None of these functions are billable, so Leslie's optimal utilization rate should account for the time she spends on these activities.For this reason, most organizations set target utilization rates for their employees that factor in how many of their available hours they need to spend doing non-billable work and how many hours they need to bill for the company to maintain profitability.Target utilization rates vary from person to person and between positions. Shrinkage is the percentage of employees who are not present to take calls in particular time or day. Latest Resources CFA® And Chartered Financial Analyst® Are Registered Trademarks Owned By CFA Institute.This website or its third-party tools use cookies, which are necessary to its functioning and required to achieve the purposes illustrated in the cookie policy. Assuming everyone has 2,000 available hours, you can calculate their billing rate like this:Leslie's company would need to charge $72 an hour to cover their expenses and realize a 20% profit.However, this formula assumes every employee has a 100% utilization rate, and we've already talked about how this is unrealistic and undesirable.Including the capacity utilization rate in this equation gives a much more realistic billable figure:Rounded down, the optimal billable rate to realize their 20% profit margin is $97 per hour.
CFA Institute Does Not Endorse, Promote, Or Warrant The Accuracy Or Quality Of WallStreetMojo. It’s a measure of billing efficiency that helps the company understand if it's billing enough to cover its cost plus overhead.When it comes to resource management, utilization rates help in forecasting, resource optimization, and many other essential business functions. If you remember, Leslie's utilization is 75%, which allows her some time for non-billable administrative work.It's vital that you share these target utilization rates with each employee and their managers.
As we said, every company needs some non-billable time built into its schedule, but too much non-billable time is an indication of waste. That would give an optimal hourly billing rate of $144 instead of $97, and that might be more than the company's clients want to pay per hour.
This can be an indication that:We already know that available time is a finite resource. Ideally, your employees should see target utilization rates as an exciting challenge, not a weight on their shoulders.There are plenty of benefits to using time tracking software to track billable hours, as long as the tool is easy to use. These insights can then be used to forecast utilization more accurately, so you can plan ahead and make smarter decisions about your business pipeline.10,000ft by Smartsheet offers powerful reporting tools to help make sense of your organization's resource utilization and get a firm handle on actionable steps you can take to increase (or decrease) your utilization rates.
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