Billable Utilization

Billable utilization measures what percentage of your team's total available working hours are spent on work that clients pay for directly. It's calculated by dividing billable hours by total available hours. For example, if an employee works 40 hours per week but only 30 hours are billable to clients, their utilization rate is 75%. This metric is fundamental to agency profitability because it directly impacts your ability to cover overhead costs and generate profit. Understanding billable utilization helps agencies make critical business decisions. If your utilization rate is too low (say, below 60%), you're paying for capacity you're not monetizing, which erodes profitability. If it's too high (above 90%), your team is likely overworked, quality may suffer, and you have no buffer for unexpected client needs or new business opportunities. Most agencies target utilization rates between 70-85% depending on their business model, team structure, and growth stage. Several factors affect utilization rates. Non-billable time includes internal meetings, administrative tasks, business development, training, vacation, sick leave, and bench time between projects. Some agencies choose to bill for certain activities like project management or strategy sessions, while others treat them as overhead. The key is consistency in how you categorize time so you can accurately track trends and identify improvement opportunities. Improving utilization requires a multi-pronged approach. Better project scoping reduces revision cycles and scope creep that consume billable time. Efficient project management minimizes non-billable coordination overhead. Capacity planning ensures you have the right number of people with the right skills available when needed, reducing bench time. And clear time tracking policies help ensure all billable work is captured accurately. Many agencies struggle with utilization because they don't track it systematically or they accept low utilization as "the cost of doing business." But even small improvements in utilization—moving from 65% to 75%, for example—can dramatically impact profitability. If you have a team of 10 people billing at $100/hour, a 10% utilization improvement translates to $200,000 in additional billable revenue per year, assuming 2,000 working hours annually. Common mistakes include not accounting for all non-billable time (leading to inflated utilization rates), setting unrealistic utilization targets that burn out teams, and failing to analyze utilization by role or project type to identify patterns. The most successful agencies track utilization at multiple levels—individual, team, and agency-wide—and use this data to inform pricing, hiring, and project planning decisions.