If you run a professional services business — be it a software company, a design agency, or any other project-based business — your biggest asset is your team of knowledge workers. Without them you wouldn’t be able to operate and deliver value to your customers.

Needless to say, a big part of your business’ success and profitability is linked to how well your team is performing and how much of its time is spent on generating revenue for your organization.

Time not spent on generating revenue will cost your business money.

Sometimes that’s okay and necessary — for example when you send your team on a course to up-skill, or when your Sales team works long hours on a pitch to bring in the next big deal. You’re investing in your business and you will (hopefully) reap the benefits later. Other times it’s due to a project start date being delayed, a gig that’s fallen through or a fixed-price deal that sees your team work long hours that cannot be billed.

In order to optimize what your team is working on, it is really important that you understand and have visibility of your team’s utilization and efficiently plan their capacity.

What is utilization?

In a nutshell, utilization can be calculated by dividing the hours a person or a team spends working on a project or task by their capacity, which are their total available hours.

As a professional services business, it is useful to understand both, a person or team’s overall resource utilization and their billable utilization.

Overall resource utilization is the time your team spends working on all the things valuable to you — this includes billable and non-billable client work, internal projects, training, workshops, and conferences.
Billable utilization purely includes time spent on billable and revenue generating work.

Your utilization metrics will help you steer your business

Like every other business metric, you should track, monitor and analyze your utilization metrics and establish business objectives around them. Here’s a simple three step approach on how to get there:

1. Track it!

You can’t manage what you can’t measure. So start collecting data.

Set up time-tracking for your team and break down your team’s activities into meaningful categories. Generally, it’s helpful to break this into client and internal project activities, as well as billable and non-billable tasks. It’s also good practice to break down your internal work further so you can see where time is being spent, e.g. on training, business development, internal meetings, etc. Keep this high-level enough so you don’t overwhelm your team but detailed enough for you to get the insights you need. To find the set-up that works for your organization it might require some experimenting and refinement.

Tracking hours is a great start, but it won’t give you the full picture.

In addition to looking into the past, you should also look at your planned utilization. Say Peter, your Solution Architect, had a 10% billable utilization in March. This is great to know, but without looking at what was planned for Peter, it’s not very meaningful. Bringing actuals and planned utilization metrics together is the key.

Lastly, calculate your people’s costs (e.g. what each employee and contractor is costing you per hour) and track the charge-out rates for all billable activities. When calculating your costs, make sure to use the same baseline across all employees and don’t forget to factor in a person’s work schedule, annual leave and public holidays.

2. Analyze and optimize

Looking at your team’s actual AND estimated utilization and costs — especially when plotted on a timeline — will quickly show you how busy your team is and when it will become available again to take on new billable project work.

You will be able to identify bottlenecks early, both from a project and people’s perspective. If, for example, your two JavaScript developers are constantly over-utilized, and you have more work for them in the pipeline, it’s probably time to go out and hire a third one, or get a contractor in to help out. Equally, if you have a project coming up that requires a specifically skilled employee, and that employee is busy until the end of the year, you’ll need to move things around, up-skill or hire.

Having visibility over your utilization will help you make these decisions early, optimize the pipeline of upcoming work and set client expectations.

Comparing your actuals with what was planned will also give you an indication on the progress the team is making on a specific project. There will always be a variance between actuals and planned, but looking at and learning from the past will help you decrease the gap.

Another interesting metric to track is your team’s billable utilization vs. non-billable utilization. Obviously, you’ll want to strive for a high percentage of billable utilization as that’s where the revenue is coming from. But watch out — high billable utilization does not necessarily equal high profits. If your billable utilization is high, but your profits are low, then you’ll need to take a good look at your costs, charge-out rates and how you are billing for your projects.

3. Set goals

Your business’ success rides on generating revenue, and your investors, board of directors and other stakeholders will want to know how things are going. Utilization metrics are a good indicator of your business’ health, so start adding them to the list of business metrics to track and set yourself some realistic and achievable objectives on how to make long term improvements.