In past “Running an Agency” blog posts I have discussed topics and formulas that heavily impact the success of a business. Two additional statistics companies should constantly monitor are revenue per billable hour and percent of billable to non-billable hours. Revenue per billable hour is crucial to maintaining the sanity of your staff, your profit margin and the quality of work—therefore crucial to maintaining the health of your organization.

From my experience, every 10 employees in any Web development or Internet marketing agency should result in approximately $1 million in revenue. This represents a good indicator of how your firm is doing relative to industry benchmarks.

Why match up $1 million for every 10 employees and not 1 or 30? It is not practical to look at very little, or very high numbers. Imagine, for example, you charged $1 million per hour to your client. It would then be possible for you to hire 1 person and pay that employee $500,000.00 per hour. Paying this salary allows you to hire the most qualified person in the world to do the job while still returning an impressive profit. Win-win situation, right? The employee is not overworked, the client got great output and you gain a large profit.

Now, imagine the other extreme. Assume your revenue per billable hour is $10. To earn that same million dollars in revenue requires 100,000 hours worth of agency work. Additionally, you would have to find qualified staff that is willing to work for less than $10 per hour so you can make a profit.

As you can see, both of these scenarios are impractical. In the first example, though the quality of work and profit are great, it is not realistic to expect clients to pay $1 million in services for the work produced in one hour of one employee’s time. In the second example, the low wage required to make a profit will result in underpaid, overly stressed employees and low profit margins.

For this reason, I believe that $1 million for every 10 company employees is a realistic and reliable ratio to operate by within the Online marketing vertical. It allows you to hire quality employees, pay them a fair amount and give them enough work without reaching high stress levels.  It also allows the agency to  retain a reasonable profit for the organization.

This entry was posted on Thursday, October 29th, 2009 at 11:08 am and is filed under Rise Interactive, Running an Agency. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.