Leaking profitability

Utilisation’s overlooked counterpart

Utilisation rates get a lot of attention in creative agencies and consultancies.

How busy is the team? How much time is being spent on client work? Are people productive enough?

All important questions.

But utilisation is only one side of the coin.

The other side is recovery.

In my experience, recovery rates are discussed far less often, despite being just as important to profitability.

Your utilisation rate measures the proportion of available working hours your team spends on paid client work.

Recovery rates measure something different which often explains a question many leaders ask themselves:

“Why are we working hard but not making enough profit?”

Recovery looks at how much of the time spent on client work is actually recovered through the fee.

In simple terms: did the project take the amount of time you allowed for?

Or did you give some of that time away for free?

This is closely linked to overruns and underruns. If a project takes more time than you allowed for, you have an overrun. If it takes less, you have an underrun.

Both matter.

But overruns are where profitability leaks.

A simple illustration

Let’s say you predict a project will take 80 hours.

You price the project based on those 80 hours.

The project then takes 100 hours.

But you still bill the client for the original 80 hours.

Your recovery rate is 80%.

The team was busy. Utilisation looked healthy. The studio seemed productive.

But you worked 20 hours for free.

That’s the equivalent of one full day a week, given away.

Painful.

At 80% recovery, you don’t have a delivery problem. You have a margin problem hiding inside delivery.

This is not some rare edge case. According to Design Business Association data, recovery rates around this level are typical in the design industry.

That should make agency and consultancy leaders pause for thought.

If your team’s working hard, your studio’s busy, and your clients are happy, but your profitability feels disappointing, recovery may be one of the places to look.

Why improving recovery matters

Small improvements in recovery can make a big difference.

If your team is busy, improving recovery should flow straight through to your bottom-line profit.

Better project discipline reduces waste and helps make sure the value you create is reflected in the margin you keep.

During quieter times, poor recovery creates a different problem.

The issue isn’t only lost profit. It’s opportunity cost.

If your team is spending unbilled time on client projects, that time cannot be spent on business development activities.

• Sharpening your proposition

• Reconnecting with lapsed clients

• Nurturing referral partners

• Developing thought leadership

• Improving case studies

All the things people claim not to have time for.

In a quiet period, non-billable time is not automatically a problem. In fact, it can be incredibly valuable — but only if it’s used intentionally.

Uncontrolled project overruns eat into that opportunity.

Utilisation and recovery go together

Utilisation and recovery are most useful when read together, because they balance each other.

Used well, they discourage false time-keeping.

If someone pads their time on a client project to improve their utilisation percentage, it will damage the project’s recovery rate.

The person may look productive, but the project margin suffers.

Conversely, if someone avoids putting time against a project to protect its recovery rate, perhaps by dumping that time into a non-billable activity, their utilisation rate suffers.

The project may look healthier than it really was, but the person’s utilisation will look weaker than it should.

That’s why both need to be tracked.

Not as a stick to beat people with, and not to create a surveillance culture, but as a way of seeing what’s really happening inside the business.

Healthy targets should be realistic and balanced.

If utilisation is too high for too long, business development suffers and people burn out.

If recovery is too low, profitability falls.

If both are tracked accurately, they tell you a lot about the commercial health of your agency or consultancy.

But we don’t charge by the hour

Everything I’ve described so far assumes a time-based commercial model: fees built around hours or days.

That may not be how you present your pricing externally. In most cases, I don’t think it should be.

Most creative agencies and consultancies sell fixed-fee projects, often broken down into stages, with a clear price attached to each stage.

That shifts the conversation away from buying time and towards buying outcomes, expertise, and value.

But behind the scenes, most creative businesses still use time as the basis for pricing.

• Hourly or daily rates

• Blended or tiered rates by role

• Time estimates to build project fees

• Internal baselines to test commercial viability

That makes sense. After all, people are by far our biggest cost, and we pay them in units of time.

An annual salary can be broken down into a monthly cost, a daily cost, and an hourly cost.

Add employment costs, overhead contribution, and profit expectations, and time becomes one of the basic building blocks of the agency financial model.

So even if you don’t sell hours to your clients, you still need to understand how time converts into margin inside your business.

Like it or not, that’s how the model works.

Externally, we should talk to clients about outcomes.

But internally, we still need to understand time.

Why recovery rates fall

There are many reasons recovery rates suffer. Some are obvious, others are harder to spot.

Common causes include:

• Under-pricing to win the work

• Poor project scoping

• Inefficient or undercharged project management

• Using the wrong mix of people

• Senior time on work priced for junior delivery

• Scope creep

• Over-servicing

• Over-delivery

• Rework

• Not tracking time accurately or in real time

• Time-dumping to make utilisation appear better

Most agency leaders will recognise at least a few of these.

The big one, in my experience, is scope creep.

A client asks for a small extra. Then another. What seemed like a small change at first leads to a lot more work.

Recovery is rarely damaged by one huge event. More often, it slips gradually.

A couple of hours becomes a few days. By the time anyone notices, the damage has been done.

Project discipline starts early

Some recovery issues are caused by poor project discipline during delivery.

Time isn’t tracked properly, so project managers are flying blind – unable to flag problems until it’s too late.

Additional requests are absorbed rather than agreed, priced and charged for.

Teams keep polishing long after the allotted time has elapsed.

But many recovery problems start much earlier — during the sales process. By the time the project lands in the studio, the commercial damage may already be baked in.

• The proposal is unrealistically priced

• The scope is too loosely defined

• Team mix is poorly planned

Recovery is not just an operations challenge. It’s a sales, scoping, pricing and planning issue too. The conditions for profitable delivery are created before the work begins.

Over-delivery or investment?

It’s worth saying that over-delivering or over-servicing isn’t always a bad thing.

There are times when it’s a sensible investment.

You may choose to go further for an important client, absorbing some extra time to develop or protect a relationship.

You may decide to over-deliver on a strategically valuable project.

You may agree to support a client through a difficult moment because the long-term relationship matters.

That’s fine. But it should always be deliberate and controlled.

Over-delivering becomes dangerous when it’s accidental, invisible, or habitual.

If you’re going to invest additional time, make it a conscious decision. Someone senior should approve it. Agree why you’re doing it, set a limit – then stick to it.

There’s a big difference between choosing to invest in a client relationship and slowly drifting into unpaid work.

One is strategy. The other is leakage.

The leaky bucket

There’s no substitute for top-line sales in a creative agency or consultancy.

Winning more work makes almost every other problem manageable.

When the studio is busy, deadlines are pressing and the next project is waiting, utilisation and recovery can appear to take care of themselves.

Sometimes you may even achieve underruns.

You deliver the project in less time than was priced.

The client is still happy.

Your margin improves.

At my consultancy, we used to call that “super-profit”. It’s a lovely thing when it happens.

But strong sales can paper over cracks.

When enough work is coming in, poor habits are easier to ignore. Inefficiency is less visible. Over-servicing feels less painful. Recovery issues are masked by volume.

In quieter times, those cracks start to show. That’s when you really need your people delivering client work on time – efficiently and profitably.

That gives them space to contribute to business development – building future demand, rather than losing days on projects that should already have been finished.

Healthy recovery rates matter no matter how busy you are.

You don’t want to be constantly filling the bucket with new work, only for profitability to leak out through the bottom.

That only creates more pressure to win more work. More frantic business development. More under-priced proposals. More loosely scoped projects. More leakage.

An unpleasant vicious circle.

Much better to fix the bucket.

• Price work realistically

• Scope it tightly: what’s included, what isn’t, and what happens when things change

• Manage and track projects diligently in real time

• Have commercial conversations early enough to make a difference

Nobody wants to be working for free. But unless you’re tracking recovery carefully, you may not realise how often it’s happening.

If you’d like help improving sales, utilisation, recovery – and profitability – in your agency or consultancy, please get in touch.

Where does recovery most often slip in your agency or consultancy: pricing, scoping, scope creep, over-delivering, or something else?

I built a 100-person international design consultancy, before selling it.

Now I work independently, providing:

GROWTH ADVICE: Invigorating creative leaders

COMMERCIAL SKILLS TRAINING: Boosting creative careers