Time is a tricky thing— particularly in the business world. If you don’t plan carefully and effectively utilize your resources, you could suffer from financial losses.
That’s where tracking your key metrics comes into play. (More on that in a bit.) If you want to effectively manage your company’s time, it’s critical to determine your agency utilization rate.
Agency Utilization Rate 101
Without a doubt, utilization rate is one of the most important metrics for any professional service business. That’s because this measurement gives you insight into whether or not your employees are working effectively.
Utilization rate is the amount of time one employee spends working on client facing tasks vs. the total amount of time that employee is available to work.
Ultimately, the utilization rate reveals the billing efficiency of an individual or a company as a whole.
How do you measure it?
Unfortunately, there is no unified way of measuring the utilization rate. It differs from agency to agency.
Utilization is defined as the amount of billable time can you pull out of the total available time of your employees.
Industry standards suggest an overall successful agency staff utilization rate should fall between 85 and 90%.
To calculate your agency utilization rate, it is necessary to track your employees’ time. The easiest way to accomplish this is by tapping into a time-tracking tool that allows you to monitor both billable and nonbillable hours.
When your employees track their time with an effective tool, you can see exactly how many hours they spent on client work (billable) and how many they spent on administrative duties (non-billable).
Client vs. total time
Client vs. total time is defined as the time your employee spends working for the client. It is important to ensure employees are consistent with tracking their time. If a worker forgets forgot to track some of their hours, the utilization rate won’t be accurate.
Also, you could have some employees (such as team leads or managers) for whom you cannot bill a specific part of the time. That might be because they’re in internal meetings for a large portion of their time.
As a result, these professionals will not have a high utilization rate. Of course, this doesn’t mean they are not a high-quality employee. They simply provide value to the business in a different way.
What if the utilization rate is 100%?
If you have an agency utilization rate of 100%, that means your billable employees spend all their time working on client projects. But don’t pat yourself on the back just yet—a 100% utilization rate isn’t necessarily a good thing. In fact, it probably means you don’t invest in employee education and research, let alone allow time for team-building.
In the long run, a 100% utilization rate could be harmful to both your employees and your business.
According to HubSpot, the average utilization rate for an advertising agency is 60%.
On the other hand, if your utilization rate is incredibly low, this could tell you two things:
- You are not able to sell your team on projects. In other words, employees are sitting around the office doing nothing—obviously not so great for business.
- You invest a lot in your company. Let’s say you are developing a new website for the client and you give your employees extra non-billable time for research. With these additional research hours, your employees can renew their knowledge and explore new technologies, which will ultimately bring value to your business. This scenario is good for the future of the business.
Internal time is also an investment. That goes for Marketing, Sales, Hiring, Admin and Research and other non-client-facing roles in your agency.
Extra credit: Are you giving 110%?
After defeating a competitor, famous athletes will often tell reporters on the sidelines, “We won because we gave 110%!” While that sounds impressive, when it comes to utilization rates, extra credit isn’t always a good thing. If your agency utilization rate is more than 100%, your employees are probably working overtime.
This can quickly lead to burnout. (We’ll cover burnout in our next blog post. Stay tuned!) Not only are your employees overworked and exhausted—but they also have no time to learn new skills and explore new technologies and tools.
Billed vs. Client time
It’s important to remember that not all client time is billable. Most agency employees spend time getting to know the client, researching their industry or product and familiarizing themselves with new technology. Typically, these are not always billable tasks.
Billed vs. client time often indicates the quality of an employee. It shows how “billable” your employee is. Measuring your staff utilization rate can help maximize the profitability of your projects.
Basically, a high utilization rate generally shows how “healthy” the company process is. However, you shouldn’t try to compare your company’s utilization rate with a competing agency. This rate will be different for each company depending on their approach and process.
What’s the goal?
The goal of analyzing employee utilization is to gain a clear perspective of each employee’s workload. This information will allow you to make smart, well-informed decisions for your agency.
Your agency utilization rate can also reveal whether you have a staff shortage is in a particular field. For example, if the development team is working at a more than 95% utilization rate and the designer team is only operating at a 75% utilization rate, this indicates your developers have much higher workload than your designers. By using a tool like Productive, you’re able to analyze your Utilization rates across different teams. This could be a sign that it’s time to hire more developers.
By knowing and understanding your utilization rate, you can make significant improvements to your company’s profitability.