Industry: Consulting / Services
Measure: Consulting Utilization
Utilization is one of the most important measures for a consulting/services firm. When multiplied by Average-Bill-Rate, it provides the Service-Revenue for a services firm. Utilization gives an indication of the effective use of a consulting resource.
How to Calculate?
Formula: Utilization = Billable-Hours / Available-Hours
Utilization is calculated by dividing the Billable-Hours for a consultant during a time period by the Available-Hours for that same time period. The numerator in this case, Billable-Hours is fairly easy to determine. The denominator, Available-Hours can vary. One widely used standard is to use the total available work hours in a year, which is 2,080 (40 hours per week times 52 weeks). Another technique is to use a “net” hours, by reducing the 2,080 by factors such as Vacation, Sick, Training, Holidays, Administrative, etc.
Gross-Available-Hours (40 hours times 52 weeks) 2,080
Less: Vacation-Hours (40 hours times 2 weeks) - 80
Sick-Hours (40 hours times 1 week) - 40
Training-Hours (40 hours times 1 week) - 40
The difficulty with Net Hours exists if employees have differing available vacation time, Training time, etc. The advantage to using Net-Available-Hours is a more accurate view of lost revenue opportunity for a consultant or group of consultants. Using a Gross-Available-Hours value of 2080 allows for a comparison to industry standards, competitors, divisions etc. Utilization is also use in the company valuation process to determine the general health of the business. Management may want to consider a Utilization-Gross (using 2080) and a Utilization-Net.
What it means to your business?
An underutilized resource (as indicated by a low Utilization percent) can be an indication of problems in the following areas:
- Skills or appropriate training for a consultant(s)
How to use the metric in your business?
Useful Time Periods: Year, Quarter, Month, Week, Day, Last-Twelve-Months, Last-Six-Months
Useful Groupings: by Company, Division, Practice, Client, Project, Consultant, Consultant Level, Client Industry
See also: Average Bill Rate
Revenue Per Consultant
Gross Margin Markup