Industry: Consulting / Services

 Measure:  Consulting Utilization

 Description:

 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

Net-Available-Hours                                                                       1,920

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:

  • Sales
  • Skills or appropriate training for a consultant(s)
  • Client
  • Employee
  • Rates

 

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