Utilization rate

Utilization rate is the proportion of the hours you pay for that are billed to a client. Ten people paid for 400 hours a week, billing 240, run at 60%. It is the single number that separates a busy practice from a profitable one, because payroll is fixed and billable hours are not.

The useful thing about it is that it is the only lever that improves margin without a price rise or a redundancy. Five points of utilization on a ten-person team is 20 billable hours a week that already exist and are already paid for. Finding them is usually a matter of what fills the gaps: unbilled revisions, internal meetings that could be a message, and the estimating work that goes into proposals that lose.

The trap is chasing it upward without limit. Nobody bills 100%, and a target above roughly 85% is a target to stop training, stop improving process and stop selling — which shows up as a utilisation crisis two quarters later, when the pipeline built during those hours would have arrived.

Worked: 400 paid hours, 240 billed, at $120 an hour is $28,800 a week. Moving to 65% by cutting one recurring internal meeting and billing revisions adds 20 hours — $2,400 a week, or roughly $115,000 a year, with no new client and no price change.