calculating your agency’s efficiency? Use these 2 KPIs!

The average profit or margin per hour shows where the profits and losses can be found in your business and where adjustments need to be made. This is how you calculate your average profit per hour:

billable value per hour (a) / cost per hour (b)

(a): you calculate the billable value per hour by dividing the available budget by the number of hours worked on projects.

Imagine you sell a project for 16,000 euros. An employee works on this for an entire month, putting in a total of 160 hours of work. This means that the billable value per hour for this project is 100 euros. (160,000 euros/160 hours).

(b): for the cost per hour you add up all the costs for a particular employee.

This includes the gross monthly salary, costs specific to that employee such as an expense allowance and fringe benefits, and your general costs per employee (rent, electricity and internet). Then divide this figure by the total hours worked.

In this example, your employee costs your organisation 55 euros per hour.

If we input this data into the formula, the average profit per hour for the employee works out at 82% (100 euros per hour / 55 euros per hour).

However, not only the billable hours count but also how efficiently these are filled in. This brings us to the crucial KPI of performance. You can calculate it like this:

efficiency (a) x billable hours (b)

(a): efficiency is a measurable value that tells you whether you are working more quickly or more slowly than anticipated, ‘within’ or ‘over’ budget. You calculate this by dividing the invoiced value by the actual value for the same period.

Imagine you sell a project for 10,000 euros, representing 100 hours of work. An employee finishes it off in 85 hours, representing a total intrinsic value of 8,500 euros. The efficiency is therefore 118% (10,000 euros / 9,500 euros).

(b): billability is the number of billable hours versus the net capacity (= the number of hours that someone actually works) and gives an indication of the number of productive hours.

Imagine that an employee works for 3 full weeks, representing a net capacity of 120 hours in total. Every week, he holds a number of internal meetings, which amount to a total of 12 hours. The number of billable hours is 108. His billability for this period is therefore 90%. (108 hours / 120 hours)

If we put this data into the formula, then the performance of the employee amounts to 106% (118% x 90%).

Calculating KPIs is only the first step. Far more important are the insights that you derive from the figures.

A low yield per hour or performance may mean that you are selling projects too cheaply. Or that staff do not have the right skills to successfully conclude certain projects. And high results too can expose challenges.

In this blog post, we give you a glimpse behind the scenes and we explain why the KPIs differ between staff types. Keen to find out more? You’ll find the juiciest details in our e-book, including extensive calculation examples. We also explain how you can make adjustments to your agency to allow it to grow.