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Writer's pictureCallum Thompson

HOW TO CALCULATE (AND INCREASE) UTILIZATION RATES

Updated: Oct 3, 2023

For any organization looking to improve its profitability, utilization rate is a vital metric to track to ensure success, particularly in businesses that bill by the hour. If you don’t have a clear picture of how well utilized your teams are, there’s no way you can fully understand your productivity and efficiency.


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Hungry for more but on the go? Watch our video on utilization below:


What is Utilization Rate?


Utilization rate is the percentage of an employee’s total amount of working hours that actually contribute to the work that is eventually billed to a customer. The utilization rate is most commonly used in professional services, but can be used by other organizations to assess their team’s current productivity.


Time will always be a limitation, no matter how productive or determined an employee is to achieve their maximum output. No human will do well when aiming for being ‘on’ 100% of the time.


If a typical employee works 40 hours a week, there’s no chance they will be doing 40 hours of billable work. Meetings, phone calls and training all play a part in this. When looking at the utilization rate, it helps to strike the right balance. Too high a rate could mean your organization is cutting corners with important internal work and you may require additional resources. If this figure is deemed too low, this often means you’re not getting enough work for your whole team.


So what is a good utilization rate?


This will always be shaped by the individual company. There is no ‘sweet spot’ number that works for every organization, and it is by no means the case of the higher the utilization rate, the better it will be for you. If a utilization rate is consistently around the 100% mark, this is a pretty big hint that your employees are being overworked and could be nearing burnout. If this applies to you, this is your sign to make you think that it may be time to bring in more staff. If your utilization rate is above 100%, this is a strong indicator that you have too much out-of-scope work or have poor planning.



Why Are We Interested in Resource Utilization?


The utilization rate may appear a fairly simple measurement, but tracking this can have a great impact on employee engagement and productivity at work.