Not all revenue is good revenue.

As agencies know, some accounts can suck up so much energy, time and resources that it strains profit margins and detracts from other clients. As a solution, Winston-Salem N.C.-based agency The Variable has created a proprietary algorithm for scoping work, called Fairly, that it is now pitching to rival—yes, rival—agencies.

“What is good for the industry is good for us, too,” says David Mullen, president and partner at The Variable. “Too many agencies are not getting paid fairly for their work.” 

Based on a system The Variable has used for more than six years, Fairly is geared toward agencies of around 150 employees. Its big point of difference, says Jodi Heelan, director of business development and operations, is that it eliminates timesheets—often the bane of agencies—and instead forecasts costs and profit margin based on the value the agency’s work brings to clients. 

Heelan, who is transitioning out of her role at the agency to run Fairly full-time to avoid conflict of interest, is running a beta test with a handful of agencies she declined to disclose. A full-scale launch is slated for May or June.

The system, claims Heelan, has allowed The Variable to more than double its margins, upping them 115%, and to grow the shop’s organic client relationships by 370%.

“What Fairly does is help you understand the difference between good revenue and bad revenue,” says Heelan, adding that “85% of agencies don’t know they are making their economic opportunity threshold from clients.”

The five-step algorithm allows shops to add inputs including the estimated percentage of time allocated to key staffers on the account, project price and the desired profit margin on the business. It can also calculate adjustments based on higher or lower margins.

Fairly, she says, shifts the focus from “input to output,” allowing “more meaningful conversations with clients.” Adds Heelan: “Time is still an input, but it is a backburner input.”

So how is staffers’ time tracked without timesheets? It isn’t. Fairly users estimate the time staffers will need to successfully execute a project and, occasionally, the actual time is exceeded or the project is completed ahead of time. Mullen says it evens out. The real benefit for clients, he says, is that agencies using Fairly won’t come back and ask for more hours. 

“The industry’s worst-kept secret is that timesheets are grossly inaccurate,” says Mullen, adding that it also sets up an agency to have an adversarial relationship with clients. “When you have eight people in the room and [a client] is paying by the hour,” they can ask “‘Why are there eight people in the room? Why do I need to pay them all, that one didn’t say anything?’” 

By contrast, “clients love and embrace this,” says Mullen, whose agency works for Nestlé, BASF and Procter & Gamble, among others. “We don’t track timesheets for any of them.”

“There is so much difference,” says Paige Farrow, senior director of marketing at Char Broil, who worked with The Variable both when it was using timesheets and now under Fairly. Farrow recalls working with agencies that continued to ask for more hours after failing to deliver in round one. She also remembers coming from one unproductive meeting and thinking, “‘That just cost me $5,000.’”

By contrast, she says Fairly offers transparency and accountability. “It is a way to get better work done and less time focusing on hours.”

Fairly also assists agencies in pitching, says Heelan. “If we think our client is low on budget but we still want to get the relationship [you can use Fairly] to see what that does to the margin,” notes Heelan. The tool also layers onto a new business pitch everything going on at the agency to spot bandwidth issues before they happen, so agencies can see at a glance which of their staffers have too much on their plate or whether hiring will be necessary, says Heelan.

Mullen says Fairly can also level the playing field for shops. Agencies “that [lowball prices] as a strawman to win business is frustrating for us, and one of the reasons we think this is better for the client,” says Mullen. “It requires the agency to be more accountable and ask better questions upfront to build the right scope.”

The cost will begin at $450 a month for agencies, which Heelan says is a bargain; shops of about 50 people that currently bill at the rate of $175 to $180 an hour can see savings of $400,000 using Fairly, she claims.

One small agency owner, briefed on the process by Ad Age, says “it all makes total sense and is smart but this looks like what we are already doing,” given that a time estimate, if not the actual timesheets now used by his agency, are part of Fairly’s calculation. That said, after hearing the savings quoted by Heelan, he adds: “We want to hear their pitch if they knock on our door.”

To get the word out, The Variable is launching—you guessed it—an ad campaign. The creative uses an allegory, positioning it as “The Fairly Tales” on Instagram and LinkedIn to reach agency owners. Playing off the notion that leaving time sheets behind seems fantastical, the copy begins “Once upon a time in ad land …” and tells the story of a “young creative wizard called Goldilogs” battling “timescroll tyranny.” Heelan says the shop has also batted around other creative approaches, such as sending shops torn-up timesheets.

Asked what The Variable discovered about its own bad revenue after implementing Fairly, Heelan says, “Agencies intuitively know in their guts which clients go too many rounds and maybe they are not charging enough,” so determining which clients weren’t paying off was not a surprise. More shocking was learning how much those clients were draining the agency. “We ended up sunsetting a few relationships,” she says.