Very often the main role of the Agency FD is to worry about overhead levels and suggest ways of controlling costs. Top of the list for cost savings is usually the freelance bill. It’s a tap which can be turned off quickly with a thank you, we don’t need you next week and we’ll give you a call when we get busy.
One of the advantages of writing this blog is that the discipline of writing down what you think on the page makes you think logically about what how your think Agencies should be managed. Some themes only become clear when you have to write them down.
Before I go on to explain mychange of mind about freelancers I’ve not let go completely of my old FD habits. I would still keep a running weekly total of the cost, by department, of the freelancers bill. I would still insist on signing off the cost and I would only do so after the department head has explained the absolute necessity of getting an extra pair of hands in.
That said I think a certain level of freelancers in an Agency can be a good thing. Apart from the fact that I now work on a freelance basis why the change?
1) If an Agency has no freelancers does that mean everyone in the business is fully utilised and revenue covered? More often than not it will mean there are people who aren’t. I think it’s a healthy sign of a busy Agency that needs freelancers to get work through the agency efficiently.
2) Can an Agency realistically have every skill-set on payroll? This is especially true for digital agencies where knowing where to buy specialist skills is probably one of the best skills to have in-house. Using freelancers and developing a supply chain of outsourced options is a vital part of managing an Agency these days. You can’t have all the skills in house and still be at maximum efficiency.
3) There’s a qualitative benefit of bringing in fresh eyes, fresh talent, to mix things up a little. Can’t show it on the accounts but it exists. It can also be a good way of recruiting someone who knows the Agency and can hit the ground running.
What should the right level of freelance be? There’s not a right or wrong answer to this question. Some Agency commercial models may rely on more freelancers than others. I think it’s a perfectly valid model; a smaller, tighter core team who pull in from a known pool of freelancers on a project by project basis.
For the more traditional agency what is the right level? From experience and gut feel I would be pretty comfortable in the 5% – 10% range. Any more and I would be looking at recruitment plans.
Just to prove I’ve not lost my FD mojo though here are some things you have to do to manage freelancers.
a) Keep a week by week freelance record and use it for your accrual. Freelance invoices are nearly always late.
b) Get your arrangements IR35 compliant. This is a whole other blog. All I’ll say here is control, direction and mutuality of obligation.
c) Make sure there is a form to sign off. There needs to be a bit for the numbers and a bit for the business rationale so that people are thinking about the costs and benefits of bringing someone in.
d) Keep an eye on trends. If you always need a developer or designer then look at recruitment.
With proper management having a sensible level of freelancers is a healthy sign for an agency. Making sure the right metrics for the agency for utilisation and recovery are in place will help ensure that freelancers are only brought in when necessary, when they will add extra margin by getting work out of the door. They can bring fresh skills and a different perspective and, importantly, can be turned off quickly if the forecast looks less positive.
The author, Simon Collard, has looked stern and quizzed many department heads about their freelance request over the last 18 years running Finance Departments. If you would like to talk to him about how to ensure using freelancers can be a positive thing for your agency please email him on email@example.com.