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Why Your Project Budget Process Needs a Makeover

April 27, 2017    |     by Ron Ause     |     Project Management, Finance and Budgeting     
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project budget process

Nothing puts a damper on an agency’s growth like realizing the team is consistently missing the mark when it comes to the project budget. Fortunately (or not—depending on your temperament), you’re not alone. Only a third of all budgets are completed on time and on budget.

If you aren’t completing projects on time, well, that’s a whole different conversation. But here we’re going to walk you through some of the reasons your project budget process could stand a makeover.

A project budget makeover won’t just make you feel more profitable on the outside—you’ll actually be more profitable on the inside.


Download Now: Finance and Budget Planning for Creative Agencies


Hourly and Project Contractors: Go Together Like Oil and Water

One of the trickier things to manage is how to allocate budget for hourly contracts versus project-based ones. Whereas project-based contracts serve as fixed costs in much the same way as a full-time employee or other typical business expense, hourly contractors can either be a bang for your buck or blow your budget expectations out of the water.

One way to manage hourly contractors is to set firm expectations about the amount of time they are to spend on their given task. However, sometimes that’s not a feasible approach, and the success of the project just, frankly, demands more time.

You should create a threshold for your hourly contractors based on your expectations for the project, but, using historical data if it’s available, factor in some financial wiggle room.

If this feels like you’re cheating your client, consider moving away from hourly contractors altogether. It’s important to focus on the value you’re delivering and not just the amount of time you’re working on something. Try to put that extra pressure on your PM to wrangle contractors rather than on your client to come up with an amount of money that exceeds the value you’re delivering. Or find some budget-friendly ways to add value, something you can do that can be paid in sweat equity.

Are Some Services Not Making Enough Revenue for You?

It’s always fun to throw a new service into the mix, especially if it’ll help deliver more value to your clients. However, it’s easy for a new service to get lost in the shuffle without being assigned its proper dollar amount.

If you’ve been adding on new services but haven’t had time to analyze how they’ve played into your typical budget, it’s time to take stock of how much time is going into that service versus how much you’re charging for it. This compounds on the previous section about hourly and project-based contractors. Is it a service that should be priced out hourly or as an entire package? Maybe you’re burning more hours on delivering it than you initially thought, and this shiny new toy is now setting fire to all your hard-earned profit.

Introducing new services is a great way to kickstart new revenue growth; it’s also a good opportunity to take a pulse check on your existing offerings and whether they are priced correctly. If you’re adding new services, it sounds like you are probably increasing the overall value that you’re delivering to your client. That means your existing services are probably getting to a point where you could consider raising the prices.  

New Hires Earning Their Salt

As an agency grows, it’s able to exchange a stable of contractors for some full-time staff to help normalize P&L. These fixed costs help scale an agency at a predictable rate instead of living and dying by when a check finally arrives.

Agency life is fast and furious; it’s easy to become stuck in old habits, especially when it comes to how you price out a project. Not only do new hires help stabilize your profit margins, but they also can help stabilize your pricing in general. Instead of spending time trying to predict and speculate on how many hours/contractors a project might require, you can start sending out a more static proposal with a more static budget.

Finance Exists in a Gilded Silo

Another trap for growing agencies is allowing the money folks to operate in a silo. Usually, for smaller and mid-size agencies, this is a blend of the executive team and a software solution. All of that data is incredibly valuable, and it’s important to reconcile the money coming in against the money going out. A lot of times, though, agencies rely on a few disparate software systems that don’t communicate. This is especially true for solutions that manage finance and solutions that track budget/hours throughout a project.

Finding a way to integrate financial information with data captured throughout a project will help you understand the P&L of your current budget process. You might think that the budgets you’ve been churning out since day one are continuing to help you grow, but without financial information living alongside the costs that you’ll inevitably incur during a project, there’s no way to track your profit-margin growth. (Well, there is a way, but it can be quite a headache.)

It’s easy to be lulled into a false sense of security by bigger checks. But the real data only happens at the intersection between your budget, your costs, and your revenue. If that’s a blind spot, you’re likely leaving money on the table.

Back to the Drawing Boardand Back Again (and Again…)

We’ve all heard the old chestnut “Everyone has a plan until they’re punched in the mouth.” It goes double for your project budget: Every agency has a budget until the client decides maybe it does want another version of those icons drawn up in three-dimensional neon.

It’s okay to be optimistic when it comes to your fitness goals. It’s not okay when it comes to revisions. Your clients will have feedback on your creative that they’ll want to see implemented into subsequent deliverables. Capturing this feedback, delivering it to your team, implementing it, and delivering it again to the client all takes a LOT of time. If you overlook factoring this into your budget, you’ll quickly find your profit margin disappearing. Especially if you are dealing with hourly contractors.

It’s not unreasonable to set a limit for revisions and include a change-order clause in your final contract. Just make sure it’s factored into your budget from the outset to avoid financial despair.

This Project Ain’t Gonna Manage Itself

This one goes out to all the unsung heroes of agency life: the project managers. One of the many black holes that suck up your profit margins is failing to account for the time it takes to manage a project.

It’s easy to get hung up on the cost it’ll take to create deliverables and forget to consider the time it’ll take to manage the creation and delivery of them. This is where process and documentation can really help your project budget shine from the inside out. Having data and insight into where project managers are spending time enables you to bake that cost into your deliverables. It’s important to realize that creative doesn’t exist in a vacuum and that ultimately project managers make sure value is delivered to your clients—which is in and of itself a value. So factor that time in accordingly. It’s not overhead, and it’s not the cost of doing business. It’s part of the product or service you’re delivering to your client.  

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About The Author

Ron began a career in the software industry at 13, while working with his father. He's become an expert in job cost and project management for creative teams.

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