How to Calculate & Track Employee Utilization Rate
by Jarno Koopman on January 18, 2023
We all want to increase our productivity and profitability. Putting this into practice is something else.
As with most things in life, knowledge serves as the precursor to any kind of positive change. When it comes to your team’s productivity and billability, one of the best metrics of value is the employee utilization rate.
Knowing your employee utilization rate can give you major insights into how your business is running and where there’s room for improvement. It can help you increase your team’s billable hours and figure out if/where certain internal processes can be automated, for example, to cut back on non-billable time. In this article, you’ll learn how to calculate and track the utilization rates of your employees.
What is employee utilization rate?
Employee utilization rate equals the amount of time the employee engages in work versus their total work availability aka capacity.
Let’s say that last week, employee A spent 2 hours on internal admin and 28 billable hours on work directly related to projects and services. Employee A’s weekly availability is 35 hours.
The utilization rate for employee A is about 85.7% or (30/35) x 100%. That’s because 30 hours were spent on work versus a total availability of 35 hours.
How to calculate employee utilization rate
Employee Utilization Rate = Work Hours/Total Available Hours x 100%
Calculating employee utilization rate isn’t difficult, as long as you have your time-tracking data handy. Employee Utilization Rate will help you see how profitable and how productive your employees are when it comes to how they spend their time at work. And you need just two numbers to figure it out. Here’s how to calculate the employee utilization rate:
Step 1- Choose the period of time you want to measure your employee utilization rate. You can calculate this measurement for a specific time frame or on a specific project/client.
Step 2- Go to your time tracking solution for the employee to look at the hours logged within the specified time frame.
Step 3- Determine the overall availability for work during the specified time frame for the employee. You may have to take a look at your resource management tool to retrieve this info or your capacity planning for a specific project.
Step 4- Divide the work hours by the overall available hours.
Step 6- Multiply times 100% to arrive at the employee utilization rate.
Here’s another example:
Employee B had a total availability of 50 hours to work on a project. Once the deliverables were sent, employee B logged a total of 35 work hours.
The employee utilization rate for employee B in this project is 70%.
35 work hours / 50 available hours x 100% = 70% Employee Utilization Rate
How to track employee utilization rates
Figuring out the employee utilization rate requires just 2 figures: the number of hours worked and the total availability for that person.
To track the employee utilization rate over time, you have a couple of options:
Option 1- You can create a spreadsheet with Excel or Google Sheets. Create a column for all the employees, along with three additional columns to show tracked hours, availability or capacity, and employee utilization rate. Create a simple formula to divide the tracked hours column by the availability column. This is the formula for the utilization rate which will be reflected in the last column.
Option 2- You can track employee utilization rates with software that you may already use. Most resource management software will allow you to track utilization rates automatically. PSA tools that include resource management can also track this for you and display the information in convenient dashboards.
Example: PSOhub Team Utilization Dashboard
What is considered a good employee utilization rate?
What’s considered a ‘good’ employee utilization rate will vary by industry. Consulting firms and other professional services businesses earn revenue from highly skilled employees. In professional services, hiring outstanding individuals with valuable skill sets can help you win more profitable clients and projects.
If your utilization rate target is too low, your team members may earn less revenue for the business and lack the incentive to be productive. On the flip side, if you set a utilization target that is too high, some employees may experience burnout. Burnout can negatively affect the customer experience as well as your company culture.
In most cases, the higher your employee utilization rate is, the better.
In professional services, 80% is considered the optimal employee utilization rate.
For consulting firms, best-in-class employee utilization hovers around 75%. And the foundational employee utilization rate is 71%.
Final verdict- 80% remains the goal for employee utilization rate. However, we can learn from the above numbers that anything 75% and up is considered a good utilization rate for professional services. Utilization rates that fall at or below the low 70s may need to be addressed to improve efficiency and profitability.
What can service businesses learn from their employee utilization rates?
The employee utilization rate demonstrates how much time your team is spending on work versus how much time they could be spending (according to their capacity). You can also gain insight into productivity and efficiency with both individuals and teams by taking a look at employee utilization rates.
Getting that utilization rate higher can help service businesses:
- Increase billable hours
- Increase profitability
- Pinpoint inefficiencies
- Improve staffing and training
Employee Utilization Rate vs Billable Utilization Rate: What’s the difference?
Employee utilization rate and billable utilization are both figures that can show you how productive and billable your team is. However, they are not exactly the same thing. Here’s the difference:
Employee utilization rate measures work time in relation to total available time (capacity).
Billable utilization rate measures billable time in relation to capacity.
For example– An employee has 20 billable hours for one week, in addition to 5 hours spent working on internal admin tasks. The total availability for the week was 30 hours.
The employee utilization rate is 83.3% or 25/30 x 100%.
The billable utilization rate is 66.7% or 20/30 x 100%.
For this employee, we can see that they have a good overall utilization, as it is above 80%.
We also see that this employee is productive with their work time, dedicating 80% of their total work to billable tasks.
However, the billable utilization rate is below 70%, which means there is room for improvement. By reducing the internal, non-billable admin time of this employee, the billable utilization rate will theoretically be higher.
How to Get More Billable: Tools that can help PSOs increase utilization rates
Identifying and tracking employee utilization rates over time can help project managers and owners increase the billability of their teams. Armed with the utilization data, you can address problems more quickly and optimize the efficiency of your team.
A resource management tool can track utilization rates for you and display them on a real-time dashboard.
Moreover, a PSA tool like PSOhub can make things even easier by connecting to all the other moving parts of your project management. That means invoicing and time tracking are connected with capacity planning. When your team tracks time, you can have that time automatically applied to an invoice that is generated according to your billing parameters. You can track the profitability of your projects easily with accurate data.
Because PSA tools are designed for professional services and are stacked with automated features, you can easily see your utilization rates at a glance. You can track employee utilization rate over time accurately, without the legwork.