Annual variations: Just as you adjust wages for inflation annually, you need to do the same for your overhead. That can mean, for example, acquiring additional servers to make sure all your clients’ operations are running smoothly.ĥ. Customer Business Practices: As a service provider, you know that most times you’ll go the extra mile to cater to your potential or existing customers’ business practices. These types of preferences could easily lead to renting more office space for a certain period of time, and will generate variable overhead costs for your agency in the short to medium term.Ĥ. Customer Operating Preferences: Try to image that same client overseas has preferences that you didn’t expect prior to closing the deal-such as allocating your entire delivery team within one isolated office space to ensure maximum collaboration and privacy. This, too will become your variable overhead.ģ.
You’ll start investing more in travel, equipment, maybe satellite office space, maybe new software licenses. This project could be a three-year contract. Location: Imagine you land a new client overseas. That could mean buying new licenses, rapidly acquiring new knowledge, or getting more sophisticated tools.Ģ. Agency Service Types: Say next quarter you decide to start offering a new service that you think you could sell to client or two. Here are some more factors you may want to consider that will influence your agency’s overhead variability:ġ. Whether it be acquiring new knowledge and skills throughout the process or really winning that new deal, pitching can be a win-win for your agency if you start including this expense into your overhead costs. Neither should you.Īgencies with a growth mindset see pitching for a new project as an investment. Sure, they may be saving money in the short run, but in return, they don’t compete with other agencies and surely don’t get as many opportunities to expand their business. But how about all those agencies that do pitch for new projects? Is it that those agencies do that same work for free? Probably not. marketing and sales activities, event and networking organization, training, education, etc.)Įxample: Some agencies decide not to contribute to pitches for new projects or clients because using time on pitching is too big of a non-billable expense for them. Unlike different industries, it’s essential for agencies and service providers to see parts of their overhead as variable investments for their long-term growth (e.g.
We’ll start off with the basics of agency overhead and help you understand the benefits of having all your company’s expenses, data, resource planning, and communication in one place. You’ll never get rid of these expenses, but you can reduce them by planning, monitoring, and deciding to see certain costs as investments. Whether business is running smoothly, or most of your staff suddenly switched to remote work, overhead is unavoidable.
Keeping a close eye on your overhead costs (and otherwise non-billable activities) helps you rethink the rates you’re charging, the quality you aim to deliver, and the growth you desire to achieve. Why? Because overhead greatly affects agency profitability.
However, agencies generate many non-billable expenses that must also be labeled as overhead. Yet, in the agency and service business world, is overhead only what we commonly believe it to be? We’re talking about workspace rent, utilities, cleaning services, office supplies… All those expenses do fall into a typical company’s overhead bucket.