Billable Utilization: Managing Billable Hours in Professional Service Agencies

Managing your billable utilization is crucial for successful professional service agencies.

This article will cover the essentials that agency professionals need to know to maximize their resources: What is good billable utilization, and how do you calculate it? And most importantly, how can you optimize your billable hours?

Key Takeaways

Billable utilization is the main agency metric that showcases your team’s productivity and effectiveness. It’s calculated by dividing the number of billable hours vs actual hours worked. Utilization can be tracked across a single employee, a department, a specific client project, or agency-wide.

By monitoring utilization rates, agencies can gauge their operational effectiveness and compare performance across various projects. For example, if a project has a notably lower utilization than another, project managers can look into why: are clients requesting additional out-of-scope work, or are resources allocated improperly?

Historical data on utilization rates also supports better estimating for future projects and setting a balanced client billable rate.

Billability is another often-used term — check out our article on billability vs utilization to learn more.

Several key factors can impact the billable utilization of employees in professional service agencies. These factors include:

Billable hours can be calculated manually by collecting data from a billable hours chart and running formulas that depict the utilization percentage.

A simpler way to get these key agency insights is to implement professional services automation software that helps you generate reports automatically.

For example, Productive supports tracking utilization per various metrics, including seniority, departments, services, and various periods. One of the main selling points of the tool is the forecasting feature, which you can use to assess your future resource utilization.

This helps you decide whether you have enough capacity to take on new client projects. If not, you can consider hiring for overutilized services or prospecting clients for underutilized teams.

You can also check out our article on how to keep track of billable hours.

Read the full story: Using Productive, DotDev Has Grown 50% YoY For the Past Three Years

The desired billable utilization rate can vary depending on your industry, the type of projects, or the different roles across your agency. You can usually expect lower utilization from senior and C-level roles and higher utilization from junior to mid-level employees.

Industry benchmarks indicate that the average utilization rates fall between 70% and 90% for production staff and 60% to 80% for account management (Promethean Research). Rates for partners and senior-level positions are even lower, as little as 30%, according to a benchmarking survey by The Wow Company.

However, specific targets depend on your agency’s personal growth goals. Remember that your overall utilization may ebb and spike throughout the year, depending on external factors. This can include industry trends, economic shifts, or seasonality. Consider tracking average utilization rather than focusing on month-by-month targets.

Learn more about utilization and forecasting in crisis times:

Once you’ve gathered the necessary data, utilization can be analyzed across a couple of internal and external factors.

These include:

To maximize your billable utilization, one of the most important preliminary steps is to set clear expectations and goals. This allows agencies to create a system for regularly reviewing targets and providing feedback for implementing incremental improvement.

Another tip is to promote a healthy agency culture on time tracking. Employees might feel negative about utilization monitoring, so make sure to minimize this by setting realistic estimates that consider the reality of their workflows. Keep in mind that balanced employee utilization rates should support your organizational efficiency and also improve your team’s daily work by streamlining repetitive work.

Finally, the best way to improve your utilization rate is to ensure accurate time tracking and management of project data. With modern technology, agencies can benefit from more efficient daily operations, such as task management, client invoicing, and real-time reporting.

Billable utilization can be important for assessing team productivity and efficiency in agencies. It allows projects and resource managers to understand the full picture of their resources and make informed decisions for better project delivery.

Utilization can also be used to gauge employee performance. Employees with consistently high billable utilization might be seen as high performers, though it’s necessary to keep in mind that time needs to be dedicated to non-billable tasks as well.

The best approach is to use billable utilization as one of several metrics to assess productivity and operational efficiency. It should be balanced with other factors like employee satisfaction, quality of work, client satisfaction, and overall business growth.

1. Balancing Billable and Non-Billable Hours: One of the main challenges is ensuring that your agency is not overly focused on maximizing billable hours. Consider that significant client work, such as research or learning new technology to deliver the project better, is often non-billable. If you neglect these crucial tasks, your profitability and future growth might be negatively impacted.

2. Managing Employee Satisfaction: Nowadays, many companies struggle with high turnover rates and difficulty finding skilled employees. An overemphasis on hitting high capacity utilization rates can lead to employee burnout, which is responsible for up to 50% of annual workforce turnover (Forbes). Consider rewarding productivity and efficiency instead of punishing employees to create a healthier work environment.

3. Ensuring Quality vs Quantity: According to Wellingtone, attempting to run too many projects is one of the main roadblocks to successful project management. Agency professionals might be tempted to increase the number of projects to ensure higher utilization rates. It’s important to manage your growth sustainably. Your utilization rates can help inform your resource availability — make sure not to overburden your employees, as it might result in lower-quality delivery. This can impact your reputation and damage the chances of repeated business.

Do:

Don’t:

Effective billable utilization management is crucial for resource optimization and increased profit margins in professional services agencies.

To maximize their resource capacity, agency professionals should track their billable hours and calculate their resource utilization rate with reliable software solutions. The billable utilization rate gives valuable insights into employee productivity and efficiency, but it’s important to keep it balanced to avoid burnout or unsustainable agency growth.

Ultimately, the best practice for ensuring productive utilization is regularly reviewing your progress, maintaining realistic expectations, and staying open to iteration and continuous improvement.