Add up all the hours spent in safety meetings, company-wide conferences and planning meetings. Your business pays employees to work, but not every minute of every day is productive. The manpower productivity formula measures units of sales, services or goods produced against the number of work hours required. For example, there are 450 working minutes in an eight-hour shift.
And she takes time for lunch and (much-needed) coffee breaks. While utilization rate is generally applied to people, not objects, you get the idea. These are hours you pay for where productivity is zero or close to it.Employees lose productivity to socializing at work, or through inefficient actions that take too much time to find basic information. 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. 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. If too much of it is getting sucked up by non-billable, administrative work, it skews your team’s availability, distorting perception of the number of hours that could be devoted to paying work.This can lead to disastrous consequences, like being turned down for a perceived lack of capacity to do the work, and further degrading the backlog of billable work that could raise your utilization rates.From that perspective, reducing wasted non-billable hours can create a positive feedback loop that ramps utilization rates in an upward trajectory.The best way to optimize your utilization rates is to gather good, accurate information. It's impossible to hit a target if you don't know what you're shooting for. You can easily calculate the ratio in the template provided. This means it will never make as many widgets as it's capable of producing.The difference between the number of widgets it can make compared to the number of widgets it makes is the basis for the machine's utilization rate.While utilization rate is generally applied to people, not objects, you get the idea.Utilization is defined as the amount of an employee's available time that's used for productive, billable work, expressed as a percentage.An employee's utilization rate is a critical metric for organizations to track. Use the maximum days allowed in your company, or perform a study based on actual paid time off.While travel may be necessary for your business, you lose productivity while workers are in transit. These hours and days add up to non-productive time and will affect your manpower utilization figures.The more time your employees spend in meetings not directly related to their work, the less time they spend being productive. In business, the utilization rate is an important number for firms that charge their time to clients and for those that need to maximize the productive time of their employees. Capacity Utilization Rate Formula in Excel (with excel template) Let us now do the same example above in Excel. If 380 of those minutes were spent actually working, that person’s utilization … Multiply by 100 and you see that 20 percent of your employee's time is spent away from productive activities. To understand utilization and utilization rates, let’s imagine we have a widget-making machine. Manpower calculation provides insight into the cost of doing business. 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. This helps identify opportunities to grow the company, and where you may want to consider adding staff.If you tie utilization rates to profit, you gain insight into which services are most profitable.Both of these insights help salespeople. They may even go so far as to try and bring in business to boost billable hours. As long as she stays at, or better than, these percentages, she's considered to be utilized efficiently.There are many valuable insights you can gain by quantifying utilization rates.By looking at employee utilization rates by department or by job function, you can see where demand is heaviest (they have the highest utilization rates). Using Capacity Utilization Rate to Calculate Optimal Billing Rate Using this utilization ratio, we can calculate her utilization rate as:Her utilization rate was 75%. But we're getting a bit ahead of ourselves.First, we need to talk about organizational utilization rates, or capacity utilization rates.The capacity utilization rate is the average utilization rate for every employee in the organization, which can be calculated using this utilization formula:So if we imagine that Leslie works for a very small company with five billable employees, we can calculate their capacity utilization rate as:(The first five percentages in this formula represent the five employees’ utilization rates)This means that the average utilization rate at Leslie’s company is 74%.The capacity utilization rate is an important figure because it illustrates how efficient the entire company is at utilizing their available hours.A company with a low capacity utilization rate is losing the billable value of all of those hours, leaving a lot of money on the table.Typically, when a company wants to find out what it should charge per hour for all of its labor resources, it uses this formula:Let’s say the average labor cost at Leslie’s company is $100,000, per employee overhead is $20,000, and their goal is a 20% profit margin ($120,000 x .20 = $24,000).
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