Optimizing billable utilization for success (+3 other valuable metrics)

Billable utilization is a key metric that determines the revenue of a professional services organization.

What does it tell you?

It’s the amount of time that employees or partners spend working on billable projects as a percentage of their total working hours. 

In this article, we’ll show you how to measure the billable utilization rate and discuss why the billable utilization rate is important. We’ll also provide some tips on how to optimize your billable utilization rate and explain how Rocketlane can help PSA firms manage billable utilization.

In this article

1. How to measure billable utilization rate?
2. Why is billable utilization rate important?
3. Finding your optimal billable utilization rate
4. How Rocketlane can help PSA firms manage billable utilization

How to measure billable utilization rate?

You can easily calculate your firm’s billable utilization rate using the following formula:

Billable Utilization Rate (%) = (Number of billable employee hours / Total number of available hours) X 100

For example, if a team member works 40 hours a week, with 30 billable hours, their utilization rate would be:

30/40 X 100 = 75%

But billable utilization shouldn’t be the only metric used to evaluate your team’s performance or the overall health of a company. 

3 Additional utilization metrics

You can also use other rates to get more specific data:

1. Resource utilization rate

The resource utilization rate shows how much employee time is productive and billable:

Resource utilization rate (%) = (Billable hours/Available hours) x 100

2. Capacity utilization rate

Capacity utilization rate measures how close an organization is to reaching its productive potential:

Capacity utilization rate (%) = (Actual output/ Potential output) x 100

3. Target/Ideal utilization rate

Target/Ideal utilization rate represents a company’s ideal utilization to meet its target profit:

Ideal/Target utilization rate (%) = (Resource Costs + Overhead costs + Profit margin) ÷ (Total available hours × Optimal billing rate) 

By utilizing several metrics in your assessment, you gain a holistic perspective on employee productivity. 

Utilization is just one piece of a larger puzzle. it should be considered along with other important factors such as customer satisfaction, employee morale, and the company's overall financial health.

But what makes billable utilization crucialt? 

Let’s find out. 

Why is billable utilization rate important?

Billable utilization rate tells you much more than just how profitable your employees are. While employee profitability is important, billable utilization rate also: 

1. Provides insights into productivity: Comparing employee utilization rates helps you evaluate each employee's performance. You can use these rates to track employee performance over time to monitor improvement or decline. 
2. Clarifies roles: Being conscious of billable time helps employees focus on essential tasks and helps limit non-profitable work. It also helps employees assign non-profitable work appropriately.
3. Mitigates financial risks: A company can link work “on the ground” to its larger profit goals by tracking its billable utilization rate. For example, if the billable utilization rate drops, it may indicate that resource management needs to be looked into.
4. Helps with long-term planning: Past billable utilization data helps predict periods of high demand. In turn, this helps companies plan in terms of resource allocation.
5. Identifies areas for growth: Different departments in your company will have varying utilization rates. By comparing department rates, you can understand where expansion may be necessary.
6. Assists in schedule evaluation: Billable utilization rates that are incompatible with how much time employees should spend on billable tasks can indicate scheduling issues. You may need to alter the time allocation for their tasks.
   

Billable utilization rate can be a widely useful metric if you know how to analyze it. But before you begin, it's worth exploring an optimal billable utilization rate.  

Finding your optimal billable utilization rate

It’s easy to believe 100% is the ideal billable utilization rate. 

But is this the case?

Not exactly. Many companies aim for a 70-80% billable utilization rate. 

Why?

High utilization rates (80%+) may indicate that employees are being overworked and risk experiencing burnout. 

It’s particularly important for firms to strike a balance and maintain an optimal billable utilization rate. This can be done by regularly monitoring and evaluating team utilization and adjusting as required.

It’s important to note that both overutilization and under-utilization can be detrimental to a company’s productivity and profitability:

1. Over-utilization refers to a situation where team members work on billable projects for more hours than they can sustain. Working unsustainable hours can lead to burnout, reduced productivity, and even staff turnover.‍
2. Under-utilization, on the other hand, refers to a situation where team members are not working on billable projects for enough hours. Low hours can lead to a loss of revenue for the firm and lead to staff becoming disengaged and demotivated.
   

So how do firms get it right?

There are three common approaches, each varying in terms of their complexity. Firms measure billable utilization by:

1. Comparing their billable utilization to a 2000-hour-per-year standard as a point of reference. 
2. Excluding holidays and time off from the calculation and comparing the utilization figure to a minimum target. 
3. Using a minimum and maximum target to organize resource management more accurately.  
   

Your approach needs to be company and industry-specific. You don’t want to charge clients for more hours than they can pay. But you also need enough billable hours to meet your profit margins. Here are some ideas to guide you. 

How to improve your company’s billable utilization rate?

Billable utilization is the amount of time a company’s employees spend on work that can be directly billed to its clients.

Having a high billable utilization rate means that an organization can generate revenue from a large portion of its team members’ time, while a low billable utilization rate indicates that the organization may be underutilizing its team resources. 

However, effectively managing your team's resources is no easy task. Many professional services organizations struggle to make the most of their limited resources and budgets to complete projects successfully. 

In many cases, project managers bear the brunt of the difficulty in allocating resources strategically to ensure optimal billable utilization and profitability without overburdening teams.

But there are several steps you can take to optimize your company’s billable utilization rate. We’ve summed up the most important practices that can help you in this regard: 

• Set clear utilization targets: Establish clear and realistic billable utilization targets for team members and the company. These targets should be regularly reviewed and adjusted as required.
• Staffing projects appropriately: Ensure that projects are staffed with the right number of team members to maximize billable hours.
• Manage your projects with a dedicated tool: Implement a proper project management process using a dedicated tool that can give you real-time analytics and visibility.
• Encourage time tracking: Implement a time tracking process and encourage team members to use them consistently. This will help with accurate tracking of billable hours and can also help identify inefficiencies.
• Optimize resource allocation: Optimize your team resources by assigning staff to projects that match their expertise, which can lead to higher billable hours.
• Encourage cross-selling and upselling: Encourage your customer success teams to cross-sell and up-sell services to existing clients, which can increase the number of billable hours and revenue.
• Reward high utilization: Recognize and reward team members who consistently meet or exceed billable utilization targets.
• Evaluate and adjust your team’s workload: Regularly evaluate staff utilization and make adjustments to avoid overutilization or underutilization.
• Communicate with clients: Regularly communicate with your clients to better understand their changing needs and requirements. This will help to identify potential opportunities for more billable hours.

It's important to note that improving billable utilization should not come at the cost of burnout or client dissatisfaction. Therefore, companies should take a holistic approach and consider all other factors while changing policies or making decisions to improve billable utilization. 

It’s also important to manage and track these changes effectively. Ideally, using a state-of-the-art management platform.

How Rocketlane can help professional services firms manage billable utilization

Rocketlane is a PSA software that can help manage billable utilization by automating time tracking and project management processes. It can help firms to keep track of billable hours and identify areas for improvement. 

In a recently published report by SPI, even a 4% increase in resource utilization can generate the revenue required to invest in a dedicated PSA - Professional services automation solution like Rocketlane. 

Rocketlane can help professional services firms track and optimize their team’s time, manage projects more efficiently, and make data-driven decisions to improve billable utilization.

Here are some specific ways Rocketlane can help you manage your organization’s billable utilization:

1. Project management and analytics: Rocketlane can help you manage your projects and tasks more effectively with real-time data analytics and reports. This can help to identify trends and patterns in utilization and make data-driven decisions to improve billable utilization.
2. Time tracking: Rocketlane can automatically track billable hours, making it easy for your team members to log their time and for managers to monitor utilization.
3. Resource management: Rocketlane can help optimize resource allocation by letting managers assign the right team members to projects based on their skills and expertise.
4. Customizable dashboards: Rocketlane provides customizable dashboards that can be tailored to the needs of each organization. This allows managers to slice and dice data to have a real-time view of billable utilization and the status of each project. 

In addition, Rocketlane offers several other tools to create more efficient internal processes in the areas of customer onboarding and customer success. 

Use Rocketlane for efficient workforce utilization

Getting your billable utilization right maximizes profits and keeps your staff engaged. While billable utilization isn’t the only metric to consider, it’s still one of the most important.

So if you’re looking for a way to maximize your team’s billable time while ensuring they aren't running the risk of burnout, Rocketlane is the software for you.

Our project management tools provide the data you need to calculate your utilization rates. In addition, Rocketlane’s resources management features help allocate employee time appropriately.

Book a demo with us today and see it all in action!

Further reading

1. Here are the 10 steps to a flawless kickoff meeting.
2. Curious about customer onboarding? Look at the 6 steps to guide you through the customer onboarding process. 
3. If you’re looking for flexible working partnerships, read up on how a retainer works. 
4. Not sure how to upgrade your onboarding? Discover the importance of customer onboarding specialists. 
5. Want to digitize your onboarding process? Check out the top 5 user onboarding software.