Ecommerce Agency Owner Mistakes - Overservicing

Most agencies owners I speak to tell me they need help with sales, but as soon as I do a quick calculation it's obvious that sales are rarely the issue - overservicing is! Overservicing is the top reason why most agencies don't make as much money as they should and could be! I say should because you're already doing the work, so why not actually get paid for it - unless you want to run a charity of course! 

Most agencies owners are so caught up trying to land that 'whale' of a client when they should be more focused on making more money for the actual work they're already doing. If you're not sure how much work you're currently doing for free, it's actually a pretty simple formula (numbers never lie!). 

Calculate how many hours your billable team have in total per week (billable team means they're paid to do client work rather than being responsible for finances.) For example, you have a team of 10 but only 6 are billable team members (developers, project manager, designer etc) that work 7.5 hours (excluding their lunch break), therefore you have an average of 975 billable hours per month (6 team members x 7.5 hours per day x 5 days per week x 52 weeks per year ÷ 12 months).

The truth is it's simply not possible to run an agency at 100% billable hours, especially when you factor in holidays, sick days, training days etc, so to keep things fair let's calculate the total available billable hours each month at 65-75% (recommended billable target for agencies). 75% = 731 and 65% = 633 billable hours available each month. Now, let's say your average hourly rate is €100/hr (or an average equivalent in your currency), that means your agency should be hitting between €63,000 and €73,000 per month. 

Stop reading this for a minute and use the above formula to calculate what your 65-75% should be. How close are you to that right now?

As an agency owner, your number one responsibility is to stay on top of the profitability and revenue of the agency. If you're so caught up handling project management, chasing invoices, frantically trying to get deals over the line to make sure monthly overheads are paid for, at the expense of knowing these numbers, well I'm sorry to break it to, but you're doing something wrong.

Sure, there are many reasons behind over-servicing such as poorly scoped projects, bad estimates (FYI - estimates should always be x 1.5 - 2), misinformation from the client throughout the sales process, clients not getting information back to you in the agreed timeline, poor internal or external communication, team members not being aware of the agreed scope/timeline/deadline, not enough work to keep all your billable team busy, no checklist for the PM to follow...the list is endless. 

If you're not tracking your hours, then start immediately. This is a huge factor in figuring out where overservicing comes in - sometimes it's a particular client (or 3) or it can be down to billable team members having too much 'admin' when they should be focusing on billable client work instead. It's just like brands that pour money into Google ads when their website isn't optimised for conversions. As an agency, it's your job to advise them on CRO measures that will boost the ROAS. 

Yet most agencies get so caught up with the hustle and bustle they don't practise what they preach. They're so busy working hard trying to get as much work into the agency when their process isn't equipped to get work through the funnel in the most profitable and efficient way. And let's not even talk about agency websites being the last thing on their list of priorities! 

Overservicing is not a quick overnight fix, and any agency owner who has tackled this head-on will be able to tell you that the trick to fixing this starts at the initial sales call. Correctly qualifying your lead and managing their expectations at the very start is critical. Coupled with processes and documentation, you'll quickly see your profit margins start to increase! And don't take my word for it, all of my agency clients have tackled this exact problem, and the results speak for themselves.

The bottom line is, overservicing is not a bad thing once it's managed. Every single agency should go above and beyond to help their clients, and yes that does require overservicing from time to time. But it should never be due to needing an invoice paid so desperately that you deliver a Taj Mahal service on a tent budget.

If overservicing is something your agency is struggling with drop me a line. Or if you'd like to join a group of e-commerce agency owners to discuss some of the challenges they have overcome or are facing you can sign up for the virtual event here: https://www.eventbrite.ie/e/ecommerce-agency-owner-roundtable-virtual-event-registration-103318606734