Agency capacity planning is the discipline of matching your available team hours to the work you've committed to deliver. Get it wrong, and you'll cycle through the same painful pattern: overcommit, miss deadlines, burn out, then swing the other way and sit with an underutilized team watching margins shrink.
Key Takeaways:
- Capacity planning means matching available team hours to committed client work — it's your bridge between sales and delivery
- Use the formula: Available Hours = Team Members × Working Hours × Utilization Rate
- Target 65-80% utilization — above 85% signals burnout risk, below 60% signals profitability problems
- Forecast demand with pipeline × close rate to see upcoming capacity needs before they hit
- The three capacity problems: overcommitted (missed deadlines, burnout), underutilized (low margins, idle team), and misallocated (wrong people on wrong projects)
- Run a weekly capacity review and plan 2-4 weeks forward
- Hire when you sustain 80%+ utilization for 8+ weeks — subcontract for spikes
- Your capacity ceiling should be 80%, not 100% — leave buffer for the unexpected
This guide walks through what capacity planning actually means for agencies, the math that makes it work, and the decisions that keep your team sustainable and your margins healthy.
What Capacity Planning Actually Means for Agencies
For agencies, capacity planning means one thing: matching the hours your team has available to the hours of client work you've committed to deliver.
Every agency sells time — whether wrapped in projects, retainers, or deliverables. The constraint is always the same: your people have a finite number of hours. Capacity planning is how you ensure you never promise more than you can deliver and never sit idle when you could be earning.
Without it, you're guessing. You say yes to a new client because the pipeline looked thin, only to realize two weeks later that your lead designer is already booked solid. Or you turn down work because everyone "feels busy," when the reality is misallocation — the wrong people on the wrong projects with gaps elsewhere.
Capacity planning turns guesswork into visibility. You know how many hours you have, how many you've committed, and what's left. That visibility is the foundation for every scaling decision: when to hire, when to say no, when to bring in subcontractors.
The Capacity Formula: Available Hours = Team × Hours × Utilization
Your real capacity isn't just headcount times working hours. It's that number adjusted for how much of that time is actually productive on client work.
Available Hours = Team Members × Working Hours × Utilization Rate
- Team Members — The people who do client-facing or client-deliverable work (designers, developers, strategists, writers). Don't count admins or sales in capacity math unless they're doing billable work.
- Working Hours — Hours per person per week or month that they're available for client work. If someone works 40 hours but 8 go to internal meetings, admin, and non-billable tasks, their working hours for capacity purposes might be 32.
- Utilization Rate — The percentage of those working hours that actually go to billable or project-deliverable work. Nobody runs at 100%. Internal projects, learning, administrative tasks, and context-switching all eat into it.
Example: A 5-person agency, 32 working hours per person per week, 70% utilization:
5 × 32 × 0.70 = 112 billable hours per week
That's your real capacity. Use it when scoping new work, planning sprints, and deciding whether to take on another client.
Utilization Rate Targets: The 65-80% Sweet Spot
Utilization is billable hours divided by total available hours. It's the single most important number in capacity planning because it directly connects effort to revenue.
Healthy range: 65-80%
- 65-80% — Sustainable. Your team has room for internal work, learning, and the inevitable rework and scope adjustments. Margins stay healthy because you're not squeezing every hour.
- Above 85% — Burnout risk. Little buffer for sick days, revisions, or urgent client requests. Quality and morale drop. This is a signal to hire or turn down work.
- Below 60% — Profitability problem. You're paying for hours that aren't earning. Either demand is low (sales issue) or work is misallocated (operations issue).
Track utilization by person and by role. If your designers are at 90% and your developers at 50%, you have a misallocation problem, not a general capacity problem. Fix allocation before adding headcount.
How to Forecast Demand
Capacity planning isn't just about today. It's about what's coming. If you only look at current commitments, you'll be surprised when a big deal closes and you have nowhere to put the work.
Pipeline × Close Rate = Upcoming Capacity Needs
- Pipeline — The weighted value of opportunities in your sales pipeline. If you have $50K in proposals out with a 40% close rate, expect ~$20K in new work. Convert that to hours based on your typical project mix.
- Close Rate — Your historical win rate. Use the last 6-12 months. If you're improving, use a slightly higher rate — but be conservative.
- Timing — When do those deals typically close? When do projects typically kick off? Factor in sales cycle length so you're forecasting capacity needs in the right time window.
Update this forecast weekly. As deals move through the pipeline, your capacity needs become more concrete. That visibility lets you hire, subcontract, or say no before you're in crisis mode.
The Three Capacity Problems
Most agency capacity issues fall into one of three buckets. Knowing which one you're in determines the fix.
1. Overcommitted
Symptoms: Missed deadlines, overtime, burnout, quality slipping, clients complaining.
Cause: You've sold more hours than you have. Either pipeline closed faster than expected, scope creep added hidden hours, or you said yes without checking capacity.
Fix: Stop adding work. Push timelines where possible. Consider subcontracting for short-term relief. If this is persistent, you need more capacity — but hire only after you've proven sustained demand.
2. Underutilized
Symptoms: Team members with idle time, low margins, pressure to discount to fill capacity.
Cause: Not enough sold work relative to team size. Could be a sales pipeline issue, a pricing issue, or a team that was hired ahead of demand.
Fix: Focus on sales and pipeline. Don't add headcount. Consider whether you have the right mix of roles — maybe you're heavy in one area and light in another. Use spare capacity for internal projects, training, or business development that will generate future revenue.
3. Misallocated
Symptoms: Some people maxed out while others have slack. Projects delayed because the wrong person is assigned. Billing fights over who did what.
Cause: Work isn't matched to skills or availability. Senior people doing work juniors could do. Specialists stuck on generalist tasks. No visibility into who's actually booked.
Fix: Implement a simple allocation view — who's on what, for how many hours, through when. Rebalance. Create clearer role definitions so work gets routed to the right people. This often solves "we're so busy" without adding headcount.
A Practical Capacity Planning Process
Capacity planning doesn't need to be complex. A simple, repeatable process works better than a perfect system you never use.
Weekly Capacity Review
Once a week — same day, same time — review:
- Current utilization — Where is each person (or role) against the 65-80% target?
- Committed vs. available — For the next 2-4 weeks, how many hours are committed to client work vs. how many are available?
- Pipeline impact — What deals are likely to close in the next 30-60 days? How many hours would they add?
- Bottlenecks — Is any role or person the constraint? Are projects waiting on them?
Keep it to 30-45 minutes. The goal is visibility and alignment, not a sprawling planning session.
2-4 Week Forward Planning
Capacity is meaningful when you look ahead. A snapshot of "this week" doesn't tell you that your only developer is fully booked for the next three weeks while three projects are waiting.
Maintain a rolling 2-4 week view of:
- Who's assigned to what
- How many hours each person has committed
- What's in the pipeline that could land in that window
Update it as projects start, end, or shift. That forward view is what lets you say "we can start that in three weeks" or "we're at capacity until mid-March" with confidence.
When to Hire vs. When to Subcontract
Adding headcount is a long-term commitment. Subcontracting is flexible but often carries margin and quality tradeoffs. The choice depends on the pattern of demand.
When to hire: Sustained 80%+ utilization for 8+ weeks across the same role or function.
If your designers have been at 85% for two months and the pipeline shows no letup, you need another designer. The demand is proven. Hiring is the right move.
When to subcontract: Short-term spikes, one-off projects, or skills you don't need full-time.
A big project lands that needs a specialist you don't have. A spike in work that will last 4-6 weeks. A role where you're not sure demand will sustain. Subcontract. It keeps you flexible and avoids over-hiring.
The 8-week rule: Don't hire on one busy month. Demand fluctuates. Wait until you've seen sustained high utilization for at least 8 weeks. That pattern suggests structural demand, not a blip.
When to Say No: Your Capacity Ceiling Should Be 80%
The biggest mistake agencies make is treating 100% utilization as the goal. It isn't. Your capacity ceiling for new commitments should be 80%.
Why? Buffer. Clients will request revisions. Projects will overrun. Someone will get sick. A key person will leave. If you've committed every hour, you have nowhere to absorb that. You'll miss deadlines, burn out the team, or both.
Rule of thumb: When you're at 80% committed capacity, stop saying yes to new work without pushing timelines or adding capacity first. The 20% buffer is what protects your delivery quality and your team's sanity.
That means sometimes you turn down work. It also means you can say "we can start in four weeks" instead of overloading the next two. Both are better than overcommitting and failing to deliver.
Putting It All Together
Capacity planning is not a one-time exercise. It's a weekly discipline: check utilization, look forward 2-4 weeks, update the pipeline forecast, and make small adjustments before they become big problems.
The formula — Team × Hours × Utilization — gives you a number. The targets — 65-80% utilization, 80% capacity ceiling — give you guardrails. The process — weekly review, forward planning — gives you the habit.
When you get it right, you stop bouncing between overcommitted and underutilized. You match resources to revenue. You hire when demand is proven, subcontract when it's a spike, and say no when you're at capacity. Your team stays sustainable, your clients get reliable delivery, and your margins hold.
Start with the numbers you have today. They don't need to be perfect — they need to be visible. From there, the rest of the system falls into place.