Monitoring the productivity of one employee is simple. Monitoring it for an entire team is another story. But what does that even look like? How can you know that every employees’ workday is actually useful? That’s called Utilization. It turns productivity into actual measurable data — calculating how much that effort is beneficial to an organization.
If Utilization is new to you, then you’re going to want to keep reading. And if it’s not, you’re probably looking for the simplest and most efficient way to measure it. You should keep reading too.
Why is Tracking Utilization So Important?
Time is a tricky thing — especially in business. What if those hours you’re aren’t tracking are costing you money? What if the hours you are tracking don’t give you any valuable insight? Steve sat in the office today for 8 hours. And 5 of those hours were billable. Is that good or bad —do you know?
Utilization is one of the most important metrics for any agency. Its equation measures exactly how efficiently an employee is working based on the amount of time they spend on client-facing tasks vs. the total amount of time that employee is available to work. Basically, utilization reveals the billable efficiency of your team.
With this data, you gain perspective into your team’s workload, where there may be shortages that need to be addressed or where demand is the highest. Without it, you could be missing out on big opportunities to grow your company — or just losing money unnecessarily.
How Can You Measure Utilization?
Good news, the utilization formula is pretty simple:
Utilization = Billable Hours / Total Hours Available
For example, Steve works 8 hours a day, or 40 hours a week, and bills 5 hours a day, or 25 hours a week. (25/40 = .625) Then his Utilization Rate is 62.5%. You can calculate this rate over any timeframe — day, week, month, quarter, year. And by doing the same for every employee, your average will tell you your company’s overall Utilization Rate.
But what about paid holidays? Or Jim, who doesn’t work on Mondays? Or accounting who isn’t billable? This is where it starts getting a little complicated. You also may want to measure Utilization not just by employee, but also by department, location, or client. Not every formula will look the same, and while some of this is just adding variables to the equation, the rest is up to you to decide.
Don’t have time for all that? If your timesheet software doesn’t do advanced math. It’s ok, there’s a much simpler way.
So How Do You Actually Use Utilization Rates?
So you have Steve’s 62.5% Utilization Rate. Now what?
Well, let’s say Steve is working at 62.5%, but Sarah in the same department is working at 78% Utilization Rate. This may indicate that Sarah’s workload is much higher. Maybe it’s smart to transfer one of Sarah’s clients over to Steve. The same applies across departments. If Design is reporting a 90% Utilization Rate, while Media is 75%, then it may be time to hire another Designer. While a higher Utilization Rate is great for billable work, it may also mean your team is overworked.
In terms of overall business growth and success, it’s important to establish a benchmark by examining Utilization Rate in conjunction with overall revenue and profit per person. We recommend tracking utilization at the granular level and over time. For example, Utilization could go down by 5% during the year, which is significant if your company has 30 employees (30 × 2,000 × 0.05 = 3,000 hours).
You can also use it for forecasting. If you know you want to ensure you’re 25% profitable this quarter, and your team is producing 1000 billable hours per quarter, you can determine how much revenue you need to generate based on your fixed costs. If your team is consistently hitting an 85% Utilization Rate, then you can calculate how many hours at what bill rate you need to achieve that goal. By having this insight ahead of time, you can make adjustments to bill rates, hours allotted per project, etc. instead of trying to fix the issue after the money is already lost.
There’s a Better Way
Let’s summarize: Utilization Rate is the percentage of billable work compared to time worked and helps you answer the following:
Understanding how to use it can help you make significant improvements to your processes, enhance employee morale, and set your business up for success. But you don’t have to do the calculating or forecasting on your own. To discover the simplest, most effective way to calculate Utilization Rates, schedule a demo with metric.ai today.