Tracking billable utilization will tell you how productive your consultants are and how much scope you have to increase the firm’s revenues without adding new hiring costs.
The way a Professional Services firm makes money is by making sure that all their consultants are reasonably occupied in client projects doing billable work. Tracking this metric is directly related to the revenues and profits of the business.
A healthy business will have sufficient projects in the backlog and have the right consultants – a mix of senior and junior resources to deliver projects with good margins. The marketing and sales teams, on the other hand, should be able to build a strong pipeline of projects without incurring too much cost in non-billable hours.
Why is tracking billable utilization important?
Imagine a Professional Services firms with 50 billable consultants and an average billable rates of $100 per hour/ per consultant. In a week, if the utilization rate increases from 70% to 75%, you will be able to increase revenues by over $200 per consultant per week. That adds up to over half a million dollars in a year. And that’s just with a 5% increase.
With the war for talent becoming increasingly difficult to win, it is especially important for smaller firms to build efficiencies to stay competitive. By increasing the productivity of existing consultants, you will be able to increase revenues and profitability without having to find new talent. The first step in that journey is to know what your current billable utilization numbers are.
What is billable utilization in the Professional Services industry?
Billable utilization is a measure that tells you how much time your consultants are spending on revenue-generating billable work. If for some reason your non-billable work increases or if your consultants are assigned to projects inefficiently, the business faces a drop in revenues and profits. Billable utilization rate is a lead indicator of what the numbers are going to look like in each quarter.
The easiest way to understand billable utilization is through an example. If a consultant works on billable projects for 20 hours in a week, and the typical work week has 40 working hours, it means that the consultant’s billable utilization is 50%. This number will vary for each consultant. An average billable utilization for all consultants will tell you the health of the business.
What is the right target utilization for your business?
The benchmark billable utilization rate is different in the different verticals under the Professional Services industry. The nature of the work of law firms, for example, would require a certain rate that will be quite different from an Architecture, Engineering and Construction (AEC) firm.
While it is good to aim for specific numbers of billable utilization and profit margins, it would be better if you think of this as a band within which the rate for your business will fluctuate. Knowing what band works for your business will ensure good profit margins, high client satisfaction and employee morale.
How to improve billable utilization
Growing Professional Services firms that are in the business phase of standardizing processes and implementing technologies to automate workflows and increase productivity, can take a few steps to increase the billable utilization rate.
Accurately track time spent by consultants
Track resource availability and allocation
As Professional Services businesses grow and become more complex, it becomes a challenge to keep track of which consultant has been assigned to which project and who is available from when. This lack of visibility results in some consultants staying idle for long periods of time while others face work overload and burnout.
When you are able to track resource availability and allocation, you can ensure that all consultants get a more equitable allocation of projects and also ensure that the project allocation happens based on the relevant skills of the consultants.
Leverage technology like Professional Services Automation (PSA)
Leveraging technologies like the Professional Services Automation (PSA) will help you gain the visibility you need to improve billable utilization and ensure that all the projects are delivered on time and within budget. You will also help consultants become more productive by automating workflows.
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