Ripping-up the rulebook: Recognising freelance costs in a different way
“It would appear that the trend is that
a greater proportion of resource is
being satisfied by freelancers.”
DBA Annual Survey Report (2018)
The DBA’s latest Annual Survey Report highlighted that the make-up of agencies’ workforces will be a key consideration over the coming year.
As more designers are looking at the freelance route for a perceived better, more independent lifestyle with more money, agencies need to recognise freelance costs in a different way. It’s time to rip-up the rulebook relating to Gross Income and its use as the main denominator.
To start with, it’s vital to make the distinction between different types of freelancers when looking at KPIs.
There are ‘Freelancers’ in the traditional sense, hired to fill a capacity need on a project-by-project basis and also ‘Permalancers’ who are hired on a long-term basis.
Permalancers should be treated in the same way as employees when evaluating staff costs.
But agencies need to start looking at true Freelancers as a ‘cost of sale’, identifying their costs as a separate line in operating reports. Effectively an agency is sharing the income generated from a project with external collaborators that we call Freelancers.
Therefore the agency’s true income is the amount left after deducting the cost of Freelancers, which we should call Gross Profit. KPIs relating to staff costs, overheads and operating profit should be measured using Gross Profit as the denominator rather than Gross Income. As an example:
|Direct Job Costs
|| (80,000) (10%) of gross income
|| (400,000) (56%) of gross profit
|| (150,000) (20%) of gross profit
|| 170,000 (24%) of gross profit
Gross Income still has an important role to play but it’s more limited, used primarily as the denominator in expressing the % of Freelancers and Gross Profit.
The DBA Annual Survey Report is the design industry’s most comprehensive financial benchmarking tool, and a DBA member benefit. The Report analyses data of DBA member agencies including on salaries, agency growth in London and nationally, charge out and utilisation rates. Contact us to find out more and discuss DBA membership.
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