How to calculate your utilization rate
Measure your team's productivity by learning to calculate your project's utilization rate.
Utilization is a crucial metric for consultancies seeking to monitor and optimize operational efficiency.
In this article, we'll delve into why utilization rates are important for professional service firms, the manual utilization rate formula, and the benefits of leveraging automation.
What is a utilization rate at a professional service firm?
Utilization measures how much time a consultancy's team spends on billable work, usually shown as a percentage. The calculation involves comparing billable hours to total hours worked. A high employee utilization rate indicates that professionals are effectively maximizing their time on revenue-generating activities, contributing to the profitability of projects and ensuring optimal resource utilization.
How can I measure my utilization?
To measure an individual's utilization, you’ll need 2 things: the number of billable hours they worked and how many hours they are resourced.
Utilization rate calculation: billable hours ÷ total hours x 100 = utilization rate.
For example, if one employee submits 36 hours of billable time for their 40-hour week, their utilization would be 90%.
Example calculation: 36 ÷ 40 x 100 = 90.
If you want to know your whole company's utilization rate, you want to multiply all employee's rates and divide them by the number of employees.
Calculation: UR (utilization rate) x UR x UR x UR ÷ 4 = average utilization rate.
Using automation to quickly measure utilization rates
Use PSA software to quickly monitor utilization rate rates for individuals, projects, and companies.
It does this with the data submitted by employees on timesheets and your resource allocation plan, saving you time on manual calculations while still allowing you to keep an eye on your people's productivity. It also allows you to define individual targets for your people, which is useful for setting realistic expectations.
Your leaders may have a lower goal because they handle tasks that don't generate income, such as managing their team members. However, these tasks are necessary for your business. In contrast, you might assign higher targets to junior employees, expecting them to spend most of their time on billable work. By using PSA software, you can optimize your utilization rate across all levels of your firm.
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A high utilization rate will contribute towards your business success
In summary, understanding your utilization is important for consultancies aiming to enhance operational efficiency.
If you are curious about what a good utilization rate is for your unique business model, click here to check out our article on benchmarks for professional services firms.
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