5 minutes to save money, gain critical insights and plan for the future? Seems way too good to be true doesn’t it?
Well, if you’re reading this and you’ve started up your own agency this is very possible. Even easy.How? Here goes.
You’ve probably made the decision to use a cloud accounting solution like FreeAgent or Xero. You may even have some external bookkeeping help from an accountant.
What I want to show you is how, in 5 minutes, you can work out a Finance Director insight yourself. You’ll save yourself money. You’ll understand how your business is doing and you’ll even begin to work out the big “What if” question when it comes to hiring the next employee.
How do you do this? Simple – you work out your revenue per head. For the month you’re in take your revenue, divide by your headcount and multiply by 12 and you’ve got your annual revenue per head. For the year to date performance take the cumulative revenue do the same calculation but divide by the number of months into the year you are.
Simple calculation but profound insight. If you know how much you should be generating you’ll have an insight into either how busy you are or how efficient (or not) you are at turning your team’s time into revenue.
For what you should be generating take your headcount and multiply by your daily rate(s) and by the number of working days in the month (or you can assume 20%) and finally by how much client work (as a percentage) you expect to do. This is a snapshot of your commercial model.
If you’re busy and your revenue per head is above target and you have a healthy pipeline then the next big step of taking on another employee is a little more comfortable.
If you’re not busy and your revenue per head is well below target unless you have a healthy pipeline you may have too many in your team already.
Now whilst there is still a vital role for consultants like me in looking at why the revenue per head is where it is and what you can do about it you can save yourself money in the vital early stages by looking at your business in this simple, insightful way.
If you’d like to build on this knowledge to manage your Agency better then you can sign up to order my forthcoming book “A Short Guide to Agency Finances” at www.novemberfriday.wpengine.com