How it's calculated
Utilization measures how much of your team's available time is billed to clients. For an agency or consultancy it is one of the strongest drivers of profit: salaries are paid for every working hour, but revenue only comes from the hours you bill.
The formula
- Available hours = people × hours per week × (52 − weeks of holidays and public holidays)
- Utilization = billable hours ÷ available hours
- Hours at target = available hours × target utilization; gap = hours at target − billable hours
- Revenue gap = gap × blended hourly rate
Worked example
Ten people working 40-hour weeks with 7 weeks off a year have 18,000 available hours. Billing 11,700 of them is a utilization rate of 65%. At a 75% target and a blended rate of 100 an hour, the shortfall is worth $180,000 a year.
| Line | Value |
|---|---|
| Available hours (10 × 40 h × 45 weeks) | 18,000 |
| Hours at target (75%) | 13,500 |
| Hours billed | 11,700 |
| Hours short of target | 1,800 |
| Revenue billed | $1,170,000 |
| Revenue at target | $1,350,000 |
| Revenue gap | $180,000 |
Assumptions and limitations
- One blended rate. If senior and junior people bill at very different rates, the revenue gap depends on whose hours are missing.
- Same definition every month. Contracted versus actual hours changes the result; pick one and keep it.
- A target below 100%. People need time for sales, training and admin; push utilization too high and quality and retention suffer.