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About Peter Gabany
Expertise
Strategic planning: Objective based advertising, Ad creative, Writing, Photography - buying and making, Illustration - buying, Print, Outdoor, Event, Media, Media Planning, Broadcast, How to select an agency, What the client must provide, Pitching a client / being pitched

Experience
Over 25 years in the business - 22 years operating an agency. Creative direction and agency management.

Education/Credentials
RGD Ontario - www.rgdontario.com
CAAP - ICA
CPPP - ICA

You are here: Experts > Jobs/Careers > Advertising > Advertising > Retainer / fix fee confusion / per hour costs

per hour costs

Expert: Peter Gabany - 10/27/2009

Question
Hi. I have a confusion on how do i calculate my companies per hour cost.
Till now what i did was, as we are able to work some 1700 hours(say B) in a year. I decided whats the money i want to make in this year(say A) and divided A by B. that is my method and i know its rusty.
The problem is that now I have array of clients and i facing a problem in calculating the per hour fee. please guide me.

second thing is, there are lot of things my agency done in its own and lot of things which we get done from outside vendors. 1)How much commission should i charge. 2) The bills submitted to the clients for the work done by vendors should be my agencies of the vendors with a straight clause in agreement to a commission on the vendor work.(big issue for me as if i submit my bills, the total amount becomes my income and so the tax liability - while if i submit the vendors bill, i income is the commission which is less and so is tax liability)

Now comes the retainer + fix fee model confusions. Can you please give an example of retainer agreement ()

How are media buying services charged in retainer, i mean is there a seperate agreement for it or just one agreement for design and media both.
What is fix fee model.what are services fix fee should be incorporated along with the retainer.

Answer
How to figure this out - and in India no less. There is a model used universally that is a good start. By the way - your model is an excellent one. But it does not take into account what to charge for an AE, an AM, a CD, or MD (account exec, account manager, creative dir, media director). There is a factoring formula - 2.5 - 3.0 X their cost per hour. Cost per hour is NOT what you pay them per hour but must take into account benefit costs, government contributions and the like. If the hourly rate is 500INR and the additional costs are another 250INR then it is safe to say the costs are 750INR. Plug in the factor - say 3 X 750 = 2,250INR/hour.

So you may ask, how does that add into your model. This is a bit of magic as well. 1680 hours is the max per year (after vacations, medical time off, personal days or what ever the reason for employees to have time off). It is near impossible for anyone to bill this time through to clients, but a magic target for sustainable profitability is 80% of that time. So lets say 1350 hours of billable time.

But wait - a new business developer, or Sr. management in charge of client relations can not always bill for the time they spend on developing new business. I have seen people place their thresholds at 960 hours.

Enter bonus structures. If an employee makes their predetermined billable hours then you can plug in a bonus structure based on quarterly performance.Roughly 335 hours per 3 months. If an employee can exceed that then you can bonus them up to 20% of their salary. This does some interesting things. It encourages them to come in on time and not leave early. It encourages them to put their hours in. It encourages employees to bill all they can within a given time frame. If they go over the threshold then it generates additional profits for the company.

I hope that this helps - it is all the time I have for today.

Thank you for your questions,

Pete

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