One of our three core values is “Acting out of Love Instead of Fear.” And part of what goes into this value is giving back – freely giving our time and energy to help others, and work on causes that are important to us. Another core value is “Leading with Humility,” and we know that we are leading with humility when we are teachable and learning to develop expertise.
But how the hell do you create an environment that enables people to make time to give back and develop expertise, while producing high-quality work for our clients? The bad news is that it ain’t easy, the good news is that it is possible. Here’s how we do it.
We believe in building systems that provide the space for activities that create good energy. We want to give team members control over their careers and the freedom to give back. We do it to give top-notch service to our clients and build relationships with them. We do it to develop experts, not just worker bees.
When we first started operating as an open book management organization in 2012, our critical number that everyone focused on was net operating profit – what’s left after you subtract labor, contract labor and expenses from revenue. Based on several industry benchmark reports, a 20 percent net operating profit was the target for a well-run agency. This means that for every $1 million in revenue, $200,000 of that was profit.
While 20 percent is attainable, we have found that it is not in sync with creating a culture that provides people the time they need to give back, learn and develop expertise.
In order to hit a 20 percent-plus net operating profit consistently, you need to squeeze something. When you focus on profit as your critical number, you are either squeezing your people or squeezing your client. Neither is an ideal scenario.
Most agencies expect team members to have high levels of billable hours, particularly for junior employees. It is not uncommon to see billable expectations for junior team members over 90 percent. That means 90 percent of the time those people are in the office, they are working on billable client work. Pushing team members to work a high percentage of billable hours, sometimes over 100 percent, is one way to squeeze more profit out of an organization, as salaried team members do not receive overtime.
Chaining team members to their desks is not a great way to inspire loyalty and keep people around. It also doesn’t give them the time to grow, or to contribute to the overall agency culture in a meaningful way.
Room 214 had fairly high billable rate expectations several years ago, again using industry benchmarks as a guide. Currently, 80 percent is our highest billable hours expectation for any role, and many team members are below that target.
What do we do with that 20 percent, or more, of non-billable time? We ask team members to contribute to creating and executing our organizational vision. We ask them to help the organization achieve its goals and to set goals for themselves. And we expect them to make time to prioritize these activities.
By setting and building these expectations into our culture, we enable people to make the time and not feel guilty. We believe this is a more sustainable approach to work in an agency model, and will encourage team members to stick around longer – which is what we want. We are not trying to maximize and optimize our team members for profit, but rather build the space with our systems to help them contribute to the larger organizational objectives and individual growth.
When you try to squeeze your clients for profit by constantly pitching services they might not need, sacrifice quality for speed or simply charge more, you may maximize profits in the short term but this will not set you up for long-term sustainable partnerships. Our goal is to create long-term strategic partnerships, not just be a vendor for outsourcing.
That’s our net operating profit plan for 2017, not 20 percent. That 12 percent will provide the profit to grow cash and invest back in the organization without squeezing our team members or our clients. We believe this is the sustainable approach for 2017 to help us stay in sync with our core values, and achieve the objectives that are laid out in our vision.