Your employee utilization rate is more than a number. It’s a balancing act. One where you’re trying to keep your clients, employees, and the balance sheet happy.
With some danger zones, low and high utilization rates might even keep you up at night. How do you stay on top of your team’s capacity? Is the workload distribution and allocation of tasks fair? And is anyone at risk of burnout?
While employee utilization might sound like a sterile term, it actually requires a good level of emotional intelligence to manage it well. In this article, we tell you how to calculate employee utilization rate and how to track it accurately.
Formula for calculating utilization rate for employees
Your employee utilization rate is a figure that reveals what percentage of your employees’ working hours is spent on client work (billable tasks) or work that generates profit for your business.
To calculate your employee utilization rate, you need to have two figures.
Your employees:
Capacity or total working hours – This is usually 40 hours per week for full-timers. However, it’s a good idea to adjust this to real-life capacity, which is realistically between 30-35 hours per week. This makes up for lost time due to leave, sick days, procrastination, and unexpected work scenarios that pop up out of the blue.
Billable hours – This is the figure you’ll get from the tool you use (such as ActiveCollab), where you track all your client workflows and team time logs for individual client tasks.
When you have these, use the utilization rate formula:
Employee Utilization = Billable Hours ÷ Total Available Hours × 100
Let’s take a look at what this would look like in reality through an example.
Sarah, is a full time employee with an official 40-hour working week (2080 hours per year) at a marketing agency. She has 4 weeks (160 hours per year) annual leave and 12 (96 hours per year) sick days she can take throughout the year.
To calculate her total available hours, we would deduct the leave and sick day hours from her annual hourly capacity:
Sarah’s total available hours (annually) = 2080 - (160 + 96)
= 1824 hours per year
= 1824 ÷ 52 weeks
Sarah’s total available hours (weekly) = 35 hours per week
For her billable hours, let’s say we’ve used ActiveCollab to track Sarah’s billable task time and we’ve come to an average of 30 billable hours per week.
Now we can calculate Sarah’s employee utilization rate.
Sara’s utilization rate = 30 ÷ 35 × 100
= 86%
So how good or bad is this? Keep reading to find out.
What’s a good or optimal utilization rate?
All this information brings us to the next big question: What’s a good employee utilization rate or team's utilization rate? Only with that question we can understand the optimal billing rate as well!
The answer to that depends on who’s asking. Average utilization rates and best-practice benchmarks vary across industries and job types.
This table displays the guiding benchmarks for some key service businesses. In these industries, utilization is king. Why? Because labor costs make up a whopping 40-80% of their revenue.
So you can understand why, as a business owner or founder, you want to be certain you are utilizing and balancing your resources perfectly.
| Industry | Benchmark |
|---|---|
| Marketing & advertising | 60-75% |
| Business Consulting | 70-85% |
| Law Firms | 65-85% |
| Accounting Firms | 70-80% |
| Architecture, Engineering & Construction | 60-75% |
| IT & Software Development | 70-80% |
How high is too high?
While you want to land and maintain a utilization rate at the higher end of the scale, be wary of pursuing or sustaining too-high rates over a longer period.
In most cases, utilization rates of 85% or more for an extended period can backfire and lead to extreme team burnout or quality issues.
Also, keep in mind that utilization rates vary across role levels. Juniors and mid-level staff generally have higher capacity utilization rates, while it’s normal for senior and leadership role rates to be up to 20% lower.
How to track employee utilization
To track employee utilization accurately, you’ll need two things:
- A productivity and project management software and platform like ActiveCollab. Here, you can organize client work, assign tasks, set task time estimates, and have your team time-track client work deliverables.
- A team that has adopted task time-tracking as the norm so you have a consistent and accurate database of task time logs for all your client projects.
The tool then collects all this data and lets you generate dashboards and employee utilization reports to instantly view the breakdown of billable against non billable work, which you can turn to every time you need to calculate and monitor your employee utilization rates.
When you have these two things sorted, you can follow the following steps.
Assign tasks & set time estimates
Among resource utilizations in resource management, there's also capacity planning that has to take place.
For every billable project task you assign to a team member, make sure you set a time estimate. This figure should be realistic and where possible, it should be informed by previous experience. Ask yourself or your task management tool, how long this type of task has generally taken to complete in the past.
When you do this, platforms like ActiveCollab can track and pull data to show you how your time estimates compare to actual time longs.
Have your team track time & tag time logs accurately
The next, crucial step is to make sure your team logs their actual task time, directly against their assigned task, consistently and accurately.
In ActiveCollab, users have the option to tag every time log as a billed or unbilled task. That way you can generate dashboards and reports to understand what proportion of a person’s work is made up of billable and unbillable tasks.
It’s vital all time logs are recorded honestly as this will directly impact the accuracy of your employee utilization rates.
Monitor time dashboards & reports
As you accumulate time data for your team, platforms like ActiveCollab visualize all the time logs, in real time. You’ll be able to instantly see the ratio of billable to non-billable hours for individuals, teams and projects.
These dashboards and reports paint a clear and immediate picture of who is underused, overworked or working at capacity.
Make smart utilization decisions for the long-term
Finally, when you have this priceless data within reach, you can see what decisions you need to make to land ideal employee utilization rates for your team.
The things you want to keep an eye out for in these reports are:
- Time logs exceeding individual capacities (burnout risk)
- Time logs below individual capacities (wasted resources)
- Task estimates (are your task estimates accurate or constantly off?)
By using a dedicated platform like ActiveCollab to track and review utilization, you get a real insight into your team’s performance, productivity, and wellbeing.
Why track employee utilization?
Employee utilization rate is one of several vital business health metrics. If you’re an agency or service-based business, it’s probably the one you can’t live without. Why? Because it serves as a compass and indicator of costly, money-churning, and morale-destroying resource and capacity planning and operational inefficiencies.
When you track employee utilization, you can identify operational inefficiencies that directly impact your team’s productivity and your business’s balance sheet. However, you can also uncover valuable insights that have an indirect impact on your team’s performance.
Let’s take a look at a few major benefits of employee utilization tracking.
Optimize resource allocation & increase productivity
The first, and most obvious, is that tracking and collecting data on your team’s time and work distribution through a tool will reveal the state and health of your workload allocations. You can use this information to:
- Rebalance workloads – Identify underused or overused employees and reallocate tasks for fair work distribution. This will prevent bottlenecks, delays, and burnout.
- Correct forecasting & budgets – Utilization trends help work out future resource needs. This prevents overstaffing and understaffing, which affects budget & profit margin.
- Improve project delivery – Past project allocations help inform realistic timelines and resource needs. This lets you land accurate schedules and achievable deadlines.
Discover if your team Is engaged & happy
Another useful thing you can pick up in utilization trends is whether individuals or your teams are engaged and happy, or unmotivated and stressed. Regular tracking can help you uncover deeper issues that might be risk factors for your business, which need to be addressed.
- Drastic increases – A drastic increase or consistently high utilization rate (90% or more) signals a high-stress work environment and overload.
- Drastic drops – Sudden drops and consistently low utilization rates (60% or less) hint towards disengagement, lack of skill or tools, and possibly personal issues.
- Team-wide changes – Any positive or negative trends that are team-wide reflect the state and quality of leadership or organizational culture.
Determine employee strengths & weaknesses
If you dig a little deeper into your employee utilization data, you can also discover your team’s strengths and weaknesses. This gives you a better understanding of your organization’s talent pool and lets you identify individuals with growth and development potential. It also brings your attention to individuals who might not be a good fit for your organization.
- Spot high performers – People with high utilization rates contribute more and can be trusted with high-impact tasks. They are stars you want to nurture and develop.
- Reveals low performers – Individuals with continuously low utilization fall into one of three categories: inadequate skills, undedicated, or they don’t have the right tools or training.
- Mismatched talent – Not all low performers are the wrong fit for your organization. They might simply be a mismatch for particular tasks, so you might need to align tasks to their skill set.
ActiveCollab: Your Employee Utilization & Productivity Buddy
Calculating and tracking your employee utilization rates across the business is not about squeezing your employees for every billable hour. It’s about finding the sweet spot where productivity, profitability and wellbeing come to the perfect intersection.
To make that possible, you’ll need a productivity platform buddy – you’ll need ActiveCollab. Not only is it going to collect and collate your time data, it’s going to make sense of it and reveal the real story behind your team’s workload and utilization and help you improve overall employee utilization.
It will uncover and reveal workload sore spots, whether they be over or under utilization so you can forecast and plan client projects and assign tasks with more realistic time estimates.
And when you have all the data ActiveCollab offers in visual dashboards and reports, you can fine-tune your processes and support your team better. Ultimately, you’ll build a thriving team and a more resilient and balanced business operation that meets client deadlines.
So if you’re serious about employee utilization and know how important it is for a high-performing service business, you know you’ll need a tool to be your buddy on this journey.
Sign up for Activecollab’s 14-day free trial or book a demo with one of our people to show you how the platform works.