Six Ways for Professional Services Leaders to Increase Employee Utilization

So how does this relate to utilization? Let’s say that the tables were turned, and Lucy and Ethel were able to wrap all those chocolates non-stop. Working with robotic-like precision and speed, viewers could watch them as they cruised through their eight-hour shift without breaking a sweat. In this scenario, Lucy and Ethel could wrap 2,000 candies a day, which we could define as their maximum capacity.

But besides not being a very entertaining episode, all work gets interrupted at some point. For example, the conveyor belt could get jammed and require urgent repair. If this disruption occurred, the ladies might be left waiting for half the day until the machine was back up and running. Through no fault of their own, Lucy and Ethel could only wrap 1,000 candies that day because the belt would only be running for half the time. We would calculate this metric as their utilization rate.

Professional Services and Utilization Rates

Now let’s shift the focus to the world of professional services. Granted, these businesses will look a lot different than the blue-collar work performed at Lucy’s candy factory, but the concept of utilization is essentially the same. If there is one golden metric that leaders will absolutely always want to be in the optimal range, it’s billable utilization. And the reason being because utilization is tied directly to profitability. In other words, despite life’s interruptions, Lucy and Ethel still need to wrap those chocolates better and faster than the competition.

How to Calculate Billable Utilization

Officially defined, billable utilization is the percentage of time spent on billable projects vs. the total time worked. Although different industries calculate the metric in different ways, Wikipedia defines the following as two common methods used in the professional services industry:

How to Determine Fair Employee Utilization Rates

So what’s a fair employee utilization rate? It depends on who you are. Each individual employee should have their own unique benchmark that reflects the expectations of their roles. For example, executives and leadership team members will typically have a lower utilization rate than an associate who is grinding out client work every day. If individuals are performing as they should, there exists an expectation that a certain percentage of their time should be predictably logged as billable.

That being said, every industry is different, but for professional services — where most organizations run on a billable hours model — a good rule of thumb is that your staff utilization rate should be around 85%. To compare this to your own utilization rate, check out this Employee Utilization Calculator.

Use this data to ensure that projects are being assigned to the right employees and not those already at their capacity limits.

Use Different Utilization Benchmarks

Internal utilization benchmarks are important because they regularly measure a firm’s progress. Consider calculating a blend of internal, agency-wide benchmarks that identify resource-friendly best practices. Once those have been established, you’ll gain a more nuanced understanding of exactly how well your organization is performing at various levels of the business. The following are different examples of utilization metrics to consider:

Find Your Goldilock Zone

Another important tip for using utilization rates is to set both minimum and maximum benchmarks. At first, this may sound counterintuitive. Sky-high utilization rates may feel like a one-way ticket to higher profit margins, but tread carefully. When utilization rates start to get too high, it could be an indication that the firm is taking on too many projects and actually doesn’t have the resources to complete the work. This could prove catastrophic should it result in shoddy work that damages the firm’s reputation. Staff burnout and churn is also a consideration since it’s costly to dedicate time and resources to onboarding new employees.

Conversely, if your team has an uncommonly low utilization rate, it’s a strong indicator that something else is amiss. Whether a project manager is keeping employees bottlenecked or one too many business lunches has extended yet again into the late afternoon, it’s important to keep a close eye on non-billable time. Make sure the hours logged are in line with expectations. When you set minimum and maximum utilization benchmarks, you can then focus on operating within your Goldilock Zone – the point where employee satisfaction, quality of work, and profitability are all in balance.

So how can professional service firms increase utilization rates without over or under utilizing their employees? Let’s discuss six ways you can optimize billable utilization goals to ensure you stay in your Goldilock Zone:

1. Remember to Track Non-Billable Hours

For organizations to understand their current utilization rates, it’s critically important to track both billable and non-billable time. Standard billable hours typically include working on a client’s projects, communicating with them, and making any requested revisions.

Non-billable hours, on the other hand, are those activities that benefit your organization at large, not just one specific client. Holding brainstorming meetings not related to client projects, working on your own company’s marketing and advertising projects, and employee training are all typically considered to be non-billable activities. Most employees will log non-billable hours at some point, whether they are in training sessions, pitching a bid, or doing research. But the benefit to tracking both billable and non-billable time is that by doing so, you gain a clear understanding of where the firm’s time is being spent. Afterall, you can’t manage what isn’t being measured.

2. Discover Hidden Billable Time

After your team has been diligently tracking both billable and non-billable time, you’ll be able to identify hidden hours that have been slipping through the cracks. For example, maybe every Monday, you host a ten-minute check-in with your client, but since it’s such a small increment of time, you don’t log the time as billable. Over the course of a year, these meetings add up to an extra 8.66 hours of billable time. Without charging for those extra hours, you inadvertently dilute your hourly rate and end up working at an unintended discount. But once teams start tracking every working hour in the day, you’ll start to see how small “one-offs” actually make a measurable difference over time.

3. Implement a Time Tracking Policy

Professional Services leaders need to meet daily deadlines to stay on budget, on spec, and on time. As previously mentioned, logging every working hour (billable or not) is incredibly important to understand the health and sustainability of the business. So how can you get staff to consistently log every hour of their work day in real time? The answer is to implement a time tracking policy.

The most effective time tracking policies require employees to log a minimum number of work hours on a daily basis. Leaders should be crystal clear around expectations and may want to have employees sign a written agreement acknowledging that they understand the guidelines.

When leaders enforce time tracking policies, they gain a deep understanding of employee utilization and availability. Armed with this knowledge, your organization can predict when and if a project is going over budget and optimize the amount of non-billable work. This data also helps with understanding hiring needs, long-term project planning, and surfacing hidden costs.

4. Whenever Possible, Automate and Integrate

Once your team has implemented a time tracking policy, it won’t take long to figure out that the most efficient way of logging hours will be to use timesheet software. Software not only provides real-time insights around utilization rates but also can be seamlessly integrated with your existing tech stack. Common integrations include CRM platforms, HR solutions, and project management tools. Without integration capabilities, manual data entry quickly increases overhead. Moreover, the more manual data entry you have, the more opportunity for human error. Once you can introduce a solution that solves this problem, employees are able to rededicate that time to work on client projects.

5. Optimize Capacity Planning

Capacity planning can be a challenge for any size business. It requires a careful balance between employee availability and budget. In other words, it’s critically important to right-size your initiatives to ensure goals stay achievable.

For example, perhaps you’ve just agreed to take on two new client contracts over the course of a month but your current team is already at full capacity. How should you proceed? Go back to your historical time data and use this information to prove that in order to service new contracts, you’ll need three more full-time employees (FTEs), each of whom will require different skill sets. Based on that historical time data, you’ll also know how long it will take to hire these FTEs, and how long it will take them to ramp up to full capacity.

And for further optimization, consider combining capacity planning with resource planning. Doing so allows you to allocate work according to deadlines, project budgets, available hours, and billing rates. The idea is that when you understand your workload and your employees’ overall capacity, you can better assign them to the projects that need to get done. When this is done strategically, achieving optimal utilization rates becomes that much easier.

6. Streamline Client Communication

If your goal is to optimize utilization rates, the best way to do so is by providing consistent, meaningful value to your clients over time. Be dependable and communicate often. Proactive communication with clients leads to better business relationships with lower churn rates. Don’t underestimate this benefit. When clients stay with a firm over the long haul, you can much more easily approximate work coming in. Known clients will have a certain amount of predictability to their projects which can be advantageous.

For example, if you have worked with one blue chip client for years, it should be much easier to anticipate that client’s wants and needs. Dedicate the same staff to these accounts to further grow trust and familiarity. In addition, you’ll also have access to past projects and time entry data that will detail exactly how the last project of similar scope was executed. It’s much easier to service clients well when you have an established relationship.

That being said, the last thing you want is clients thinking that you are only touching base with them to increase your billable hours. Always be working with their best interest in mind. If you see opportunities where clients can save money without sacrificing quality, let them know.

Wisely Invest your Firm’s Time

Optimizing utilization is no easy task, but by tracking billable and non-billable time, you can start to see how you can wisely and strategically invest your firm’s time. Use that information to understand the true costs of running your business, assign realistic workloads to employees, and provide more value to your clients.