# Utilization as Professional Services KPI Definition, Calculation, Example

## Utilization definition

Capacity Utilization Rate in professional services is the percentage of time spent on billable projects vs. the total time worked, in other words, it measures how busy employees are.

## Why utilization is an important metric

Utilization in consulting is a crucial metric, because management needs to understand how much time staff members are spending doing billable tasks versus non-billable tasks. Billable utilization and average hourly rate are mission-critical for the financial health of a company.

Many organizations distinguish between Billable Utilization and Productive Utilization (overall utilization including marketing, sales, general management, training, internal projects, etc.)

Utilization is key to overall organizational profitability and productivity. Utilization should be examined in conjunction with overall revenue and profit per person. Usually, the biggest driver of capacity utilization is the maturity of the business development process (marketing, sales, recurring revenue).

## How to calculate utilization

Regardless of a specific utilization formula, it is essential to measure it throughout the organization consistently.

Depending on the organization, utilization calculation could be performed:

• Of billable employees
• Of non-billable or internal employees
• Of all team members
• With included time off
• With excluded time off
• Based on total tracked hours (billable and internal)
• Based on capacity (employee availability, like full-time vs. part-time)

## Utilization calculation example

1 billable team member of a consulting firm worked on a project for 1 year. This represents 1,450 hours billed.
Assuming 52 working weeks and 10 holidays in 1 year (2,000 hours) the annual employee utilization in this case is 72.5%.
Take a look at average employee utilization rates by industry, as listed by Grant Stanley:

• 60% – Architecture and Engineering, Design Agencies
• 75% – Software Development & IT
• 77% – Public Relations

A utilization target that is too high can lead to potential longer-term attrition problems. At the same time, underperformance can also cause serious financial troubles for a firm.

## How to measure utilization

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 for a company with 30 employees (30 × 2,000 × 0.05 = 3,000 hours).

Utilization measurement helps to answer the following questions:
• Who are the most productive employees?
• Which person might burned out and needed a vocation?
• Which department has better productivity?

Metric.ai provides the best view on utilization through all possible angles: overall company utilization, by clients, employees, departments, companies, offices, and roles.