Ah, yes. Over-servicing. It’s one of the more misunderstood concepts in agency management. How much over-servicing is ok? Is it ever good to over-service? If you’re a small agency, does over-servicing even matter?
In short: not much, sometimes for the right client, and yes it matters.
But that’s not what we’re here to discuss today. We’re simply looking at the costs of over-servicing. The financial and operational impact of your employees performing out-of-scope, non-billable work on behalf of paying clients.
Let’s dive right to it.
The Direct Costs of Over-Servicing
Over-servicing is expensive. There’s no two ways about it. Whether your employees are billing $50 an hour or $500, the costs of working for free add up quickly. I’ll explain: Let’s say an agency has 100 employees, and each employee over-services just one hour per week. And let’s assume an average billing rate of $200 an hour. After one year, how much free service did the agency give away?
$20,000? $50,000? $300,000?
Nope. This agency just gave away one million dollars.
One. Million. Dollars.
Yes, you read that correctly. By over-servicing just one hour a week, our hypothetical-but-all-too-real agency has given away six figures of free work.
So, how much is your agency giving away? You can calculate it quickly:
(Number of Employees) x (Average Billing Rate) x (Number of Hours Each Employee Over-Services per Week) x (Number of Weeks)
The Opportunity Costs of Over-Servicing
When employees over-service their clients, they are not only performing work for free, they are limiting their ability to work on other billable projects. (To make matters worse, this work is only “free” from the client perspective. Agency owners are, of course, still paying their employees for their time.)
This is why over-servicing is so challenging for agencies — it’s not just giving away hours that hurts, it’s the opportunity cost of not being able to spend time on other paying client work.
To add to the problem, if your team is over-servicing it may seem as if there is no time for mentorship, training, or critical team decision-making that is necessary to build the right culture for a top-performing agency.
Inaccurate Estimation and Forecasting
Many agencies have expanded (or were founded) to provide a host of services that run the gamut from digital strategy to crisis management to SEO to branding. With a such wide range of offerings, it’s become more important than ever to have an accurate understanding of how long a project or campaign should take.
This is not to say that you need to know exactly how long it takes to write a blog post or facilitate a product launch. Rather, it’s about gaining an understanding of how much time — and at what direct cost to the business — certain activities tend to require.
This knowledge can help agencies manage long-term budgets and more effectively price their services. But without access to accurate historical data (that includes time spent over-servicing), it is virtually impossible to create accurate forecasts and on-budget proposals.
David Klein, Director of Marketing, ClickTime