The Fleeting Relevancy of Agency Timesheets
Forty percent of CEOs across various sectors believe their companies will no longer be economically viable a decade from now if they maintain their current path. (26th Annual Global CEO Survey, PWC)
Agencies are not immune to this same reality, especially those that continue to sell billable hours as their revenue model.
Many agencies see the writing on the wall and have bravely embraced new ways to generate and scale revenue that do not revolve around billable time. No longer are these agencies in the business of selling a limited number of work hours. Instead, they are now monetizing an unlimited inventory of intellectual capital, as described by my friend and colleague, Tim Williams, in his article, "For the Agency Business to Live, the Billable Hour Must Die." This direction is where our industry needs to go.
In these revenue models, an agency's intellectual capital is packaged and promoted as solutions, programs, and products; this is known as a productized business model. Pricing is then based on the perceived value of those offerings rather than the hours that go into delivering them—value-led pricing, as Williams describes it. Billable time is not central to a productized approach, so agencies can scale revenue without hiring more people, and value-led pricing optimizes their profitability.
Because these agencies no longer require time tracking to bill clients, they ask, "Should we still use timesheets?" But this question brings them to another question they must first answer: "How can agencies effectively manage engagements without relying on timesheets?"
This question will seem logical for anyone who has worked in an agency, but it's the wrong question. The right question is this: "How can we reinvent how our agency functions?"
Rethinking the value of timesheets
For as long as agencies have used timesheets, they've known the related data is inaccurate. That's just one of many reasons to do away with the practice. The most important reason, however, is that timesheets were initially intended for a different time and business environment, guided by a belief system distinct from the productized service, revenue models, and pricing methods more agencies are adopting today.
In an informative post by payroll solutions provider Gusto about the history of timesheets, the author explains that timesheets are rooted in the labor theory of value.
The labor theory of value: The economic value of a good or service is determined by the total amount of labor required to produce it.
The labor theory of value and practice of using timesheets date back to the late 18th and early 19th centuries and are tied to a traditional, industrial view of labor stemming from the Industrial Revolution.
At that time, businesses began to use timesheets to monitor and control their workforce's productivity, enabling them to track how much time employees spent on their work and providing a basis for determining pay, particularly for hourly workers. The concept of value was directly proportional to hours worked and the quantifiable physical products produced.
These practices were not designed for creative and marketing agencies employing salaried knowledge workers. Indeed, these outdated beliefs do not consider "value" as a solution to a problem, a favorable business outcome, or an output that helps a client achieve a goal. They do not consider the value of intellectual capital and how expertise produces additional benefits, such as fast delivery, reduced risk, and innovation. The outputs from expertise are worth far more than the contributing hours worked. Timesheet data no longer equates to value delivered. In truth, it never really has.
Agencies that adopt productization and value-led pricing use a very different set of principles. These principles are much more relevant for today and the foreseeable future of agencies. And that future does not need to include timesheets.
An operating model that doesn't use timesheets
An agency's operating model is meant to operationalize the firm's business strategy and execute the business model and revenue model, providing the operational scaffolding that allows the company to do this effectively.
The operating model determines the firm's organizational structure, management approach, communication and collaboration practices, process design, and technology. Ultimately, these areas work as a system to shape the firm's culture and how people work. When you optimize one part of the system, it can happen at the expense of others. And so when we introduce a significant change, such as a new way to generate revenue, we also need to redesign our operating model to unlock the full benefits and potential. If we were to hold on to timesheets because "it's how we've always worked," we would limit that potential.
So we still must answer, "How can agencies effectively manage engagements without relying on timesheets?" Specifically, the most common questions I hear from agency leaders regarding the disbanding of timesheets are:
How will we determine who is busy and who is not?
How will we know who is productive?
How will we know if we are over or understaffed?
How will we know the progress of a project?
How will we know if a project is on schedule?
How will we know our costs after completing a project?
How will we know if a project remains in scope?
How will we know how much budget remains on a project to inform decisions?
How will we keep people accountable?
Many of these questions arise because these agency leaders still think in terms of billable capacity.
In a billable-hours model, people need to be busy to bill hours. If they are billing hours, it's assumed they are also being productive.
In a productized model, people need to be effective, which happens best when they are not always busy.
Knowledge work, as agencies know it—strategic planning, copywriting, art direction, programming, and more—all require periods of "doing" mixed with periods of idleness for agency staff to release their best thinking. David Ogilvy knew this. In Ogilvy on Advertising, he shared that "Big ideas come from the unconscious. This is true in art, in science, and in advertising. But your unconscious has to be well informed, or your idea will be irrelevant. Stuff your conscious mind with information, then unhook your rational thought process. You can help this process by going for a long walk, taking a hot bath, or drinking half a pint of claret. Suddenly, if the telephone line from your unconscious is open, a big idea wells up within you."
This is how agency staff will do their best work.
Relaxing and enjoyable idling releases dopamine. As authors, Scott Barry Kaufman and Carolyn Gregoire explain in Wired to Create, "dopamine facilitates psychological plasticity, a tendency to explore and engage flexibly with new things, in both behavior and thinking," which can spur creativity.
When agencies adopt a productized model, they move away from the pressures of billable utilization targets as a performance measure. They can redesign their operations to ensure people have the proper time and environment to think, experiment with new ideas, mentor others, and pursue professional development. But this also means agencies will need new ways to measure performance at the company, team, and individual levels.
Measuring performance in a productized agency model
Agencies that adopt a productized business model must also adopt a client-centric and outcome-focused mindset. Both are foundational to designing productized services to ensure those offerings resonate with clients credibly and compellingly and boost the agency's pricing power.
Developing a focused positioning strategy is a fundamental first step for any firm considering a productized model. It gives the agency essential clarity on the problems it can solve for specific client types better than other agencies. The agency can build high-value products upon this structure, and the effectiveness of those products becomes the most important measure of performance.
Measuring effectiveness
In a productized model, measuring an agency's effectiveness in helping clients solve problems, achieve outcomes, develop new abilities, or achieve goals becomes the priority performance indicator.
Performance indicators for agency effectiveness in a productized model:
Did we solve our client's problem?
Did we create favorable business outcomes for our client?
Did we help our client develop new abilities?
Did our deliverables help our client achieve a goal?
For example, an agency specializing in brand activation and promotional campaigns could offer a productized service for experiential marketing. To measure this service's effectiveness, we can measure the number of engagements or interactions at an event, amplification on social media, leads generated, or a surge in sales directly linked to the activation.
The work of staff members contributes to the agency's effectiveness, but their own individual effectiveness should be measured differently based on the outcomes expected from each role.
Performance indicators for staff member effectiveness in a productized model:
Did I produce the outcomes that team members and clients expect from me?
For example, an account manager's work can be measured by team and client satisfaction, client retention, and the growth and lifetime value of their client’s account. These metrics reflect the account manager's effectiveness in maintaining and building the client relationship and ensuring team members are set up for success.
Everything else
The additional performance indicators I share here will likely seem familiar, but how I suggest you use them may differ from how you think about them today.
Measuring efficiency
Efficiency is still important in a productized model. The more efficient an agency and its people can be, the more quickly the firm can deliver value to clients. However, agencies will need to find the right balance between efficiency and downtime to promote innovation as a way to increase the firm's worth to clients over time.
The challenge here is that innovation and efficiency are opposite objectives. You can't increase one without decreasing the other. Blair Enns calls this "The Innoficiency Principle.”
Measuring Capacity and productivity
Capacity should be measured at the agency and team levels. Consider this in terms of “product capacity”—how many "products" can an agency or team deliver in a given time?
Productivity can be measured using throughput—the number of products delivered in a given time.
Project management and collaboration tools like Basecamp, Asana, Kantata, Monday, or ClickUp help manage tasks and deadlines and provide visibility into work-in-progress and accomplishments.
Measuring Staffing levels
Think of staffing levels in terms of “teams” rather than individuals—how many teams will be needed to meet our clients' demand for our products?
Typically, most agencies still use what I've referred to as the Hollywood method of staffing—casting and scheduling people for projects as new work comes in. Often, this means key roles like art directors and others are assigned to multiple projects, each with conflicting deadlines and priorities, slowing delivery, impeding collaboration, and causing rework.
A principal strategist at the Vancouver-based agency Invoke shared that when her agency assigned people to projects based on availability data derived from time tracking, she experienced the problems most firms experience with this approach. One example was developers opting out of project meetings for weeks while strategists focused on conducting interviews and research, leading to a lack of coherency in the team and extra time spent catching up. Even worse, it sometimes caused team members to go back and reinterrogate problems and priorities because, at times, part of the team was left out of the loop and no longer aligned with the project direction.
Assigning people to projects is costly and limits an agency's effectiveness. Other examples of these truths include the following:
Agencies often need to dedicate a person to managing and monitoring assignments across teams and projects ("resource management").
Each new project assignment
Multiplies the number of meetings for all team members;
Adds new lines of communication, increasing the risk of mistakes or rework;
Introduces new dependencies, increasing the risk of teams having to pause work while waiting for team members to become available from other project commitments;
Creates new admin tasks and communication overhead; and
Causes a higher risk of burnout across the firm.
Invoke switched to a model where whole teams are involved and invested in the process from start to finish without being distracted by time. I refer to these as "creative product teams."
Instead of assigning people to projects, agencies can assign fixed teams to their solutions, programs, or products. A productized model presents an opportunity to redesign teams and adopt creative product teams.
Forming fixed creative product teams unlocks several benefits, such as the following:
Functional silos are eliminated for greater collaboration, faster communication, and fewer meetings.
Teams continuously increase their effectiveness and efficiency, working together for faster value delivery to clients.
Teams continuously build their knowledge of and relationships with their clients.
Agencies can augment their staffing strategies with innovative on-demand talent platforms like Wripple. Wripple provides access to a marketplace of prevetted on-demand teams to make it easier to transition to this model and handle overflow needs.
Agencies may still track hours in some capacity to initially establish how long it typically takes a team to deliver specific programs or products, but this should be temporary and secondary to tracking outcomes and value delivered.
Measuring Project progress and on-time delivery
Timesheets were never really helpful here. Hours worked on a project are not an accurate measure of a team's progress, how much work remains, or whether they will deliver on time. Agencies can still rely on scheduled dates and milestones for this purpose, but these are lagging indicators.
Agencies should also use leading indicators such as time to first review and process cycle time.
Time to first review: The time it takes for a client to see the first version of work to provide feedback, beginning from the moment they submit a request for the work to the moment they receive the first version.
Process cycle time: The time it takes for a piece of work to move through a single stage of a team's workflow (or process).
An even better approach would be to break engagements down into work cycles (or sprints) and use team-level metrics such as planned/completion ratio and throughput.
Planned/completion ratio: The amount of work a team plans to complete in a work cycle vs the actual amount of work they complete.
Throughput: The number of completed pieces of work passing through the team's workflow in a given work cycle.
Project management and collaboration tools can again help here by providing transparency into a project's progress.
Measuring Project costs and scope
When designing productized services, agencies should be very clear on the scope included under each program or product and the estimated time to deliver it. Remember, though, value-led pricing prices the perceived value of the offering, not the hours to deliver it.
Again, it's fine to use timesheets for establishing a baseline level of effort to help with forecasting and determining the agency's product capacity but not for tracking costs. Time is no longer a cost against a project in this model. Rather, the salaries of your people are the primary costs that can reduce your margins; you will continue to pay those salaries regardless of the hours spent on a project. Still, on-time delivery is important because late projects can reduce your firm's product capacity.
Agencies can again use project management tools to monitor projects and track requests for additional scope beyond the defined program or product.
Measuring Budget usage
Hours are not attached to project budgets in a productized model. However, as mentioned above, designing productized services includes establishing predefined scopes and baseline levels of effort. Agencies can allocate the total effort or hours to milestones or work cycles to help determine their investment level at certain points in a project.
Ensuring Accountability
Wesley ter Haar, co-founder of the global agency Media Monks, shared that "no one at Media Monks has ever filled out a timesheet," and that "we're more focused on delivering the best possible quality within the deadline that's available. There's a shared ambition. We have X amount of time as a group, and we want to get a certain result. How are we going to make that happen operationally within that time box?"
When an agency adopts a client-centric ethos, a focus on outcomes, and a creative product team model, organizing engagements into time-boxed work cycles, team members become accountable to and for each other and their clients rather than a timesheet, which is empowering.
What is most important for accountability in a productized model are operating model elements such as:
Clearly defined roles, responsibilities, and decision-making rights
Team-level agreements about how teams will operate together, communicate, share work, and make decisions
Team-level performance indicators
Regular retrospective meetings for teams to discuss how they can improve and an environment of psychological safety to ensure everyone speaks up
A centralized communication and collaboration hub to create transparency
Workflow and team capacity management software to provide visibility into real-time project status
What does this all mean?
A productized business model and value-led pricing will benefit agencies and clients.
Agencies can leave behind their time-based culture of utilization rewarding behaviors in conflict with the goal of delivering value to clients as quickly as possible, which is what agencies must do for clients to remain relevant. And they can adopt a more outcome-focused approach, modern management principles and team structures, and new lightweight tools and processes, all of which foster a healthier, more prosperous culture of accountability.
The shift away from timesheets is not just a change in practice—it's a paradigm shift for the entire industry, a bold move toward a future where a firm’s worth is measured not by hours but by the value it creates.
