What is Resource Planning and Why Is It Important?

How should you approach resource planning for your agency?  Your team is overworked. Your profit margins are lower than you would like. Are you burning out your team by not hiring enough? Burnout leads to turnover, which leads to client turnover. And if you’re not efficient, you’re leaving money on the table. 

I need help with resource planning.

  • What should my billable rate be?
  • What should I charge per hour?
  • How do I know if I have enough people?
  • How do I properly staff my agency projects?
  • How do I reduce my client turnover?
  • How do I reduce my employee turnover at my agency?

5 Critical Business Objectives That Fuel Your Hiring Plan

Do any of these situations sound familiar to you?  I just promised my team that I would stop selling since we do not have enough people…or my team is completely burned out and is working nights and weekends….or I seem to be losing money on all of my clients….or I am not sure what my team is doing but they do not seem to be working hard enough.  If the answer is yes to any of these scenarios you most likely have a resource planning problem.

Resource planning is one of the hardest things for a professional service firm to do. It’s also one of the most important. 

Effective resource planning is a key driver of your agency’s success. It enables you to scale growth while delivering high-quality projects on time and on budget. 

Get started on the right path by understanding what resource planning is, why it’s so important, and the five foundational objectives of building a good resource plan.

What is Resource Planning?

Resource planning is the strategic management of the resources needed to complete a task or project. In the agency world, resource planning is focused on your agency’s most precious resources–your people and the tools they use to deliver value to your customers. 

With good resource planning, you understand every team member’s capacity at any given time, so you know when to add, shift, or reduce headcount based on new business, upsells, or clients leaving. 

Why Resource Planning is Important

I have been in the professional service industry for my entire career and what I have found is that it is incredibly rare to have the right amount of resources at any given time.  Agencies generally either have too much staff or not enough staff.  If you learn though to get your resource planning right it can have a huge impact on the company.  When you manage your resources well, team performance, morale, and productivity improve. When you don’t, it can lead to employee burnout, turnover, and lost business. Good resource planning ensures you meet four of your most important business goals:

  • Delivering a Great Client Experience: The #1 sales goal for all agencies is to never lose a client due to performance.  Having the proper resource planning systems in place is a huge step in the right direction to ensure this happens.  Resourcing failures, like neglecting to set accurate expectations on project start and delivery dates, missing deadlines, not having adequate time to devote to a client, or swapping resources in and out due to schedule and skill conflicts, can greatly damage your existing client relationships. Having the right resources in place at the right time ensures you never compromise the client experience.
  • Boosting Employee Retention: You cannot have employees without clients and you cannot have clients without employees. So it is imperative that you invest in solid resource planning so that your teams are properly staffed.  Good resource planning provides your employees with the balance between having enough of an interesting and sustainable mix of work and protects them from being overburdened, creating stress and burnout. Generally, you will see your superstars working around the clock.  This seems great until you end up losing them because they feel overworked.
  • Fostering Innovation and Growth: One of your goals is to constantly improve the efficiencies of your services.  This will allow your company to handle more work with the same level of resources.  Investing in automation that will improve your client capacity, simplifies your resource planning and helps your business grow.  I highly recommend investing in a technology team as you grow in scale to automate tasks that you perform for all clients.
  • Increasing Profitability: I am personally obsessed with improving gross margin.  It honestly is the greatest thing an agency owner can do to have an edge over the competition.  Well-managed resources are the key driver to profitably managing your client relations.
  • Driving Company Growth: It’s tempting for agencies to consider themselves successful if they reach the point where they must stop selling because they have no capacity to bring on new clients. However, with better resource planning you should never have to close down sales and stall growth.  Your recruiting machine can bring in the resources at the right time so that you can always win new business.

5 Business Objectives That Guide Your Resource Planning

Really great resource planning is part art and part science. There are five business objectives to understand at a high level before you are ready to crunch numbers. 

  1. Adopt a Participatory Approach

There seems to be a general mistrust of the executive team when it comes to resource planning.  Especially if you require your team to track their time.  Employees think that the agency owners are scrutinizing each employee to see if they are working hard enough.  The truth is that agency owners do not have the time or the desire to act as big brother.  Instead, they generally want to ensure that the company has enough resources to make both clients and employees happy.

By getting everyone to understand that there are good intentions and that trust has been built across the board, employees are increasingly motivated to provide timely and accurate data about their work activity to ensure growth is sustainable and to protect themselves from burnout. 

  1. Plan Your Resource needs according to your Revenue Forecast 

 It is impossible to know if you should be hiring, firing or moving people around without an incredibly clear picture of your future revenue.  Why?  Because you are exchanging the client revenue you receive directly for the services that your resources are providing.  If a client paying  for more services is usually paying for more resources.  When you lose a client, the resources originally assigned to those services suddenly have less to do.  

That is why it is so critical to deliberately tie your resource planning to your incoming revenue. In order to do this, you have to forecast the following:

  • Revenue by Service: All service work is not created equal. You need to understand how much revenue each service generates. Project your revenue for each service by month.  Once you have done that you should be in a position to determine the staff needed for every service.
  • Revenue by Clients: In addition to understanding your staffing needs by service, you must also understand them by client. You should forecast revenue for two client categories: Existing Clients and Prospective Clients.  This can be harder than you think since staffing for new business can be risky.  The last thing you want to do is hire people for new business only to find out you did not win the new business.
  • Employee Turnover: It is always stressful on the team when an employee leaves.  The client work does not decrease, but there are less employees to get all of the work done.  This ultimately can lead to burnout which leads to more employee turnover.  To stop this from happening, you can start predicting the turnover and hire ahead of the curve.  Most agencies have fairly high turnover. On average, agencies lose 15-20% of their people annually. This means that if you have 60 employees and a 20% turnover you will lose 12 employees per year or one employee per month.  If you assume that you will lose one employee per month you could plan on hiring one new employee per month.  This will reduce the stress on the team since you are adding people at the same speed that you are losing team members.    
  • Roles: One of the hardest parts of resource planning is to determine how much resource you need for each role.  For example, if your agency develops websites, you must determine how much engineering time versus creative time will be needed on an average project.  When projecting your web development revenue going forward this will have to be your guide on how much to hire for each of these roles.
  • Levels of Organizational Responsibility: Not only is it important to understand the roles that are needed, it is equally important to understand how senior or junior the tasks are that are being performed.  The last thing you want to do is to pay senior people to do junior work.  Understanding the tasks required and when to hire a senior person, as well as junior people is imperative to your resource planning.  Once this is done you will then need to project the number of employees to hire for each level.  

3. Set Profitability Targets

You don’t just want your revenue forecasts to stay stagnant; you are in business to make profits. The secret to profitability is setting a gross profit margin target to guide your resource planning and cover your expenses. 

To calculate your gross margin, you need to know your total net revenue and your service cost:

  • Calculate Your Net Revenue: your total revenue after subtracting all pass-through costs (pass-through costs are costs incurred that are not part of the primary business activity, i.e., media is a pass-through cost).
  • Cost of Service: all expenses related to client work (i.e., employees, contractors, and tools) 

Now you can calculate your gross margin:

Net Revenue – Cost of Service 

At EngineBI, our advisors always recommend targeting a 50% gross profit margin.  This is not always easy to do….clients want to pay you less, have you work more hours and talk to more senior people and employees want to be paid more and work less hours.  You are stuck in the middle and need to determine creative ways to make your employees and clients happy while still live within your budget.  Once you have a gross margin target you can use this as your guide to determine how you will staff each client and service with the budget given.   

4. Identify Your Resources

Once you have visibility into demand and capacity from your revenue forecasting and profitability targets, you have one more crucial step before you can build your resource plan.  You need to understand what resources you have internally and what roles you need to hire.  There are two critical elements to identifying your resources:

  • People: Analyze based on your forecast who from your existing team can fill the roles needed.  Most of these people will already be in the right place, but sometimes you might need roles in different areas.  Do you have a team member that you can shift to any of these roles?  Once this is done, you will then need to understand what roles you need to hire externally.  
  • Tools: I remember once at Rise a key employee was poached and I had to step in to help with his clients.  To my surprise, one of his direct reports was spending around six hours per day compiling a report that could be automated at a click of a button in google.  This employee’s capacity immediately increased by six hours per day.  Identify any rote and repetitive tasks your people currently do and find a way to shift that work from their load. You can automate those tasks, build tools to complete them or incorporate the use of more features and functionality from your existing tech stack into your standard processes. Automating predictable tasks that don’t require direct human inputs frees your employees’ time to focus on the creative, innovative, value-added work they do best. 

Now you have a firm idea of your existing resources and what resources you need to acquire. Next, you need to determine how to allocate your resources. 

5. Allocate Your Resources

You are finally ready for the final component….actually developing your resource plan.  This should entail your hiring schedule, shifting of team members, letting people go if necessary, as well as development in the tools that will build automation.  A couple things to think about are: 

  • Timing:  When do you hire? If your pipeline is excellent, but those prospects have not committed yet, do you hire ahead of the game? Do you wait until new accounts close before increasing headcount? If you hire and do not win the business you might get stuck being over staffed and your profits are in trouble.  If you do not hire and end up winning the business your team might get burned out or you under deliver for your clients.  Figuring out the right balance between staffing for the revenue you have versus what you expect is crucial.
  • Cost: Know what you can spend on hiring and still hit your profitability targets. What is your total cost of hiring an employee? What will that employee’s ROI be? Don’t forget to estimate wage inflation. As salaries for existing and prospective employees increase, you’ll have fewer resources to spend. 

Of course, knowing precisely what lies ahead for your business is impossible. That is one of the things that makes resource planning and resource allocation so tricky. Continually to have a pulse on your gross margins and your pipeline probabilities will give you a huge advantage over all of your competitors.  

Ready For Your Next Step? 

With an understanding of the five foundational business objectives that inform your resource plan, you are now ready to really dive into some deeper analysis. It’s time to calculate actual and billable targets for each role in your agency, your employee utilization rate, your revenue targets by role, and what your true budget for hiring at every level in your organization will be. 

For a complimentary consultation with EngineBI’s financial growth strategists on your resource planning specifics, contact us. Let’s get growing.