Billable Utilization

What is billable utilization?

Billable utilization is a performance metric used by service-based companies and SaaS businesses to measure how effectively and efficiently employee time is converted into revenue. It is measured as the percentage of an employee's available (working) time spent on tasks that ensure revenue from their total work hours, by directly charging those tasks to the client. 

These tasks might include:

• Project planning and management
• Some types of customer support and technical assistance
• Implementation and onboarding services
• Client account management
• Project or product deployment and training
• Custom feature development and product enhancements
• Custom integrations and configurations
• Reporting and analytics services

Billable utilization enables finance and business leaders to gauge productivity, profitability, and overall resource allocation. It should not be confused with resource utilization, which includes all the work done by your employees—both billable and non-billable.

Billable work vs. non-billable work

Before you get down to calculating your employees’ billable utilization rate, it is important to define billable vs. non-billable tasks for your business. 

Quite simply, billable work is charged to clients. Conversely, non-billable work cannot be charged to clients. These typically include admin work, business development activities, internal meetings, as well as employee training and workshops. 

Significance of billable utilization 

Billable utilization is an important metric for several reasons:

• Revenue impact: Boosts revenue without increasing costs by maximizing resource efficiency and addressing underuse.
• Cost management: Tracking billable utilization can be used to better control operational costs by helping to avoid wasting money on unproductive tasks. It also supports headcount planning and ensures that team and project budgets match revenue goals.
• Business efficiency: Improves business value by identifying inefficiencies and improving resource planning.
• Customer success: Ensures project teams stay focused on delivering high-quality results on time, boosting customer satisfaction and retention.
• Growth planning: Utilization data enables accurate capacity planning, helping businesses scale by optimizing staffing and ensuring realistic delivery timelines without overcommitting.
• Competitive advantage: Efficient use of staff resources helps SaaS and professional services companies stay competitive and boost customer satisfaction.
• ‍Team performance: Helps evaluate performance, identify skill gaps, guide development, and ensure an equitable distribution of work among employees to prevent burnout.

How to calculate billable utilization

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

Let’s consider the following examples.

‍Example 1: Sarah is a senior consultant at a mid-sized IT services firm. Her standard working hours are 160 hours a month (per 40 hours a week).

Sarah’s available working hours :

• 22 working days in March
• 8 hours per day
• Total available hours: 22 × 8 = 176 hours

Breakdown of time/hours: 

• Billable work (client project including strategy meetings, presentation development, client workshops, client management and communication): 145 hours
• Non-billable work (internal meetings, business development, training, personal commitments, etc.): 31 hours

Example 2: Dave manages a 5-person development team at a SaaS company.

• Developer A: 78% utilization
• Developer B: 85% utilization
• Developer C: 71% utilization
• Developer D: 88% utilization
• Developer E: 79% utilization

This 80.2% team utilization rate indicates healthy productivity, allowing for necessary non-billable activities while maintaining strong client delivery.

Best practices for accurately calculating billable utilization hours

You can consider the following best practices to accurately track and measure measure billable hours:

• Track at multiple levels: Individual employee utilization rates help identify performance and capacity issues, making it easier to provide support or adjust workloads. Team or department averages show overworked or underutilized team members and can be used to allocate resources more effectively. Meanwhile, overall company-wide metrics help assess revenue conversion and profitability.
• Account for industry-specific factors: In SaaS companies, 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 but important tasks like scheduled platform and infrastructure maintenance often take up a lot of an employee’s available hours. 
• Set realistic targets: Consider your company's growth stage, team structure, and work culture when setting utilization targets, as early-stage startups will have different benchmarks than more established companies.  Role-specific targets, say for developers and managers, help set fair and realistic expectations for employee performance. It's also important to account for unbillable yet necessary time off, like vacation days, sick leaves, and professional development.
• 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.