Time Tracking for Agencies: The Real Key to Margin Visibility
If you run a marketing or creative agency, you’re probably dealing with one of two frustrating realities:
- You’re not making the profit you expected.
- Your team says they’re slammed… but it feels like there should be excess capacity.
At some point, someone has likely told you:
“You need time tracking.”
And maybe you resisted it. Maybe you tried it, and it failed. Maybe your team hated it.
Let’s zoom out.
This isn’t really about time tracking.
It’s about gross margin.
Gross Margin Is the Whole Ball Game
If you run a professional services firm - especially a marketing agency - the single most important metric in your business is gross margin.
Gross margin is:
Revenue – Cost to service that revenue
Not overhead. Not software. Not rent.
Just:
How much money are you actually making on the core work you do?
If gross margin works, the agency works.
If gross margin breaks, everything else eventually breaks with it.
The Margin Triangle: The 2 Drivers of Agency Profitability
At Upsourced, we think about gross margin through what we call the Margin Triangle.
There are only two drivers:
- Project Margin
- Utilization
That’s it.
If you have a margin problem, you have one (or both) of these problems.
1. Project Margin Problem
This is when:
- You’re doing the work…
- But you’re not earning enough relative to your cost structure.
Common causes:
- Underpricing
- Overservicing
- Poor scoping
- Scope creep that never gets addressed
Revenue without margin is risk.
You can grow top-line revenue and still create a fragile business if your projects aren’t priced and delivered profitably.
2. Utilization Problem
This is when:
- You’re paying fixed salaries…
- But not enough of that time is revenue-producing.
Your salary base is fixed.
Your revenue isn’t.
Utilization issues often show up as:
- Uneven work distribution
- Idle capacity you didn’t realize existed
- Teams that feel busy but aren’t fully revenue-generating
- Overutilized teams are burning out while others are underused
Slack is expensive. So is burnout.
Why Both Problems Require Time Data
Here’s the uncomfortable truth:
You cannot properly measure project margin or utilization without time data.
To understand project margin, you need to know:
- How many hours were spent
- Who spent them
- What did those hours cost you
To understand utilization, you need to know:
- How many hours your team had available
- How many hours were spent on client work vs. non-client work
Without that information, you’re guessing.
And guessing at $2M–$10M in revenue gets expensive quickly.
“But We’re Doing Fine Without Time Tracking”
There are fringe cases where agencies can approximate this data without formal time tracking.
Usually, those agencies:
- Have a very high volume of homogeneous work
- Deliver standardized services
- Have predictable scopes
But most agencies don’t operate that way.
Most agencies have:
- Custom scopes
- Variable timelines
- Complex delivery teams
- Blended retainers and projects
And very few serious agencies scale to mid–7 figures and beyond without tracking time in some form.
It’s not impossible.
It’s just the exception - not the rule.
Why Time Tracking Fails (And It’s Not the Software)
Time tracking doesn’t fail because of tools.
It fails because of leadership.
When teams resist time tracking, it’s usually because:
- It feels like micromanagement
- It feels like surveillance
- It feels like a performance weapon
- It feels like a layoff precursor
If you don’t clearly communicate the “why,” your team will invent their own.
And their version won’t be flattering.
The Right Way to Introduce Time Tracking
If you’re going to implement or relaunch time tracking, start here:
1. Lead With the Why
This is not about:
- Policing hours
- Monitoring effort
- Evaluating individuals
It’s about:
- Pricing projects better
- Scoping more accurately
- Hiring at the right time
- Preventing burnout
- Protecting margins
- Creating room for raises and reinvestment
Time tracking is a leadership tool - not a performance management tool.
2. Don’t Weaponize Utilization
One of the fastest ways to destroy buy-in is to set individual utilization targets and police them.
Most employees cannot control their own utilization. Leadership controls the pipeline.
If someone is underutilized, that’s usually a demand problem -not an effort problem.
Use utilization data at the team and company level.
Not as an individual scorecard.
3. Create a Clear Process Before Picking Software
The tool is secondary.
The process is primary.
Best practices:
- Daily tracking (not Friday afternoon reconstruction)
- Ideally, using timers while working
- Weekly compliance check
- Clear ownership of monitoring
- Everyone enters a full 40-hour work week (including internal and PTO)
Why 40 hours?
Because incomplete data creates confusion.
You can’t tell the difference between “no client work” and “didn’t log time.”
Clean inputs create clean decisions.
4. Close the Feedback Loop
This is where most agencies drop the ball.
If your team logs time and never sees how it’s used, the initiative dies.
Instead:
- Review project margin after completion
- Discuss overages constructively
- Share utilization trends at the team level
- Talk openly about what the data reveals
If a project took twice as long as expected, the lesson isn’t:
“Why were you slow?”
It’s:
“Did we underprice this? Scope it incorrectly? Miss a complexity?”
Data should improve decisions - not punish people.
Garbage In, Garbage Out
Poor time tracking produces poor decisions.
But that’s a communication and culture issue - not an indictment of time tracking itself.
When your team understands:
- That accuracy protects them
- That overruns won’t be weaponized
- That efficiency won’t be punished
- That data informs pricing and hiring
Compliance improves dramatically.
Over time, it becomes a habit.
The Bigger Picture: Sustainable, Repeatable Profit
When time tracking is done well, something powerful happens:
- Project margins become predictable
- Pricing becomes more confident
- Hiring becomes strategic
- Capacity planning becomes rational
- Gross margin stabilizes
And once gross margin stabilizes, everything else becomes easier.
Profitability isn’t luck.
It’s visibility.
Final Thought
If you want a profitable, repeatable, sustainable agency, you need:
- Clear expectations
- Strong alignment
- A consistent process
- A simple tool
- And a disciplined feedback loop
Time tracking isn’t glamorous.
But neither is guessing your way through growth.
If your agency is in the $1M–$10M range and margins feel thinner than they should, it may not be a revenue problem.
It may be a visibility problem.
And that’s fixable.
To dive into this conversation further, listen to our latest episode of Creative Outcomes, where Partner at Upsourced, Ryan Watson, covers this topic. Subscribe to our YouTube channel for more insights.