Mind your own business
A web development business is a service company, but if you think that means it’s not a product – you’re dead wrong. Your product is time, in one-hour increments. At New Leaders, we currently have a five-person team, each of whom is to bill 40 hours each week, for a total company week of 200 hours. But you might be surprised at how difficult it can be to fill that much time with payable work. It’s not so much due to a lack of clients, but rather to the amount of business activities which don’t involve billable hours, such as email, meetings, and other organizational and managerial duties. It’s important to log the time spent on these duties as well, as it will enable you to understand how much they cost you. Everyone loses about 15% of their working time to non-income-producing activities, but unless you can delegate or outsource that work to cheaper labor, there is no way to avoid the lost time, except by working longer hours. This is the cost of ownership, and it can be quite expensive.
If all you know about your business is that everyone is busy and there’s money coming in, then you have a rocky road ahead. Even with a controller and an accountant helping you with your company’s finances, it’s difficult to tell if you are maximizing your team’s potential without knowing how much more of their time you can sell, and when. Overbooking will slow everything down, ruin the team’s dynamic, and affect your cash flow. Underbooking could leave your staff without work to do, and an unclear answer as to when more income will arrive.
This is the formula you should keep in mind:
Number of team members (T) times 40 hours (H) per week times two weeks (W) equals your available hourly inventory (I).
In our case, we develop projects in two-week blocks because we invoice at net 15 days; so that’s: 5 (T) x 40 (H) x 2 (W) = 400 (I)
When developing your estimates, make sure you consult with your entire team so you can deliver the most accurate estimate of hours needed to complete any given task. When the job is contracted, subtract the budgeted time from each involved team member’s available inventory for the two-week period. You should also track the actual time logged against the estimated time to make sure the numbers remain close. If they diverge too much, you’ll need to compensate for it in future estimates, as well as communicate your concern to your designer or developer so as not to overcharge one customer and miss the deadline on another.
Try adopting an inventory-based philosophy into your service model to see if your team is living up to their potential, or wasting time on non-income-producing activities. Over time, you can make small changes to optimize the environment and ensure that you’re providing the best possible results for your customers, your business, and your team.
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 Unported License.
Posted on Feb 08, 2008 by Kevin Milden
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