Billable Utilization: How Billable Are Your Employees?
by Claudette Albers-Reid on December 30, 2022
How Billable Are Your Employees?
Small service businesses usually attract productive, self-motivated individuals. For remote teams, these individuals may be working at all hours across the globe.
But no matter how productive you think your team is, there’s always room for improvement. Aka there’s always something you can do to get more billable.
Enter billable utilization.
We’ll discuss what billable utilization is and how to calculate it. Armed with insights of the true billability of your employees, you can see where there are kinks in the armor on the productivity front and how you can increase billable hours.
What is billable utilization?
Billable utilization is the percentage of time that is spent on work that can be billed to clients, compared to the total time available for work in general.
It’s different from the employee utilization rate, which measures an employee’s time spent on work tasks versus their total capacity, without considering what’s billable and what’s not.
In a nutshell- You’re figuring out how much of the time your employees spend working can be billed and what falls under non-billable time i.e. admin, excessive breaks, etc.
You can figure out the billable utilization for individual employees, for teams, and for your entire organization.
At the individual level, billable utilization will give you insight into how productive your employees are. It can also show you what percentage of time is spent on internal work that’s not billable, things like marketing and invoicing.
With these measurements, project managers can see what synergies may be happening to affect profitability and productivity. Billable utilization may show that certain individuals work well together, whereas others are less productive. It can also alert you to problems that may only show up with certain teams.
At the organizational level, owners and managers can get the largest overall picture of how much the business’s time is spent billing clients to earn revenue versus all the other tasks that are not considered billable. Billable utilization, therefore, is a critical metric that can have a big impact on forecasting, project budgets, and resource management on the whole.
How to calculate billable utilization for your employees
To figure out the billable utilization rate for your employees, you will be breaking down their time into billable versus non-billable work.
Billable utilization % = Billable hours/Total capacity x 100%
Here is an example:
Let’s say you want to find out the billable utilization for employee A for a specific time period, let’s say 2 weeks. In that time period, employee A had a capacity of 55 hours total. Employee A spent 2 of these hours in a team building exercise; 3 hours were spent in meetings; and 5 hours were used working on internal admin. The remaining hours were all considered billable time, with employee A using having tracked these billable hours to tasks directly related to client projects and services.
Here’s what the billable utilization is for employee A:
Total capacity in hours: 55
Total billable hours: 45
Total non-billable hours: 10
Billable utilization = 45/55 x 100%
Billable utilization = 81.82%
Insights: How billable is your team?
In the above example, employee A was about 82% billable for the two-week period. This is a fairly good billable utilization, but the analysis reveals a glaring 5 hours spent on admin.
Often, startups and small teams in professional services can get unnecessarily bogged down by admin. This negatively affects the billable utilization of individual employees and the team as a whole.
If you find that your team is spending too much time on invoicing, contract management, and other non-billable tasks related to project management, consider implementing professional service automation to increase the billability and productivity of your team.