How to Properly Share Expenses in an Agency: A Guide for Efficient Resource Allocation

Summer is the perfect time for family trips, vacations, and sitting by the pool with a cool drink. As the pitch season winds down, don’t let this time go to waste. This is the perfect time to focus on getting your agency’s financial situation organized and prepared for the rest of the year. This summer EngineBI is helping you learn how to charge clients accurately. Often it can be a struggle for agency’s to charge correctly because of all the personnel involved in working on each account. Today we’ll go through a comprehensive guide to help you ensure that not only are you charging correctly, but you’re also distributing your employees’ costs across all tasks and projects that they are working on internally and externally.

How to Share Expenses Properly in an Agency

One of the significant challenges agencies face is sharing expenses effectively. While it’s common for agencies of all sizes to share expenses, smaller agencies often encounter this issue more frequently due to limited resources. But understanding how to share expenses properly means you’ll be able to avoid confusion and disagreements down the road. In this blog post, we will discuss the key factors you need to consider when sharing expenses and provide recommendations for sharing expenses in a smaller agency setting.

Identify where to share the expense:

The first step in sharing expenses is determining the specific areas where you want to allocate the costs. You’ll need to identify whether the expense will be shared within the cost of service, selling, general & administrative (SG&A) expenses, or both. For instance, if an employee performs client work but also contributes to your internal marketing activities, their salary would be shared between the cost of service and marketing expenses. This can be tricky, but as you go through the process you’ll find it gets easier and easier to anticipate where your employees are working.

Determine how to split expenses within the cost of service:

If you are sharing expenses within the cost of service, it’s crucial to identify the lines of business where the expenses will be allocated. Once you do that, you’ll be able to determine the contribution each line of business should make towards the shared expense. There are several methods you can use to split expenses, including:

  • Evenly splitting the expenses between different lines of service.
  • Splitting based on the percentage of revenue generated by each line of business.
  • Subjectively assigning costs based on your own judgment.

You can also consider shared costs for managers overseeing multiple groups! In general, we recommend treating managers who oversee multiple groups as shared costs. For example, a search manager who supervises both SEO and paid search should be allocated between both departments. However, we wouldn’t advise making executives like the CEO or president share expenses, since they don’t have a direct responsibility for managing a specific group. Instead, their role is to oversee the overall functioning of the company. So they would not qualify as a shared cost, rather their baseline role is overseeing multiple departments.

Here’s an example regarding shared SEO cost of service.

When a client hires your agency for SEO services, it involves a collaborative effort from various teams within your agency. You have your programmatic team and paid search team working directly on optimizing the client’s website and running targeted campaigns. However, behind the scenes, your analytics team plays a crucial role in providing performance reports, and your account manager team ensures smooth communication and client satisfaction. Although these two teams may not be as visibly involved as the programmatic and paid search teams, they still invest a significant amount of time working on the client’s account each week.

Now, the challenge arises in distributing the hours spent by the analytics team and account manager team among the multiple clients they are responsible for. Considering that they work on 10 other clients’ accounts simultaneously, it becomes absolutely essential to allocate their hours accurately. This cost allocation is crucial for your agency to maintain a healthy revenue stream. Even if the analytics team and account manager team only dedicate 5% of their time to this particular client, it’s essential to include these expenses in the client’s fee. Watch the pennies and the dollars will watch themselves!

To ensure fair distribution and cost allocation, one approach is to consider the overall percentage of time each team spends on different client accounts. For example, if the analytics team spends 50% of their time on SEO reporting for various clients, they can allocate a proportionate percentage of that time to this specific client. Similarly, the account manager team can allocate a portion of their time based on the number of clients they handle and the overall percentage of time spent on client communication.

By including these shared expenses in your client’s fee, you ensure that the true cost of providing comprehensive SEO services is accounted for. It helps your agency maintain profitability while providing transparent pricing to your clients. Additionally, it enables you to allocate resources efficiently and make informed decisions about the level of service you can provide to each client. You’ll also have a greater level of insight into your employees workloads and be able to manage new business appropriately.

Sharing expenses is an integral part of running an agency. When done correctly, it helps allocate resources efficiently and provides insights into how much you are spending in each department. These mentrics will enable you to make well-informed decisions about each group, and begin to ensure optimal utilization of your agency’s resources. By following the guidelines outlined in this blog post, you’ll be able to overcome the challenges associated with sharing expenses in your agency and pave the way for smoother operations in the future.

Remember, effective expense sharing leads to better financial management and improved client satisfaction. Keep your eyes on our blog for more tips and insights on optimizing your agency’s processes for greater success.

Looking to streamline the process of expense allocation? Hoping to enhance your financial vision? Check out our software solution- Engine. Engine is a comprehensive business and financial intelligence software designed specifically for agencies. With Engine, you can effortlessly distribute shared expenses accurately within minutes. Our tool automates all the calculations, ensuring precise assignment of costs, saving you valuable time and effort. Now you can spend more time on the work, and less on the bookkeeping. Experience the ease and efficiency of Engine as it simplifies expense sharing and empowers you to make informed financial decisions for your agency.

Trying Engine is free for 30 days, so you can make sure it’s a fit for you before committing. You can sign up HERE or request a demo HERE.