Six Ways for Professional Services Leaders to Increase Employee Utilization

For a professional services firm, there are few metrics more important to consider than utilization rate. While Operations teams at firms are familiar with utilization, we’re going to dive into some details about utilization that you may not think about often enough.

Understanding Utilization

If you were in the taxi business, your utilization would measure how often your taxis are on the road, picking up and dropping off passengers. If your taxis are constantly in motion, your utilization rate is high. The time that your taxis are being serviced, or cleaned, however, would lower the utilization rate.

Now, the billable utilization rate would be akin to considering only the time your taxis spend with passengers paying for rides. If your taxis spend some time waiting at a taxi stand or driving across town without a customer, that time wouldn’t count towards your billable utilization rate because it’s not generating revenue directly.

So, utilization rate measures how effectively you’re using your taxi fleet overall, while billable utilization rate focuses specifically on the time your taxis are actively earning money by transporting passengers.

Professional Services and Utilization Rates

Now let’s shift the focus to the world of professional services. Granted, these businesses will look a lot different than a taxi fleet, but the concept of utilization is essentially the same. If there is one golden metric that operations leaders will absolutely always want to be in the optimal range, it’s billable utilization. Successful billable utilization is essential for revenue generation and profitability. Your professional services firm must use resources smarter and more efficiently than the competition to excel.

How to Calculate Billable Utilization

Billable utilization is the percentage of time spent on billable projects vs. the total time worked. Total time worked can be a fixed hours per week, or the total number of hours worked and recorded.

How to Determine Fair Employee Utilization Rates

A fair utilization rate should be benchmarked according to expectations of employment roles. For example, executives and leadership team members will typically have a lower utilization rate than an associate who is grinding out client work every day.

While industries differ, for professional services — where most organizations measure output in billable hours — a good rule of thumb is that your staff utilization rate should average to around 85%. To compare this to your own utilization rate, check out this Employee Utilization Calculator.

Use this data to ensure that projects are being assigned to the right employees and not those already at their capacity limits.

Use Different Utilization Benchmarks

Internal utilization benchmarks are important because they regularly measure a firm’s progress to plan. Consider calculating a blend of internal, firmwide benchmarks that identify resource-friendly best practices. Once those have been established, you’ll gain a more nuanced understanding of exactly how resource time is being spent, and how it impacts your margins. The following are different examples of utilization metrics to consider:

Realization rate (total billed hours / total capacity of hours): Measures how effective your firm is at converting the time invested in client projects into revenue.

Firm realization rate (total utilization rate for all employees / total employees): Calculates the utilization rate for all billable staff. A low individual utilization rate is a drag on productivity, but a low company average utilization rate is a cause for concern. However, if a handful of high performers are responsible for bringing up this average, there is a real risk of burnout.

Ideal utilization rate (sum of your resource costs, overhead, and profit margin / the total hours available x your optimal billing rate): Based on your firm’s average utilization rates, this equation is used to determine the hourly rate needed to charge to turn a profit. Balance this equation using different levers to make strategic decisions.

Find Your Goldilock Zone

Another important tip for using utilization rates is to set both minimum and maximum benchmarks. When utilization rates start to get too high, it could be an indication that the firm is taking on too many projects and actually doesn’t have the resources to complete the work. This results in delays, missed deadlines, and subpar outputs. Staff burnout and churn are also considerations since it’s costly to dedicate time and resources to onboarding new employees.

Conversely, if your team has an uncommonly low utilization rate, take a closer look through your team’s logged non-billable time. When you set minimum and maximum utilization benchmarks, you can then focus on operating within your Goldilocks Zone – the point where employee satisfaction, quality of work, and profitability are all in balance.

So how can professional service firms increase utilization rates without over or under utilizing their employees? Let’s discuss six ways you can optimize billable utilization goals to ensure you stay in your Goldilocks Zone:

1. Track Non-Billable Hours

For firms to understand their current utilization rates, it’s critically important to track both billable and non-billable time. Standard billable hours typically include working on a client’s projects, communicating with them, and making any requested revisions.

Holding brainstorming meetings not related to client projects, working on your own firm’s marketing and advertising projects, and employee training are all typically considered to be non-billable activities. Most employees will log non-billable hours at some point, whether they are in training sessions, pitching a bid, or doing research. If your team doesn’t log non-billable time, you have limited insights into where that time is being lost. After all, you can’t manage what isn’t being measured.

2. Discover Hidden Billable Time

After your team has been diligently tracking both billable and non-billable time, you’ll be able to identify hidden hours that have been slipping through the cracks. For example, maybe every Monday, you host a ten-minute check-in with your client, but since it’s such a small increment of time, you don’t log the time as billable. Over the course of a year, these meetings add up to an extra 8.66 hours of billable time. Without charging for those extra hours, you inadvertently dilute your hourly rate and end up working at an unintended discount. But once teams start tracking every working hour in the day, you’ll start to see how small “one-offs” actually make a measurable difference over time.

3. Implement a Time Tracking Policy

The most effective time tracking policies require employees to log a minimum number of work hours on a daily basis. Operations leaders should be crystal clear around expectations and may want to include compliance in performance reviews. Timesheets really can be full of accurate and rich data when tracking time is ingrained in company culture. Armed with this knowledge, your firm can predict when and if a project is going over budget and optimize the amount of non-billable work. This data also helps with understanding hiring needs, long-term project planning, and surfacing hidden costs.

4. Whenever Possible, Automate and Integrate

Time tracking software not only provides real-time insights around utilization rates but also can be seamlessly integrated with your existing tech stack. Common integrations include CRM platforms, HR solutions, and project management tools. Without integration capabilities, manual data entry quickly increases overhead. Once you can introduce a solution that solves this problem, employees are able to rededicate that time to work on client projects.

5. Optimize Capacity Planning

Capacity planning requires a careful and continuous balance between employee availability and budget. In other words, it’s critically important to right-size your initiatives to ensure goals stay achievable.

For example, perhaps you’ve just agreed to take on two new client contracts over the course of a month but your current team is already at full capacity. How should you proceed? Go back to your historical time data and use this information to prove that in order to service new contracts, you’ll need three more full-time employees (FTEs), each of whom will require different skill sets. Based on that historical time data, you’ll also know how long it will take to hire these FTEs, and how long it will take them to ramp up to full capacity.

And for further optimization, consider combining capacity planning with resource planning. Doing so allows you to allocate upcoming work according to deadlines, project budgets, available hours, and billing rates. When this is done strategically, achieving optimal utilization rates becomes that much easier. In order to create a stable balance, we recommend capacity planning at least 6 months in advance.

6. Streamline Client Communication

Providing consistent, meaningful value to your clients over time leads to better business relationships with lower churn rates. Don’t underestimate this benefit. When clients stay with a firm over the long haul, you can much more easily approximate work coming in. Known clients will have a certain amount of predictability to their projects which can be advantageous.

For example, if you have worked with one blue chip client for years, it should be much easier to anticipate that client’s wants and needs. Dedicate the same staff to these accounts to further grow trust and familiarity. In addition, you’ll also have access to past projects and time entry data that will detail exactly how the last project of similar scope was executed. It’s much easier to service clients well when you have an established relationship. If you see opportunities where clients can save money without sacrificing quality, let them know.

Wisely Invest your Firm’s Time

Optimizing utilization is no easy task, but by tracking billable and non-billable time, you can start to see how you can wisely and strategically invest your firm’s time. Use that information to understand the true costs of running your business, assign realistic workloads to employees, and provide more value to your clients.