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The mantra of "time is money" translates directly into one crucial metric: billable utilization. It’s the single most important Key Performance Indicator (KPI) for agencies, consultancies, and IT service firms, reflecting not just efficiency, but the organization's fundamental ability to translate its core asset—expert time—into profitable revenue. Yet, calculating utilization is elusive for many companies— and for good reason.
At some point, you’ve probably asked: Are my billable consultants really 80% utilized? What counts as billable time? And why is tracking utilization rate such a pain?
These aren’t small questions; they directly impact revenue, margins, and client satisfaction. In this article, we’ll explore the most common billable utilization challenges agencies, consultancies, and IT services firms face, how billable utilization differs from resource utilization, and how a Professional Services Automation (PSA) platform can transform utilization uncertainty into predictable, and profitable growth. Let’s dive in.
Billable utilization is the definitive measure of your firm’s profitability, answering the question, how much of our team's available time is directly generating revenue? This metric isolates the time spent on tasks that are invoiceable to a client, such as:
Optimizing your billable utilization rate is crucial, as every percentage point directly impacts your margins, overall profitability, and the capacity for future investment.
Resource utilization, by contrast, measures all productive time, encompassing both billable work and necessary, non-billable activities. Resource utilization answers a broader question: How engaged is our team during their available working hours?
Non-billable activities are essential to running a high-functioning service firm, including:
A high resource utilization metric simply confirms that your staff is busy; however, it does not translate to profitability.
The difference between these two metrics is where many firms discover hidden margin erosion. You may have a billable consultant with 100% resource utilization (meaning they worked all their available hours), yet if too much of that time was spent on internal IT, mandatory training, or administrative backlog, their billable utilization might only be 60%.
For leaders, the takeaway is clear: resource utilization is a productivity metric, while billable utilization is the primary financial health metric. Both are valuable, but success in the professional services industry hinges on optimizing the latter.
Time is inventory, and without tracking, you can’t price your services, appropriately staff to meet client demands, or deliver profitability. To manage what you must master, start with the mathematics. The utilization formula is straightforward, but the operational definitions you use for the variables are what truly matter.
To calculate your billable utilization rate, you compare the time that generates revenue against the total time you pay your employee to work.
Total Billable Hours ÷ Total Available Hours x 100 = Billable Utilization
In other words, if an employee submits 36 hours of billable work for a 40-hour week, their billable utilization rate is 90%.
The formula for resource utilization includes all productive time, offering a more complete picture of your team's engagement. To calculate it:
Total Hours Worked (Billable + Non-Billable) ÷ Total Available Hours x 100 = Resource Utilization
It’s important to define the "billable" line with surgical precision. If your time capture system has ambiguity around what constitutes billable time under different service models (e.g., project work vs. flat-fee Managed Service Agreements), your utilization calculations become unreliable.
Improving your utilization rate is less about demanding more hours and more about reducing operational friction and increasing data integrity. To move the needle effectively, focus your efforts on three areas of systemic improvement:
Manual timesheets are the frequent killers of accurate utilization. Studies show that correcting time-tracking errors by implementing automated time entry alone can save businesses over $600,000 per year by recovering previously lost or miscategorized billable time.
Make time entry as easy as possible by integrating your Professional Services Automation (PSA) platform with email, calendar, and ticketing systems. Automated time logging drastically increases accuracy and gives your consultants back the time they would have spent on administration, turning a non-billable minute into a potentially billable one.
Most agencies, consultancies, and IT service firms aim for 75–80% billable utilization (~6-6.5 billable hours per day), although not all roles carry the same billable expectation.
Setting clear, achievable targets built into the workflow is critical for accurate forecasting and capacity planning.
Tool sprawl—quoting in one system, time tracking in a second, and billing in a third—creates administrative overhead that directly consumes billable capacity. A unified PSA platform (like Accelo) streamlines the entire process, from client management to project management, resource management, and financial management, providing the real-time utilization dashboards you need to make immediate (and future) staffing decisions. Additionally, this unified data stream is essential for clear visibility into the critical split between billable and non-billable hours firm-wide and by individual, enabling proactive intervention and adjustment where needed.
Case in point: Gamcorp, a highly-regarded engineering firm, saw a significant increase in their billable utilization rate, jumping from 35% to 85%, after implementing Accelo's unified PSA platform. By centralizing all client work, they gained enhanced visibility into their team's available work capacity, leading to substantial improvements in both efficiency and profitability.
Billable utilization remains the fundamental metric for assessing profitability and resource utilization within a services business. By addressing time-tracking friction, clarifying the operational definition of billable work, and leveraging modern PSA tools to surface actionable insights, leaders can move beyond anecdotal assumptions. You will gain the real-time visibility necessary to make strategic allocation decisions, protect your firm's margins, and ensure that your expert people are engaged in revenue-generating work.
Want to see how Accelo helps agencies, consultancies and IT services firms manage projects more effectively and improve billable utilization rates? Book time with our team to receive a personalized demo.
