What is a good utilization rate for an agency?
Published
Short answer
Most agencies aim for 70 to 80 percent billable utilization for the people who deliver client work, with 75 percent the most common target. Utilization is billable hours divided by available hours, and the target should be lower for leads and managers, higher for specialists, and never close to 100 percent.
How to calculate utilization
Utilization rate = billable hours ÷ available hours × 100
Available hours is where most of the confusion comes from. Use the hours a person can actually work: their contracted hours minus holidays, vacation and sick days. If you divide by all paid hours instead, the same person looks several points less utilized.
Example. A designer works 37.5 hours a week. In a four-week month with one public holiday, that's 142.5 available hours. They logged 105 billable hours.
105 ÷ 142.5 = 74 percent.
Use available hours as the denominator
74%billable utilization
rounded to the nearest percent
105 billable hours ÷ 142.5 available hours × 100
- Billable time logged105 h
- Other available time37.5 h
Available hours: 37.5 h × 4 weeks − 7.5 h holiday = 142.5 h.
What is a good number?
| Role | Typical target |
|---|---|
| Designers, developers, consultants | 75 to 85 percent |
| Project managers and team leads | 50 to 70 percent |
| Agency owners and directors | 20 to 50 percent |
| Whole agency, blended | 60 to 70 percent |
These are common ranges in professional services, not rules. Industry averages tend to sit below the targets: many agencies run in the 60s.
Why not 100 percent?
A person at 100 percent has no time for internal work, learning, sales, or the unexpected. Above about 85 percent over several weeks, quality drops, estimates get worse and people leave. Many agencies set both a minimum and a maximum.
Three ways utilization gets misread
- Missing hours. If billable work isn't logged, utilization looks low and the agency looks less profitable than it is. Fix time tracking first.
- Hours logged, but not billed. Utilization measures billable time logged, not money invoiced. If you write off hours on fixed-price projects, look at realization too: billed value divided by the value of hours worked.
- One target for everyone. A team lead at 60 percent may be doing exactly the right job. Set targets by role.
Planned versus actual
Utilization looks backwards. The more useful question is forward-looking: how much of each person's time next month is already booked? If the plan shows the team at 50 percent, you have room to sell. At 95 percent, you have a problem coming.
How Pledge helps
Pledge tracks time per person and project, marks it as billable or not, and calculates billable value at each person's rate. Plan shows bookings, time off and public holidays, so available hours are already correct, and you can compare what was planned with what was logged.
Questions
- What is the formula for utilization rate?
- Billable hours divided by available hours, times 100. Available hours are contracted hours minus holidays, vacation and sick days.
- What is a good billable utilization rate for an agency?
- Around 75 percent for people who deliver client work, with 70 to 80 percent a common range. The blended rate for the whole agency is usually lower, around 60 to 70 percent.
- What is the difference between utilization and realization?
- Utilization is how much of the available time was billable. Realization is how much of that billable time was actually invoiced. An agency can have high utilization and still lose money if it writes off many hours.
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