We’re delighted to bring you something really special this week – extractions from Rob Harr’s brain. His mission is simple. He wants to help you learn the fundamental systems required to achieve forward visibility in your agency. In this episode, we discuss how best to lay the foundation to be able to forecast within your agency, and the critical systems you must have in place to make that possible.
About Rob:
Rob is the VP and Co-Founder of Sparkbox, a web design and development firm that crafts responsive websites and web applications. Here, his superpowers including overseeing operations and finance. He’s also the co-host of the Overly Human podcast.
When he’s not beavering away at Sparkbox, helping others be awesome, he can be found hanging around Dayton, Ohio with his wife, their two kids, and a crazy Aussie dog. That or he’s golfing, weightlifting, or cooking meat over an open flame.
Points of Interest…
You know the drill…
- How Rob became ‘The Forecasting Guy’ 1:44
- The Building Blocks of Forecasting 4:13
- Feedback Loops Are Your Friend 6:27
- The Importance of Utilization 8:05
- Comparing Historical Data 9:41
How Rob Became ‘The Forecasting Guy’
A little over a decade ago, Rob co-founded Sparkbox. And, like most owners of digital studios, Rob fell into a leadership role almost by default. With a background in software development, he suddenly found himself running a company and managing a team without any formal training. While that’s the norm for startups, it’s not sustainable.
Around the two year mark, Rob and his business partner found themselves increasingly struggling to run the business profitably. So, Rob took it upon himself to get on down with the numbers side of things.
“I hired an outside coach, a mentor, that came in and spent time with me – and beat me up. He taught me the ropes, and would basically come in and spend an hour with me every single week and just coach me.”
Rob’s Miyagi-san moment came when he realized his coach kept repeating the same mantra…
“You won’t be in control of your business until you can predict it.”
And, lo, Rob ‘The Forecasting Guy’ was born.
The Building Blocks of Forecasting
What are some of the foundational blocks that need to be in place before you can start accurately forecasting? What insights do you need?
Well, Rob believes it’s all down to creating a discipline around a series of repeatable habits, a system that is designed to glean specific outcomes. If you don’t spend the time defining your system, writing it down, and committing to it, two negative things will happen…
A) You’ll rarely get more people involved because they won’t know what they’re meant to be doing
B) You’ll probably skip a pivotal part because something more urgent rears its head
Most agency owners have fallen foul to getting distracted by “the urgent” and then you forget to do what’s “necessary.” It may not seem necessary at the time, but once you’ve committed to your system, can always refer back to your specific necessities.
To put it another way; in order to have extraordinary results, you need to become really good at the ordinary. Or, as Rob puts it…
“How do we make things non-events? I think that’s one of the things that I had to learn is how do we set up grooves and walk those paths over, and over, and over again, to develop ruts so that by default, good things are happening.”
Feedback Loops Are Still Your Friend
So, in addition to documenting process and building a mindset/culture around maintaining said processes, there is one more building block to help you on the road to accurate forecasting and that is – the feedback loop… Hello, old friend.
Learning to “predict, measure, adjust, predict, measure, adjust” sounds simple enough – but only if you’re willing to trust the collated data.
“Humans think they’re really good at predicting the future. In fact, when shown the data that we’re not so good at, it hurts our feelings… Me saying, ‘Hey, we got this wrong’ isn’t me saying, ‘you’re a horrible person.’ It’s ‘Hey, what can we learn from this to do better next time?'”
Side note: our Agency Profit Toolkit is a one stop shop for you to be able to outline some of these crucial profitability numbers to a potential buyer. Spreadsheets, templates and training videos, you name it, it’s all in the toolkit. Grab yours free at the link below:
The Importance of Utilization
Most digital agencies will find it all boils down to being able to predict and measure utilization. Time is an expiring commodity. Every single day, our entire inventory of unused hours goes bad and it’s worthless. So, how do we ensure the right things are happening?
Thanks to the data and feedback from project managers, developers, and designers, you’ll be more informed to foresee just how many hours are required for a certain job.
Implementing that feedback loop, and paying particular attention to utilization, allows us to consider our contingencies – for example; what happens if a client misses their review deadline. So much of it comes back to decent project planning.
“We ask all of our project managers, before the end of every week, to forecast out as far as they can. It makes it easier at end of the next week, to say, ‘Hey, you forecasted this many hours’. And like I said, we don’t want to look at anyone and say, ‘Hey, you did a bad job,’ rather it allows us to ask good questions. Right? ‘What happened?'”
Comparing Historical Data
Rob has been quoted in the past saying the following about the importance of estimation and historical data…
“I don’t let project managers bring an estimate to me unless they’ve got two other projects that smells similar to compare it to.”
If you’ve received other estimates or provided other estimates to a client, then you have the actual historical data. And, realistically, there isn’t an infinite amount of wildly differing projects to consider – they’re mostly a variation of a shape.
If you estimate around a shape, the key is not repeating the same mistakes. Mistakes are OK, they happen, but you don’t want to keep making the same one.
“We started looking for similar projects, of a similar shape to use – and to justify – looking at the actuals. Then, we can go back and look at those estimates and see what we missed… Is it perfect? No, but it provides a way to get better over time.”
Rob’s Thoughts on Time Tracking
Rob reckons time tracking is one of the most important things that agencies and/or studios can do. It boils down to just how much agency owners funnel back into manpower. Most agencies/studios spend anywhere from 58 to 75% of every dollar coming in back on people – that makes it your number one cost buyout.
“Not knowing where our time is going is basically not knowing how we’re spending our money. If I were to say to you, ‘Hey, you know your credit card and your personal expenses? I’m not going to give you any insight into how you’re spending 60 to 75% of your money. You just have to trust it’s being spent the right way!’ You’d look at me like I’m crazy.”
Think about it; when you hire an employee, you’re effectively bulk-buying their time, at a pre-negotiated rate. It’s in both of your respective interests to ensure that time is being spent in the most optimum way. You both hope the company can turn around and make a profit, so everyone can continue having a job.
In short, if you don’t track your time, you’re essentially setting yourself up for an array of profit leaks.
Key Takeaway…
Congratulations! You’ve just learned the fundamental systems you need to achieve forward visibility in your agency.
Should you need a recap, however, your foundational blocks to increase your forecasting ability includes…
- Feedback Loops
- Foundational process based around Historical Data
- Time Tracking
As for what you can achieve with this information? You should be able to forecast and make more insightful decisions about the following…
- The money that will come in
- What your utilization will look like
- What’s coming down the pipeline, and if it requires bolstering
- If what you’re doing will be enough to sustain your business
- What your ‘win rate’ is going to be
Simply put, forecasting helps support the lifeblood of your business and is one of the best skills an agency owner can hone.
“The three things that really get wrapped up into operations, in my perspective, are finance, biz dev, and delivery. Forecasting is the thing that binds them together. It allows us to look into our future finances and therefore the ability to predict our production schedule; deliver things on time; and know what we need from biz dev. Most importantly, when can we next start a new project?!”
The bottom line is.
- Start small
- Look for small repeatable patterns that you can measure
- Measure daily; it’s the only way of deciphering if your forecasts are correct
- Repeat…
Want to see more from Rob? You can do that via…
Did you learn anything new from this episode? Let us know in the comments below – we value your feedback! Our next installment of #APP, on November 11th, will see us chat with “the expert’s expert”, David C. Baker. My most recent solo cast – focussing on optimizing your estimates – is available here, while our previous blog with John Jantsch is over yonder…
Agency Profitability Tool Kit
If you’re looking for more resources to help you improve your agency’s profitability, then check out the Agency Profitability Tool Kit – it’s full of the same templates and checklists we’ve used with consulting clients to help them improve their profitability by over 100% in under 60 days.
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