Have You Handed Your Agency a "License to Bill?"

If you ever get heartburn over your marketing agency's billable hours, you can blame lawyers.

The practice of billing hourly began in Boston in the mid-1920s, when a Harvard grad instructed the attorneys on his staff to begin using timesheets to calculate the firm's fees.

A Supreme Court ruling 50 years later made the billable hour the predominant means of compensating law firms; and marketing agencies followed suit.

If you've ever wondered how an agency's billable hour breaks down, the answer's pretty straightforward: one-third of the hourly fee goes to the employee as salary; one-third covers agency overhead; and one-third goes into the owners' pockets.

That last one-third is hardly the only source of profit for the owners (commissions on media and markups on purchases are two others); but it's almost always the largest.

Clients know every billable agency hour isn't spent the same way, or worth the same amount of money.

On Monday morning, for example, an art director spends two hours to creates a new logo the client may use for 15 years. That afternoon, the same art director spends two hours in a meeting with the account exec, discussing the client's deadlines.

Same time. Same professional. Same client. Hardly the same value.

When the work's good and produces results, you shouldn't worry about your agency's billable hours, as a rule.

But you might give some thought to the one-third of every billable hour that's devoted to overhead.

Is that money paying for lavish offices? Constant new-business pitches to other clients? A brigade of non-billable administrative minions? Or other forms of hidden waste, such as daily all-hands meetings, weekly company parties, and quarterly corporate retreats?

One thing's for sure: you won't find those things at Bob & David James. We have a secret motto.

We're proud, but we're cheap.

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