Modern Guide To Employee Time Tracking: Efficiency Empowered

One of the biggest misconceptions about time tracking is that it’s a way to A: spy on employees, and B: push employees to work faster and do more, in less time. The fact is, most businesses, to survive and remain competitive, need to know which jobs are bringing money in, and which ones are putting their business at risk of failure.

In the case of creative agencies, according to Robert Patin, author of The Agency Blueprint, there are three main reasons why agencies fail. They are: poor cash flow, underutilized teams, and insufficient data tracking.

All three of these issues can be managed and avoided with a reliable employee time-tracking system. In this blog article, we bust the spy myth and explain how you, as an agency, or client-facing business founder can introduce employee time-tracking without ruffling feathers within your team.

What Is Time Tracking?

Time tracking is the practice of recording and monitoring time your employees spend on various tasks during their workday through the use of time tracking software. Knowing exactly how much time every person is dedicating to every single task in their to-do list or portfolio, helps businesses:

• Bill and invoice clients accurately (based on hours spent on their work)
• Build trust with clients (because it provides transparency on pricing)
• Pick up on inefficiencies in workflows (so you can optimize your processes)
• Make accurate resource allocation for future projects (based on reporting data)
• Evaluate who your high, and low performers are (get to know your team better)
• Identify high, and low-return tasks and accounts (spot where your profit earners lie)

These are some of the key reasons why many service-based businesses decide to sign up for time-tracking tools and make it part of their standard way of working (particularly if they have a remote working model).

However, while implementing a time-tracking ethic within your team successfully is not an impossible feat, it requires a strategic and thoughtful approach.

8 Steps To Introduce Employee Time Tracking At Your Agency

So far, we’ve shared some pretty convincing arguments for why client-facing businesses like agencies should use a time-tracking tool. But how do you go about introducing it to your team, without triggering a drop in employee morale?

That will be one of the things we explain in this 8-step process.

1. Find A Proper Time Tracking Tool (Streamline & Automate)

One of the most important decisions agency founders make (alongside the people they choose to onboard), is the automation tools they sign up to for various business operations and workflows.

When it comes to time tracking tools, you need to:

1. Do your research – Search software review sites, check out user reviews, and get tips and insights from people in your industry.
2. Think niche – Instead of choosing the most popular tool you find on G2 or anyone you find on a best time-tracking tools list, see if there is one that focuses on your niche. Chances are it will be a better fit.
3. Consider your needs & budget – Look at all the tools you might be using currently, and compare them to time-tracking tools that might also include capabilities you’re paying for in three different tools. Do the maths, and see if you can consolidate your budget and tools into one.
4. Try before you buy – This is a must! When you have a shortlist of possible vendors, sign up for a trial for each one. Compare the pros and cons, and most importantly, the user experience. If the learning curve is too steep, you’ll struggle to get the team fully onboard.

Insight: There is a long list of benefits that makes consolidating tools an absolute no-brainer. First, in most cases, you’ll save on costs. Second, you’ll streamline and automate a bunch of your workflows and keep all your data in one place. Third, you’ll simplify the training process for your team, and improve communication and collaboration.

2. Define Billable & Unbillable Tasks (Get A Clear Breakdown)

When you have your tool set up and ready to go, the next step is to set it up with a clear breakdown of billable and unbillable tasks. When you get to reporting, this will help you understand what proportion of time your people are spending on client work, and what’s being dedicated to miscellaneous and internal process tasks.

The definitions and differences between these two categories are:

• Billable tasks – These are all the tasks and hours that go towards client projects and portfolios. If you bill by the hour, this will produce a record of the time spent on the client's work so you can invoice them accurately. And if you price by project, it will still show you hours spent by your team, so you can analyze and work out if you might be underpricing your work.
• Unbillable tasks – These are all the administrative tasks, team meetings, training time, and anything else that clients aren’t charged for, but which you, as an employer need to be aware you are covering and paying for in the form of a salary or day rate (depending on which model you use to pay employees).

Insight: While there is no set rule, generally, for agencies 60% of employee time should be spent on billable tasks. The reason for this is that you want the majority of paid hours to be working on generating revenue for your business. Some consultancy businesses even go up to 70-80%, but the nature of that business is slightly different.

3. Make Time Tracking An Appealing Must (Think Positioning)

One of the biggest struggles with employee time tracking is positioning. How do you present it to your people, so it doesn’t come across as a micro-management technique that’s going to drive them to burnout? The easiest way to overcome this issue is to give your people the full context of why the business needs time tracking.

Some of the things you can talk about to make it more appealing, rather than threatening include:

• Clarity around business health – The first thing you should talk about is the need to understand and monitor the agency’s financial health based on earnings and costs. For any business that is going to last (particularly agencies), you need to have data that will help you spot any risk factors. Time tracking tools gather that data, and the reporting functionality helps founders get a better understanding of whether they are performing well, or are at risk.
• Identifying high & low-value accounts – It’s hard to work out which accounts and clients bring in the most money if you don’t have data on the resources you spend (how many hours and people to deliver the job). Explaining how time-tracking will help uncover high, and low-value accounts, and possibly even determine which clients are not worth working with (especially if they are difficult), will let your team see the tool from another more positive perspective.
• Evaluating individual capabilities & performance – This last one is the one that causes the most concerns because your people might feel it’s a way to increase profits by cutting their jobs. It’s vital you don’t insult their intelligence by denying the fact that this tool will be used to monitor employee performance. Be honest, and be fair. As the business owner, the primary reason you introduced the tool is not to cut headcount, but it will be one way to see who is delivering work more efficiently, and what types of tasks might be pain points for particular individuals. That way, people leaders can make adjustments to teams and accounts to make sure the right people are in the right roles.

Insight: According to Gallup, truthfulness is essential to building trust in an organization. When employees lose trust in their leaders, their decisions will be formed by suspicion, and actions, by self-interest. As a result, those businesses become more vulnerable and susceptible to risks.

4. Introduce Rewards (Motivate Employees To Log Honestly)

Now that you’ve done the hard part, you might need to do a bit more work to motivate your people to use the tool and log time continuously, but also, honestly. Now that sounds like something much easier said than done, right? Well, it might not be.

There are two ways you can motivate employees to use time tracking appropriately:

• Make it easy – This is something that is linked to step one of this guide. If you want people to use and adopt the tool, it needs to be easy to use, and as a time management tool, you need to make sure it doesn’t waste their time. So when you choose your tool, usability and simplicity should be on top of your list of priorities.
• Introduce rewards – Most professionals in sales and marketing are a competitive bunch. As an employer, you can use this to your advantage. By launching a monthly time-tracking reward program, you can reel in the people with this competitive streak. The reward might be as simple as an office trophy that rotates each month, or it can be an incentivized program that gives winners some type of gift, voucher, or paid development opportunity. You know your team best, so the reward system should be aligned with what your people value.

Insight: According to Forbes, many organizations use incentives as crutches rather than motivators. This is particularly true for ineffective work environments or dysfunctional workplaces. As a team leader or employer, incentive or reward programs should be used as an additional, encouraging, cherry-on-top kind of motivator.

5. Analyze Your First Few Months (Spot The Earners & Churners)

You’ll need to collect time-tracking data over a few months to get an accurate portrayal of your business’s overall financial health and productivity levels. Also, all good time tracking tools will let you filter and view time records by tasks, clients, and employees, which you can then compare. Tool dashboards and reports will help you analyze the data and make sense of the numbers.

Now there are two things you should be looking for as you analyze these reports:

• Earners – These will be the clients and accounts you earn the most profit from when you compare them to the resources invested. They will also be the people who’ve delivered the greatest number of tasks in a set period. With this latter one, you can also dig a bit deeper to compare with the results those campaigns achieved for clients. A team member may deliver a large quantity of deliverables, but the quality may not be as high as someone else who may have taken more time to complete a similar campaign.
• Churners – On the other end of the spectrum will be your clients, accounts, projects, and people, where their cost is either equal to or less than the return you get. Also, keep a close eye here on non-billable tasks which might be taking a huge chunk out of your employees’ time.

Insight: According to Forbes, agency founders must learn to recognize the red flags hinting towards clients that are not worth working with. Some of these tell-tale signs include clients who; don’t understand the concept of timelines, ask for a results guarantee or have unrealistic expectations, are hard to get a hold of, or believe they know better and don’t trust your expertise.

6. Make Changes (Reprice, Rotate or Replace)

After you’ve gathered key insights from the time-tracking review, you’ll have a fair idea of the changes you should make, which will help your agency run more efficiently. Give yourself some time to look at all possible options, and try to weigh out what is the best solution for each client or employee.

In most cases, there will be three things you can do to improve performance and productivity:

1. Reprice your services – If you notice you’re not making a reasonable profit, you might need to re-evaluate your pricing or switch to a different pricing model. You may have been charging by project, but feel it would be better to price by the hour for some jobs or suggest to clients they switch to a retainer model.
2. Rotate employees – You might notice some employees spending much more time on certain tasks or client work than on others. It might make sense to change responsibilities so they only work on the jobs they seem to perform better in. Also, some clients might be more complex than others. You’ll want your most competent people covering these accounts.
3. Replace (or drop!) – In the most unfortunate cases, you may discover you have employees who genuinely don’t bring much value to your business. These are the people you’ll want to consider replacing. And in the case of clients, you may even uncover some of the red flags we mentioned in the previous step, which might make dropping a client the most obvious, and best business decision.

Insight: According to SoDA’s report on agencies, the top four reasons for margin gains in 2022 were; increased billing rates, improved utilization, more accurate project estimation, and aligning team skills to projects.

7. Bill Clients Based On Time Proof (Transparency & Buffers)

Once you’ve used time tracking for a few months, analyzed your results, and made any necessary changes to your internal operations and pricing models, you will finally be able to bill clients more transparently, and more accurately. This is one thing that’s going to help you, as the agency founder, sleep better at night.

Here are two ways in which you can use time tracking to inform and justify your pricing:

• Share your client time records – Depending on the capabilities of your time tracking tool, you may give clients full access to monitor time being spent on their work projects, or you might send a report at the end of the month or quarter. Keep in mind here, that sometimes, when clients take too long to approve a job, this can accumulate in the time charged. It might be something worth bringing up in your next meeting.
• Land accurate & safe estimates (with buffers!) – If you notice you’re consistently exceeding the deadline for tasks or going over the allocated resource budget, you should take this as a sign to include a buffer on all projects. Give yourself more time and money (higher price), than you think you need, because something always goes haywire, which throws your initial plan off-track. These buffers can help minimize the chance of underpricing a project and going into the red.

Insight: According to Promethean Research, in 2024, the most common pricing model used by agencies was a fixed fee retainer or project fee. Unlike agencies, which charge by the hour and are guaranteed they will make a profit in the end, retainer-based businesses are the ones that can truly benefit from employee or time-tracking software.

8. Run Regular Profitability Reviews (Help Yourself Scale)

When you and your team settle in nicely and adopt a healthy time-tracking and productivity-monitoring rhythm, you’ll start seeing the benefits this type of tool brings. You’ll see it so much that you’ll wonder how you ever managed to keep afloat without it!

However, there are a couple more steps you need to take to make sure you continue to improve, evolve your processes, and increase your chances of scaling successfully:

• Run regular productivity reviews – This might be a quarterly or bi-annual process where you do a full review of your time tracking reports and overhaul processes, pricing, and budgets accordingly.
• Include time-tracking in onboarding & SOPs – Standard Operating Procedures (SOP) are a must of every agency, no matter how small or large they may be. It’s vital you include time-tracking rules and instructions in every relevant SOP, and include it in your onboarding materials.

Insight: According to Promethean Research, studio, small and medium-sized agencies (1-49 full-time employees) tend to grow at around 12-15% a year, while large agencies (over 50 full-time employees) seem to grow 31% faster.

Which Businesses Should Use Time Tracking?

The obvious answer to this question is any business that bills clients for work produced. But that’s a fairly broad group, so let’s break it down a little by industry type.

Some key industries where time tracking is a standard and beneficial practice include:

• Creative marketing, advertising, design & PR agencies – Think of all the accounts, projects, and portfolios that have dozens of tasks priced at various models. Some might be charged by the hour, others by project, and some may even be on a retainer. On top of that, you may have freelancers covering some of the client work. All these are the reasons so many agencies use time-tracking software.
• Consultancy & coaching businesses – Consultancy businesses tend to charge in one of three ways: day rates, project rates, or a combination of a fixed project fee plus a percentage based on outcome success. These businesses use time trackers to work out what is a viable and realistic rate based on the time they devote.
• Construction, architecture & design businesses – In many cases, the projects these types of businesses cover don’t have a clearly defined scope of work at the beginning. The job may take three months, but it might also take six months if additional documentation and approvals need to be added. Time tracking tools help the service provider, and client monitor, and keep an eye on accumulating costs.
• Software & IT developers, startups & companies – One of the biggest perks for software and tech professionals (as well as all the other industries in this list) of using time tracking, is the ability to produce reports and compare how much time was spent on various software development projects, so they can make better timeline estimates and adjust their pricing to hours worked.

Another important thing to mention is that these days, many time tracking tools come with a long list of perks and additional features that are custom-designed for client-facing businesses. These are professional service automation tools like ActiveCollab: high-flying, productivity-driving machines that many businesses simply cannot operate without if they want to function at an optimal, and efficient level.

How ActiveCollab’s Time Tracking Boosts Agency Efficiency

Introducing time tracking to your agency team can be a sensitive conversation. If you want to get buy-in from your people and get them to adopt the practice fully, you not only need to sign up for the right type of tool, but you also need to position it correctly.

For agencies and consultancies, ActiveCollab is one of the best time-tracking tools on the market because it’s been designed with client-facing businesses and processes in mind. Catering to SMEs that have 20-100 employees, it’s a platform that lets businesses consolidate their tool stack.

A simple, yet powerful platform that comes with task and project management, communication and collaboration features, time tracking, workload and productivity management, and reporting and invoicing, ActiveCollab lets you centralize your workflows, and work more efficiently thanks to one tool!

If we’ve piqued your interest, why not give us a test run? Sign up for ActiveCollab’s 14-day free trial or book a demo to have one of our people walk you through the tool!