Billable Utilization

What is billable utilization?

Billable utilization is a performance metric for measuring the operational efficiency of SaaS companies. It shows how effectively your team's time converts into revenue.  SaaS leaders distinguish between billable and non-billable tasks to better track their teams’ efficiency in how they use their time.

Billable utilization is the percentage of an employee's working time spent on activities that create direct business value from their total work hours. Billable work can be directly charged to a client, such as:

• Feature development and product enhancements: Building new features or improving existing ones for client-specific needs.
• Customer support and technical assistance: Providing direct support to clients, resolving issues, or offering technical guidance.
• Implementation and onboarding services: Helping clients set up and adopt your SaaS platform.
• Custom integrations and configurations: Creating custom solutions to integrate your product with client systems.
• Professional service delivery: Consulting or advisory services linked to client contracts.
• Training and enablement for clients: Delivering client-specific training for effective product use.
• Managed services: Ongoing client account management, including monitoring and optimization.
• Custom reporting and analytics: Creating custom reports or dashboards for clients to track performance.

How to calculate billable utilization

You can use the following formula to calculate billable utilization rate, which is expressed as a percentage:

To accurately calculate billable utilization, you must define billable vs. non-billable tasks for your SaaS company. The lists below will help you do that.

Billable work:

• Generates revenue from clients
• Is outlined in client contracts/agreements
• Directly impacts profitability
• Includes custom development, client onboarding, and support
• When tracked, helps to ensure accurate billing and revenue forecasts

Non-billable work:

• Not tied to a client
• Supports business operations and growth
• Internal meetings, R&D, marketing, and administrative work
• Indirectly impact profitability
• Tracking non-billable work shows process inefficiencies

The following considerations will help you more accurately measure billable hours, align the  results with your business needs, and offer precise insights you can use to improve resource efficiency.

Track at multiple levels

Individual employee utilization rates help identify performance issues or overwork, making it easier to provide support or adjust workloads. 

Team or department averages show overworked or underutilized groups, helping to allocate resources more effectively. 

Company-wide metrics help assess revenue conversion.

Here are a couple of examples to show you how to calculate utilization for an individual and as a team or company-wide average:

Consider SaaS-specific factors

SaaS companies handle tasks that don't fit into standard billing categories. 

For instance, product development may be billable if it's tied to a product roadmap, while customer success tasks could also be billable depending on the contract. 

On the other hand, non-billable tasks like platform and infrastructure maintenance are important activities that take up time that could be spent on revenue-generating work. 

SaaS leaders must categorize work based on these distinctions when calculating profitability.

Set realistic targets

Consider your company's growth stage, team structure, and work culture when setting utilization targets, as early-stage SaaS startups will have different benchmarks than more established companies. 

It's also important to account for unbillable yet necessary time off, like vacations, sick days, and professional development. 

Role-specific targets for different roles, like developers and managers, help set fair and realistic performance standards.

Use time tracking tools

Time tracking tools help teams log hours consistently and correctly to generate reliable utilization data. 

Regular utilization reports provide leadership with insights to improve decisions and efficiency.

How to improve billable utilization?

SaaS finance leaders aim to boost efficiency and profitability by increasing time spent on revenue-generating work. However, overemphasizing billable utilization without considering workload, quality, or employee well-being can lead to burnout. 

You must balance utilization with team productivity.

Here are effective strategies SaaS companies can use to boost billable utilization:

• Optimize resource allocation: Boost efficiency by matching employee skills to projects, reducing bench time, and cross-training teams for flexible roles.
• Streamline non-billable activities: Free up time for billable work by reducing the frequency of meetings, automating tasks like invoicing, and batching similar non-billable activities.
• Improve project management: Define project deliverables clearly to prevent scope creep and keep projects within billable hours. Use agile methods to ensure faster and more predictable client work delivery.
• Enhance time tracking: Simplify time logging so that employees use it consistently and use real-time dashboards to make quick performance-based adjustments. Set weekly utilization targets to keep employees focused on achieving billable goals.
• Be strategic in scheduling: Planning ahead prevents resource gaps and ensures steady workloads. Provide smooth transitions by maintaining a pipeline of ready-to-start projects.
• Reduce context switching: Minimize task-switching by grouping similar work, reducing distractions, and blocking focused time to boost employee efficiency.
• Identify and eliminate bottlenecks: Streamline workflows by speeding up approvals, improving client feedback cycles, and reducing non-billable work with standardized processes.
• Invest in your employees: Provide training and mentorship to help team members quickly upskill, reducing learning time and boosting revenue contribution.