Development and digital agencies have more buzzwords – and acronyms for those buzzwords – than most other industries. Take CPC, COS, CPA, CPL, CTA, CTR, CMS, CRM, CLTV, COB… the C’s alone can make your head spin. While fun in nature, having too many descriptions for essential business metrics and tactics can easily start to cause confusion around what they really mean and why they’re important.

The primary metric that has taken the brunt of too many definitions is utilization. Every company (and often every person within each company) is likely operating under a slightly different definition of what utilization truly is, how it’s tracked, and why it’s tracked. 

We get it: utilization is definitely a tricky metric to nail down—but it doesn’t need to be as complicated as we’ve all made it. It’s time to align on the best approach for calculating and tracking this ever-important metric once and for all. 

The basics: utilization vs. capacity 

Let’s start with the basics. Utilization is a metric tracked by agencies and other service companies to understand how much billable (client) work vs. non-billable (company/admin) work each employee is responsible for, with the goal of having the vast majority of each employee’s time dedicated to billable work.

On the other hand, capacity is a metric that indicates how many hours of work are available in a week for each employee. Say someone is taking PTO one day out of the week—they’ll have 32 hours of total capacity rather than 40 hours. 

In practice, here’s how a 40-hour work week might shake out for an account manager who will be working all five days: 

  • Total capacity (100%) = 40 hours – This is the total hours they’re available that week for any type of work (billable or non-billable). 
  • Billable capacity (80%) = 32 hours – The total hours they’re available for client work that week.  You can typically assume 20% of their time will be spent on company and admin activities (think: all-hands meetings, committee meetings and events, small breaks throughout the day). While 20% of admin time is expected, we recommend aiming higher and planning for a billable capacity of 90% or 100% to account for the inevitable variances that happen from week to week. 

Why? Won’t that burn out the account manager? No, it shouldn’t — because we all know that plans almost always change. Usually, we end up billing less time than we anticipated, so it’s best to always aim higher, knowing you’ll likely land around 80% by the end of the week. 

Target billable utilization

This is the average goal for billable work over time. Billable utilization targets typically vary by role—leadership roles will have lower billable utilization targets as they focus efforts on new business efforts to grow the company, while project managers and other production roles tend to have higher utilization targets.

But again, because capacity is something that will vary depending on PTO, sick time, and holidays, we recommend planning for higher billable capacity each week in order to more easily reach your target billable utilization over time. 

How to avoid common utilization and capacity challenges 

There are a lot of factors that contribute to utilization and capacity, and it can feel like they’re always changing—but you need to keep closely tracking these metrics. 

If this account manager, for example, is actually hitting 100% billable utilization week over week, they’re clearly overloaded with work. They don’t have time in the day to take breaks or work on company-related tasks and projects, and they will burn out. However, you might notice that another account manager is regularly coming in at 70% billable utilization, so you shift projects around to balance the workload between these two account managers. 

Other challenges to watch for include: 

  • Overloading non-billable projects: Non-billable projects should always align with the company’s business strategy to support and elevate the company and its employees. Be careful not to overload any one employee with too many non-billable projects, otherwise it’ll impact their ability to bill time to clients, and their billable utilization and revenue targets will be missed. 
  • Increasing utilization by increasing meetings: Having employees attend more meetings even if they’re not an active participant is a very common tactic agencies use to increase utilization. This isn’t good for teams or for clients—so instead, determine the actual cause of low billable utilization for those employees, then focus your time and attention there. 
  • Using utilization as a lagging indicator: Rather than reacting at the end of each week to low utilization levels and pushing employees to work harder and bill more time, improve visibility into the sales pipeline. This will help you proactively assess what work is coming and whether it’s enough to allow everyone to reach their goals and if you have enough people available to take on new work. Employees won’t get burnt out with this approach, and you’ll feel more confident in your resourcing decisions.

When tracked accurately and consistently, utilization and capacity are two of the most insightful, actionable metrics, unveiling when and where to make adjustments to workloads and when and who to hire to maintain balance across teams. They’re that important to take control over. 

Lean on technology for support 

Yes, utilization and capacity can be challenging—but there’s good news! There are tools available today that provide easy access to critical resourcing information so that leaders and resourcing managers can better match the right people to the right projects, all to drive both individual and business performance forward. They remove any guesswork associated with planned vs. actual utilization and capacity, helping align everyone on how utilization is calculated and tracked (finally!). 

If you’re looking to better understand your utilization and are a current Harvest customer, get your free report now (and it only takes minutes). 

This article is a guest post from our partners at Parallax. For more information about how Harvest and Parallax help you understand what your true utilization rates are, check out the Parallax integration page.