“How well are we utilizing the capacity we already have?” – that’s a question every people leader has. With rampant attrition happening in the industry and competition to fulfill client obligations through the roof, your employees need to be utilized to the best of their potential to help themselves and boost your bottom line. How do you do that without burning yourself out in the process or risk being too vague?
Finding out your employee utilization rate is the answer to it. This blog will tell you all about it.
What Is An Employee Utilization Rate?
Employee utilization rate is a metric that shows you how much of an employee’s total hours are billable and contribute directly to your bottom line. It directly influences employee productivity, and how much ROI you get on your human capital investment. It’s generally a percentage of total working hours and shows how your team is occupied and if they are involved in tedious administrative tasks that clog up their workload.
Although employee utilization rate is crucial for every business, the following types of businesses benefit the most from the metric:
- Outsourced contact centers
- Business process outsourcing firms
- Knowledge process outsourcing firms
- Agencies providing software development and creative service agencies
- Recruitment and staffing agencies
- Professional services firms
- Employment consultancies
- Architecture firms
Types Of Metrics To Choose When You Want To Measure Employee Utilization Rate
Utilization is an important metric of any service-based business and shows how effectively your people are working.
1. Billable Utilization
Billable utilization measures the percentage of an employee’s available working hours that are spent on revenue-generating tasks (i.e., client work).
| Billable Utilization Rate = (Billable hours worked\total available hours)*100 |
If you want to improve profit margins by ensuring employees spend enough time on paid work. There should be a floor and ceiling to any measurement of billable utilization. If you go overboard, you risk burnout. If you go low, you run a business risk.
2. Resource Utilization
Resource utilization looks at how effectively employees are using their time, whether on billable work, internal projects, or non-billable administrative tasks. This gives a more holistic view of productivity reports beyond just revenue-focused activities.
| Resource Utilization Rate = (Total productive hours, both billable and non-billable / total available hours) * 100 |
Helps identify time sinks that reduce productivity. Provides a broader view of how work is distributed across projects. This is great for measuring employee engagement beyond revenue-generating tasks.
3. Effective Utilization Rate (Revenue-Based Utilization)
Unlike billable utilization, which only tracks time, effective utilization considers revenue generated per employee. It helps understand if an employee’s billable time is translating into actual income.
| Effective Utilization Rate = ((Revenue generated / total available hours*billing rate))*100 |
Ensures billable time is priced correctly. Prevents businesses from focusing on hours worked instead of actual revenue impact.
4. Billable vs. Non-Billable Utilization
This metric compares the time spent on revenue-generating tasks (billable) versus internal, non-revenue tasks (non-billable).
| Billable vs. Non-Billable Ratio = (billable hours / non-billable hours) |
Helps managers decide if processes need to be streamlined to free up billable hours. Identifies if too much work is being done for free (e.g., excessive client revisions).
Why Track Employee Utilization?
- Tracking employee utilization shows you how busy you will be in the upcoming months and profits you can expect in the upcoming period
- This way, you can prepare your recruitment plan and start sourcing talent before the need arises
- This metric highlights if your employees are bogged down by administrative tasks so you can streamline internal work better, or hire administrative staff to take care of non-billable work (which is way cheaper than hiring staff to do billable work)
- You can sense burnout from a mile away and take precautions to keep your top talent from tiring themselves out
- If you’ve troubleshooted enough but still find your utilization rate to be way lower than the optimal level, chances are your team needs upskilling to do their jobs better. A simple study won’t cut it, and you need to measure employee utilization religiously to figure out training needs
- You’ll be fully aware of how much each employee is capable of and how much they are occupied with, so you don’t pile up tasks disproportionately
- When you have a good grip on this information, you can make an educated decision on the project’s progress, and the team’s workload
- You’ll have all the information you need to set goals for billable hours at your next review meeting and also have clarity on what type of rates should be charged for the project (based on the hours put in by your resources)
- As you scale and grow, you understand your capacity and your ability to take on the next client (utilization rates arm you with the confidence to assess your readiness to take on more work)
How Do You Calculate the Employee Utilization Rate?
| Utilization Rate = Total time spent on client-facing tasks / Total amount of time employees were available to work |
The total time spent on client-facing tasks is the hours you will eventually charge your client.
The important thing to note here is that you need to take time off, sick leave, or public holidays when you account for the total amount of time employees were available to work.
What Is A Good Employee Utilization Rate?
While no one can be productive 100% of the time, the ideal ROI for your human capital investment is around 75-90%, and it really bodes well for your billables.
| Example | |
| Employee A | Employee B |
| If A is scheduled to work for 40 hours a week and has worked 22.2 hours, and all of them were billable hours, A was only 50% utilized.
Which means, they were underutilized, which means they are a net loss to the company |
If B is scheduled to work for 44 hours and they worked for 40.45 hours and all of them were billable, their utilization is 91.9%.
Which means, they were utilized optimally, and they yield a profit to the company. |
In the above example, although one person was a net loss and one person was a net gain combined, you have a profit between these two employees. This is key to project and resource management. Based on the overheads you spend on the employee, and their direct contribution to the bottom line, utilization needs to be optimized.
If a particular project involves a high amount of administrative tasks and a niche skill to carry out billable tasks, it doesn’t make sense to bring the best and brightest in the project and waste their utilization rate. When you know each one’s utilization, you can allocate resources based on their skill set, productivity, and need for each project.
| Example | |
| Instance 1 | Instance 2 |
| If an employee has client-facing work for 20 hours a week, and administrative tasks (training, and sales responsibilities) for 20 hours, their utilization rate is 50%.
Theoretically, you can double the workload, take on double the amount of clients you have and not have to add another employee. |
If you have 4 people working for 40 hours a week, and all their utilization rates are at 80%, to grow and add another client, you most likely need to add more staff. |
How to Dig Deeper Into Employee Utilization Rate and Improve Profitability?
The more pressing question you’re asking here is how you maximize the value of each individual within the company. That’s what we’ll discover here.
Step 1: Use The Capacity Utilization Rate Formula
Before you start optimizing, you need to know how much of your team’s time is actually being used.
Here’s the formula:
| Capacity Utilization Rate = (actual hours worked / total available hours) *100 |
Say you have an employee who’s available for 40 hours per week but they only work 32 hours on meaningful tasks (the rest is downtime, breaks, or waiting for work). This means your employee is utilized 80% of the time. Sounds good, right? Well, not necessarily. The key question is, what is that 80% being spent on?
If they’re spending 20 hours on billable work and 12 hours on internal admin tasks, that’s a problem. High utilization doesn’t always mean high profitability.
Step 2: Identify The Ideal Profit Margin
You could have an employee working 100% of their available hours, but if those hours aren’t translating into profitable revenue, it’s pointless. First, figure out your revenue per employee: How much does each employee contribute to overall company earnings?
Figure out your operational costs, salary, software, office space, etc. What does your desired profit margin look like: the percentage of revenue you actually want to keep after covering costs?
| Profit Margin = ((Revenue – expenses)/ revenue )) * 100 |
What if your employees are overworked and underpaid? Or what if you could increase profit margins without increasing workload? That’s where billing rates come in.
Step 3: Use The Optimal Billing Rate Formula
If you’re undercharging for your services, even high utilization won’t save you. That’s why you need to calculate the optimal billing rate per employee.
| Optimal Billing Rate = ((Total cost per employee + target profit margin) /
billable hours per employee)) * 100 |
If your total cost per employee (salary, benefits, etc.) is $80,000 per year, and your target profit margin is 30%, and your billable hours per employee are 1,500 per year, the optimal billing rate is $69.33 per hour. That means if you’re charging clients less than $69.33 per hour for this employee’s work, you’re losing money. Now, you have the flexibility to lower pricing, stay competitive, or increase profit margins.
Step 4: Use The Average Utilization Rate To Figure Out The Optimal Billing Rate
Now that we’ve nailed down capacity and billing, it’s time to optimize how much work employees should actually be doing.
| Utilization rate | What does it mean for you? |
| 60-70% | Healthy balance – includes much needed downtime, administrative work, breaks, and training |
| 80-85% | Ideal, but may be difficult to sustain a whole department at this rate |
| 90%+ | Your employees may be on the very verge of burnout |
Tips To Improve Your Company’s Utilization Rate
You can’t improve what you don’t measure. Regardless of whether you charge a flat fee model or an hourly rate for your clients, or project based fee, you need to measure employee utilization to see where your resources are focused.
- Not all departments need to have the same employee utilization rate. Depending on their direct contribution to the bottom line, their utilization rate differs. You also need to be able to figure out which tasks are productive for which department and which aren’t.
- If internal meetings are consuming your employees’ time, you need to take a look at your processes again. Find out where time is wasted.
- Talk to managers about your department’s training needs if there’s a constant dip in utilization despite having the right people for the project.
- If much of your team’s valuable billable time is consumed in non-billable administrative tasks required by the client, replace high-value resources with administrative resources.
- Check if there’s scope for automation. If your people are manually entering data into different systems and wasting time, you need automation to do some heavy lifting to improve employee performance.
- Check if managers are setting proper priorities for their teams so employees are on the right course
- If only one person can handle a specific task, others sit idle when they’re unavailable. Training multiple team members boosts flexibility.
- If billable work is low, assign employees to R&D, process improvements, or skill development.
- Reward high utilization and efficiency with bonuses, recognition, or extra perks.
Monitor And Optimize Utilization Rate With Time Tracking Software – How Can Flowace Help?
It’s impossible to be on top of everyone’s every working hour, regardless of whether you’re a startup or an enterprise, your best bet is to use a time tracking system and a task tracking system that has a productivity tracker ingrained in it. A tool like Flowace will help you get a periodic update on where your team’s best working hours are spent without leaving anything to chance.
What you’re now looking at is the broad overview of how your team’s working hours are spent and how many hours are spent idle. You can set your own working hours and set thresholds for tracking activity (5 minutes once, 10 minutes once, or more). The black spots tell you idle time. This way, with Flowace’s advanced tracking, you’ll figure out if your people are slacking during prime working hours.
The detailed in-and-out analysis gives you a pretty close look at your team’s working and (productive) hours. When exactly does your team login, when do they log out, and how many hours are they doing billable work? If they log out earlier than usual, Flowace makes a note and shows it under ‘missing time.’
Meanwhile, if some of your people are loaded with work, doing double shifts covering for an open position, you’ll see it clearly under ‘burnout time’ and address the issue before it takes root.
Get a bird’s eye view of your team’s activities or zoom in on an individual employee (who you think may be slacking) to get an accurate rundown on what exactly goes on in their work computer. Do they have a pattern of starting late when everyone else starts at a different time? Do they habitually log out earlier than the rest of the team? How productive are they during peak working hours? How long do they leave their system unattended in the middle of the day?
Given how every hour you work is precious and has to meet client goals, you can’t afford any degree of carelessness. Flowace is here to ensure that doesn’t happen. This super close up view of your team’s/ individual employee’s work pattern helps you determine how many productive hours they contribute.
Say you aren’t fully convinced or have absolute clarity on what goes on in your employees’ systems when they are working. Client calls aren’t being returned, meetings are joined late, reports aren’t going as planned, and something seems fishy, but where do you start looking?
That’s why you get a super duper detailed view of every second of system activity (or inactivity) of your employees in a detailed timeline that syncs every second to give you a real-time view of what your people are up to, so you can determine their utilization accurately.
Conclusion
Flowace takes care of the daunting task of tracking employee activity without being intrusive or ambiguous. With our advanced employee monitoring system, you can easily download ad-hoc or periodic reports of your entire team’s utilization and make resource planning decisions regularly without waiting for things to escalate. Want to see how we can customize Flowace to suit your working style? Contact us today.
Frequently Asked Questions
1. How to track employee utilization rates?
To track employee utilization rates effectively, companies should start by defining what they want to measure. The key components are billable hours (client work), non-billable hours (internal meetings, admin tasks), and total available work hours. Utilization rate equals billable hours divided by total available hours multiplied by 100.
2. What is considered a good employee utilization rate?
A good employee utilization rate varies depending on the industry, job role, and company objectives. However, in general, a healthy utilization rate falls between 70% and 85%. This range ensures that employees are productive but not overworked, allowing room for meetings, training, and necessary administrative work.
3. What can service businesses learn from their employee utilization rates?
One of the biggest takeaways is understanding whether employees are working on high-value, billable tasks or getting bogged down by administrative and non-billable work. If utilization rates are too low, it could mean that the business isn’t securing enough client work or employees are not being assigned projects efficiently. In this case, companies need to reevaluate their pricing strategy, improve project allocation, or upskill employees to take on more responsibilities.
