Charging clients for internal agency staff time

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Chip Griffin: Hello and welcome to another episode of the Agency Leadership Podcast. I’m Chip Griffin.

Gini Dietrich: And I’m Gini Dietrich.

Chip Griffin: And good news, everybody, the time we’re gonna spend on the podcast today doesn’t count. Learn more right after this.

Isn’t it great when there’s magic time that doesn’t count ?

Gini Dietrich: Yes. Kind of like magic calories.

Chip Griffin: Magic calories, Yeah. Those holiday party calories that you consume and they just don’t count because they were at a holiday party. Yep. So,

Gini Dietrich: Yep. On your birthday, Doesn’t count .

Chip Griffin: Birthday yep. Doesn’t count. Doesn’t count. Yep. Anything, Anything you do in Vegas doesn’t count. It stays in Vegas. true. Sadly, that’s not true with agency hours. No. And so that’s what we’re gonna talk about today and, and it’s actually based on a conversation that took place recently in a Facebook forum. And so Gini, I’ll let you kick it off since you’re the one who came across it as something for us to discuss.

Gini Dietrich: Sure. So the conversation is, or the, the question really was, we’re spending, we’re, we’re capturing our time thanks to project or to a time management system, which is great. But because of that, we’ve realized that we’re spending thousands of dollars a month on more administrative tasks like emails and Slack and meetings .

We’ve been doing weekly meetings and team check-ins every other week, and we’re estimating a minimum of 30 minutes per week per team member on the account just to check Slack and email. That adds up. And as such, we’re considering rescoping clients with this in mind. We think we’re gonna lose some clients as we capture this cost because retainers could double.

Does anyone have any wisdom on this point?

Chip Griffin: Indeed we do. I mean, I don’t know about the, the online group, but, but you and I certainly have some wisdom to offer here. I mean, obviously, you know, you can take it with a grain of salt, but it, look, this is an important topic. We’ve talked in the past about the importance of understanding what it costs you to service a client, and part of that is time tracking.

And we all hate it, but you have to do it, and you have to capture all the time because that’s the only way that you can figure out what your true profit margin is. So great. We don’t love it, but the results are, are, you know, what we need because we’re tracking those expenses.

Gini Dietrich: Yeah. I mean, I agree. You know, and nobody loves to track time.

Nobody loves to put those hours in. I think we’ve talked about the fact that lots of people will kind of fluff the hours, or, you know, not do it entirely correctly because they feel like they have to add more to get to a certain amount, or they have to take away because they spent too much time on things.

So it’s not a perfect science. Understanding that you still have to have a baseline of where people are spending their time and how much time you think it’s going to take to do certain things, because otherwise you can’t correctly project projects or plans or proposals for clients because you don’t know. So you have to have that baseline of understanding so that you know you’re likely spending thousands of dollars a month on the things that client should be paying for.

Chip Griffin: Yeah, and look, it doesn’t need to be, I mean, this isn’t Churchill Downs. You don’t need to get down to the hundredth of a second and know exactly what it is that was spent. But you need to have a, a pretty solid and accurate understanding of the amount of time that you and your team are putting in, in order to service the account, because otherwise you simply can’t price correctly.

And, and so that’s, that’s clearly the exercise that this agency owner is going through, and it’s an important one. But of course it, it can be a problem when you find out that you’re effectively substantially over servicing accounts. And, and so it means that you’re dramatically undercharging the clients and, and resolving that is not an easy thing to do.

Gini Dietrich: It’s not, and actually I just went through this with a client where we spent about two and a half years resolving all that. So it, it took a significant amount of time and we went month by month and we said, Okay, in March we’re gonna reduce, we’re going to reduce over servicing by 5% and we’re going to increase retainers by 5%, and we just boom, boom, boom, boom, boom, boom, boom, boom.

And it, like I said, it took two and a half years, but now they’re at the point where their retainers are what they should be being paid. They’re not over, I wouldn’t say they’re not over serviced. They’re not over servicing as much as they were. And it’s come back to a level that, that it should be.

And they’re getting paid for all of the ancillary things like slacks and emails and meetings and things that they weren’t getting paid for for before.

Chip Griffin: Right. And. Sure. You know, it, it starts as we always talk about, whenever we’re talking about price increases of any kind. It starts with new clients, right?

Yep. So take this information that you have. And that you haven’t been accurately capturing that internal meeting time and the behind the scenes work. And, now that you’ve figured out, Okay, I need to capture this and I have a pretty good handle on what it takes, you know, how many hours that’s going to add to our estimates.

Now we can start pricing more accurately for new clients. So that’s the first thing to do, is take this information and run with it on those new accounts so that you’re not starting off from the wrong place. So, solve that problem first. Then you start to figure out, okay, how do I correct it with the existing clients?

And it is a slow process as you’ve pointed out. It may take some time to get there. There are different ways that that you may need to adjust to it. Simply going to the client and say, Hey, we’ve been spending all this time that we didn’t realize we were spending , but we’re not gonna change the results we’re giving you, but we wanna double your right retainer.

Gini Dietrich: Right?

Chip Griffin: That’s probably not gonna work. No, I haven’t met many clients that you can go to and say, Hey, I’m not gonna do any more work, but I’m gonna charge you twice as much for it. That tends not to go over too well.

Gini Dietrich: With anyone, not just clients. You wouldn’t like that either, right?

Chip Griffin: I mean, that doesn’t mean that, that you can’t sit down and have an honest conversation with them, particularly if you know, if you can look at the work that you’re doing for them and, and without bringing up that you’re not tracking your internal time correctly or you haven’t been previously, if you can look at the original scope of work that you’ve presented to them.

And you can make a legitimate case that you were going above and beyond that original scope. Now you have something that you potentially can talk to the client about and, and potentially find a way to maybe not double the retainer, but at least get it, you know, more correct in the ballpark of what you need.

Because that’s something that’s, that’s more achievable than simply saying two x for the same.

Gini Dietrich: Yeah, I agree with that. And there have been times we’ve had to have that conversation with clients to say, Hey, listen, this was the original scope of work. We love working with your team. My team has not, because of that, my team has not been great at saying no, and here’s, here’s all the extra work that we’ve been doing.

And in most cases, they, they’re willing to work with you. We haven’t been able to double retainers, but there have been some cases where they’ve said, Oh, you know, it’s that time of year anyway. We should talk about giving you a bump in, in retainer or a bump in fee or whatever. Anyway, so let’s get that done.

And in some cases they’ve said, Oh man, you’re right. We kind of got off track. Let’s go back to that original scope and tell me what that would cost. And so even we, even though we weren’t going to quote unquote make more in a monthly retainer, we were able to sort of get some stuff off of our plate.

Chip Griffin: Right. So you, you’ve improved the effective profit on that, and so now you’ve been able to, to take that time and potentially then go sell it to somebody else. Yep. At, at its fair market value. Yep. So that is still a win. It, it’s not necessarily always that you get more dollars. It may be that you constrain that scope so that you get to a place that, that makes more sense for you and for your business.

But, but let’s talk for a minute about some of these internal conversations that are taking place because, you know, it’s also one of those things where yes, you have to track it correctly, but at the same time, you don’t wanna become penny wise, pound foolish, where you say, Hey look, we can’t have a conversation about this because you know, we, we didn’t account for this.

Right. So that’s, because there are different extremes that people tend to go to when they look at this and they’re like, Oh my God, wow. We’re spending so much time internally working on this client brainstorming things, having management meetings about it. You know, the, the solution is, is not to to go price correctly, but it’s to just stop having these meetings.

There’s value to be had in those. And, and you need to make sure, you know, if Gini is managing me and I’m working on a project, Gini needs to talk to me about that project. You need to capture that time. But that interaction is important. It is valuable. It does add value in all likelihood to the client and their experience.

So you don’t wanna just knock it out and say, Yeah, we can’t bother to have these conversations. You don’t wanna say, Hey, we can’t bring the team together to brainstorm on this because, you know, it’s, it’s gonna cost us money. Now you probably should look at it and say, Hey, are we doing too many of these?

Right? Because there are some agencies where they just love to get together and come up with ideas. And it’s kind of fun. Everybody kinda sits around the table, and bounces things around and none of them ever happen. Yep. Okay. That’s probably not useful either. So you, you need to understand that anytime you’re putting people together, there is a cost to it.

And, and that can also help deal with meeting fatigue. Right. If I, if I schedule a Zoom call and I’ve got six people on there. I tend to sit there and, and say in my head, Okay, this call is costing me, whatever it costs.

Gini Dietrich: $2,000.

Chip Griffin: Am I, am I getting that value out of it? Right. Right. But how many times do we all sit on calls and nobody bothers to think about that?

Right. Right. You need to be thinking about that with your agency and and saying, Yes, this actually is, If I had a thousand dollars to spend, I would spend it by bringing these eight people together for an hour.

Gini Dietrich: The other thing I think we have to be cognizant of is travel time. Travel time to a client’s office, travel time to, you know, if you’re, if you’re getting on a plane to go to a conference or a convention with them, if you’re just…

Chip Griffin: What are these planes you’re talking about?

Gini Dietrich: Some people do that again.

Chip Griffin: I guess. Yeah, some people. I still haven’t, I mean, I used to fly almost every week for 20 some years and yeah, now I haven’t been on an airplane since March of that year.

Gini Dietrich: But even if you’re, if the client is down the street and you’re driving down and seeing them, absolutely.

Like one of this is the conversation I will have with clients is they’ll say, Hey, we’d really like you and your team to be at this four day event in New York during this week. And I’m like, Great, We would love to be there to support you, but it’s a project fee. And then they get all like wily, why on you?

Because they’re like, Well, no, no, you’re on retainer. And I’m like, Yes. But it wasn’t part of the scope. Right. And. If I’m away from the office for four days and three of my team members are away from the office for four days, that’s four days of work we’re not getting paid for because we’re with you. And so you have to help them understand that in our business time is actually money.

And in those instances, they should be paying for that.

Chip Griffin: Absolutely. And, again, this is one of those areas where there’s a happy medium because I’ve seen some agencies where the pendulum swings so far that they’re like, Well, you know, if we’re gonna do that, then you know, we need to charge all of the travel time.

But you have to sit there and say, Okay, well first of all, are you actually… I mean, you may actually be doing other client work during that time, so..

Gini Dietrich: Right, right.

Chip Griffin: You know, and charging for the time when you’re, you know, eating your own dinner, that seems a little ridiculous because you’d be eating dinner anyway. So, there is still a happy balance to be had here and I’ve seen some agencies go so far that it, it almost makes it cost prohibitive for them to, to be on site with a client and there is absolutely value in it.

So. You don’t want to just give it away, but at the same time, you don’t wanna make it so prohibitively expensive that it’s unreasonable, to actually continue to build a relationship that way.

Gini Dietrich: Right. Yeah.

So I think you do have to think about all the time that you spend. You know, I really think about it from the perspective of, is this time… should I invest this time because I believe that we’re going to get value out of it longer term, or is this time that we should be paid for because we’re gonna be on the road or whatever happens to be. And I have to make that decision. I have to make that determination. But I also think about it from the perspective of, okay, if I’m with them, that means I am not able to do X, Y, and Z. And what does that, what does that relate to? So, you know, I, I always joke that I feel really bad that I have a, a cleaning lady because I can clean my own house.

But it costs significantly less money to hire somebody to clean my house for me than for me to do it and lose that billable time. So those are the kinds of things that you should be thinking about. What kinds of things am I losing if I’m not billing my time for this?

Chip Griffin: Absolutely. And, that opportunity cost is a huge thing, particularly for agency owners because we’ve talked previously about how your time is the most finite resource that you have.

Yep. You can’t just go get more of it. Yep. And so, so really being intelligent about how you’re spending your own time absolutely matters. And, and I think, you know, one of the, the things that, that people tend to fall into when they’re looking at this internal staff time that we’re talking about is they say, Well, you know, this is, this is just, this is our cost.

This is, this is, you know, what we need to do to do the business. But it, if it’s being done right, it should be adding value to the client. And so if you’re having meetings that are about a client and yet not adding value to the client, then you have to ask yourself why. Do we have a broken process?

And so we’re really just having meetings to solve a broken process? Is there, is it a training issue? Is there something else there? But but more likely than not, you’re actually creating value for the client. You’re just not acknowledging it. Because things like project management absolutely has value to the client.

Now, if you go to the client and say, I’m gonna charge you a project management fee, that’s generally a non-starter, right? People don’t, right. They recoil at that notion.

Gini Dietrich: Yes, they do.

Chip Griffin: And, it’s like, oh God, you know, that’s, that feels like, you know, the fuel surcharge that we get on Uber or something like that.

Yep. Just, just don’t do it. Just charge me the fair rate. And, and so you need to build that sort of thing into the actual rates you’re charging clients. You don’t need to get in there and say, Well, this portion is to pay our electric bill and this portion is to pay for our income taxes. Right? You should never do that for a client. And, and your project management time and your internal team management time, same thing.

There’s no reason that you need to be discussing that with the client. You just need to be figuring out what it costs you to produce the desired results and this internal staff time can absolutely be an important part of that.

Gini Dietrich: Absolutely. Yeah. We always, we always look at what it costs for us to do business, and then we always put in…we don’t, we don’t line item it, but project management and account management and meetings and slack and emails and all that is accounted into the cost that they are paying.

Chip Griffin: And, one thing I would say on, on this particular example is, is if 50% of your time is on these internal meetings, I would ask myself why and am I classifying things as internal that really aren’t right? Because if it’s time spent writing a press release or something like that, I don’t really count that as internal time.

That really is client facing time, even though you’re not right actually talking to the client while you’re writing it. So make sure that you’re classifying it correctly, because if you do have an an unduly high percentage of your time being spent on more administrative and management things for a client, then that may be representative of some sort of other issue in either how you’re running the business or how you’re, you’re selling your services or something.

So if it… you know, that’s the only other thing that I saw in this particular question that you sort of raised a flag for me. If it’s, if it really is half of our cost is being driven by that, that’s a little bit concerning.

Gini Dietrich: Ah, interesting. Yeah, I, I didn’t consider that, but I think you’re right.

Chip Griffin: But my, my personal bet would be, it’s just, it’s misclassifying things as internal that may not be internal because I, it’s very difficult to have a client engagement where you’re, where you’re truly at 50% administrative and management. Right, Right. And project management, all that kind of stuff. If you are, then, you know, it’s probably that you’re, you’re not being ambitious enough in what you’re selling to the client.

Gini Dietrich: Yeah. That seems to be very, very, very tactical and then working on things that, you know, they should be paying for.

But you know, to her point in the question, they are not,

Chip Griffin: Sure. Right. And, look, I mean the, the reality is if, if you are over servicing clients in any way, whether it’s this behind the scenes stuff or otherwise, and you’re not charging appropriately, that’s not sustainable over the long term. So if you have to go to clients and address this issue, are you gonna lose some?

Yeah, probably. Yeah. But at the same time, if you can get yourself to a place where you’re generating healthy profit margins, it gives you that advantage to, to not be throwing away that opportunity cost that we were talking about before. Right. And actually investing in getting more ideal clients that are generating the kind of profit margins that you’re really trying to achieve.

Gini Dietrich: Yeah, and I will say that you know this, this is a great time of the year. We’re recording this at the end of September, so probably will, you’ll hear this at the 1st of October. It’s a great time of the year to start to have those conversations with clients because many of us will have scope of work changes at the start of the year.

Many of us will have new plans developed. Many of us will be going into a new year with new ideas and, and all of these things. So this is a great time to start to have that conversation. We’re also all facing inflation in a crappy economy and everybody’s costs are increasing. So don’t be afraid, you know, you certainly don’t wanna say we’re gonna go up by 50% or a hundred percent, but everybody’s expecting that their costs are going to increase, and this is a great time of the year to start to have that conversation.

Chip Griffin: And as we’ve talked about before, it’s generally better not to go in and do an apples to apples price increase. It’s better to, to go in and say, We’ve been doing apples, we should do oranges, and here’s what oranges cost. Yep. And so, you know, that shifts the conversation from, you know, were we undercharging for what we gave you before to here’s what we can do for you.

Here are the results we can produce and, and here’s what it’s gonna cost. So here’s what your ROI looks like. And so if you can shift the conversation entirely, you’re going to be in, in a much better position to reshape that scope of work than, than if you simply say, We wanna do the same thing and charge you more.

So I would encourage you strongly not to do that. Find some way. Because look, the reality is if we worked for a client for even as little as six months, we probably have a fresh idea of what we could be doing for them to help. Yep. And so we ought, we shouldn’t be shy about going to them and saying, You know, here’s what we can do for you in 2023.

What do you think?

Gini Dietrich: Yeah, absolutely. And I mean, we, a couple of years ago, just because of Covid and the pandemic and everything, we started going to quarterly plans and really at, you know, so we’ll start our Q4 or our Q1 plans in November. And we start, we have that. So we’re constantly having that conversation.

We’re constantly coming up with new ideas. We’re constantly coming up with new objectives and key results. Like we’re constantly doing that. So we’re part of the team and how they’re moving ahead versus saying, Okay, we’re gonna do this plan for a year and see how it goes. Absolutely. Because that’s where, where we find that we start to lose money.

Chip Griffin: We don’t like losing money. Losing money is a bad thing, making money, good. Losing money, bad.

Gini Dietrich: Nope. I like to make money.

Chip Griffin: And I think that will be our key takeaway today.

Gini Dietrich: Losing money, bad, making money, good. There you go.

Chip Griffin: So that will draw to an end this episode of the Agency Leadership Podcast. I’m Chip Griffin.

Gini Dietrich: I’m Gini Dietrich.

Chip Griffin: And it depends.