Billable Utilization: Managing Billable Hours in Professional Service Agencies

Lucija Bakić

November 24, 2023

Graphical representation of a digital marketing strategy dashboard, showing colored bar graphs for budgeting and time management, which is a facet of billable utilization management.

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 a critical metric for measuring productivity and profitability in professional service firms.
  • Effective project management and accurate time tracking are key factors that impact billable utilization rates.
  • Calculating and tracking employee utilization rates is simplified with reliable billable hours software to generate accurate reports in real time.
  • Strategies to increase billable utilization include setting realistic expectations and goals, ensuring balanced resource allocation, and streamlining administrative tasks with automation technology.

What Is Billable Utilization?

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.

One of the things we do is we go back into Productive and take a look at similar projects that we’ve done before. A similar proposal from the past might have said “this is going to take us 100 hours”, but the reality might have been 60 or 160 hours. That reality is what’s going to drive the new proposal or the lack of even trying for that business. So if the utilization for that project was 160% and we know we can’t get 160% of the price for the project again for the next client, then there’s no reason to step into that deal. But if the utilization was 60%, and we had a 40% profit margin—then we’re like yeah, let’s do that!

Lore Hamilton,
Program and Scrum Manager at Rietta

Factors That Affect Billable Time & Utilization

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

  • Project Management: Efficient project prioritization and task management ensure that resources are allocated appropriately. Balanced workloads mean that non-billable time is minimized, which affects overall utilization.
  • Agency Culture: Certain industries, like law firms, might have strict billable utilization targets. Others might be less stringent with requirements, resulting in more balanced rates. Additionally, your agency’s dedication to employee skill building might cause lower utilization rates but ensure a skilled workforce for future projects.
  • Technology and Tools: Implementing a billable hours tracker can help you streamline repetitive non-billable tasks. An example of such a solution is Productive, the all-in-one agency management tool that offers time tracking and robust financial forecasting.

Optimize Your Billable Utilization Rate

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How to Calculate Your Billable Utilization Rate

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.

Billable utilization report breaking down hours by department and person, including Development, Project Management, Leadership, and Design with specific billable vs. actual hours worked and percentages for individuals.


PRODUCTIVE SUPPORTS BILLABLE UTILIZATION TRACKING AND FORECASTING

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.

That’s a key thing that we get out of the reports that really feeds into our utilization and resourcing. If we know we’re doing 30% on internal projects, then we know we’ve got the capacity to take on more client work.

brendon nicholas
Co-founder and Technical Director AT DotDev

What Is a Good Billable Utilization Rate?

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:

Key Metrics for Increasing Billable Utilization Rates

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

These include:

  • Ideal vs Actual Utilization Rate: The ideal utilization rate is your utilization goal that can be set for specific employees and teams or agency-wide. Your actual utilization rate, or the realization rate, is the true amount of hours worked. Depending on how close or far results were to the target, you can monitor your employees’ workflows and identify areas of improvement.
  • Internal Utilization Benchmarks: Utilization rates can be compared between different departments or teams within an agency. This can be used to determine best practices and implement more efficient workflows across various client projects.
  • External Utilization Benchmarks: By comparing their utilization with industry data from competitors or agencies in adjacent industries, businesses can gauge where they stand on the market. Here, it’s important to keep in mind the specific context of each business and avoid making black-and-white conclusions based on numbers.

Tips for Maximizing Your Agency’s Utilization

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.

I’m probably saving 2 hours each week pulling the same capacity report. It used to be that I had to manually pull numbers from our intranet, copying and pasting them into a spreadsheet, and then reformatting all of the numbers. Now I just go to reports and my numbers are waiting for me!

Amy Nichols,
Director of Operations AT Seven2

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.

Leveraging Utilization to Track Team Productivity

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.

Interface showing billable utilization across a specific team and period of time. Overbooked hours are highlighted in red. A pop up window shows that the overbooked employee has the capacity of 8 hours and is booked for 12 hours, crossing the limit by 150%.


WITH PRODUCTIVE’s HEATMAPS, YOU CAN EASILY BALANCE YOUR EMPLOYEES’ WORKLOADS

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.

Common Challenges Associated with Billable Utilization

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.

Billable Utilization Rate: Do’s and Don’ts

Do:

  • Optimize your non-billable tasks by automating repetitive work
  • Set utilization rate targets for easier project performance management
  • Invest in your agency’s growth by leveraging your utilization rates

Don’t:

  • Neglect to invest in staff learning and research and development
  • Overburden your resources with unrealistic expectations
  • Take on too many client projects without ensuring enough skilled capacity

Takeaway: Tracking and Improving Agency Utilization

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.

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Lucija Bakić

Content Specialist

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