What is the formula for your agency's utilization rate?

The utilization formula

Your utilization rate is the share of the hours you pay for that go on work a client pays for. It sits behind your hiring decisions and the hourly cost in every quote.

Utilization rate = billable hours / available hours x 100

Available hours are the hours someone is paid for, less vacation, sick days and holidays. Billable hours are the ones spent on client work.

The arithmetic is never where this goes wrong. The definitions are, because the same timesheets can give two very different rates.

Billable is not the same as billed

Hours logged against a client feel billable. Some of them never reach an invoice: the third revision round, the extra report, the call that ran long on a fixed fee.

Count those as billable and your team looks full. You then hire to fix what is really a scoping problem, and add a salary the work does not pay for.

One designer, one month

Run the numbers on one designer in a month with 160 paid hours. One vacation day leaves 152 available. They log 118 hours on client work, and 22 of those sit beyond the scope anyone agreed to pay for.

These figures describe an invented month chosen to show the arithmetic. They are not a client result.

The gap between 77.6% and 63.2% is 22 hours of work nobody paid for. At $55 an hour, salary and everything paid on top, that is $1,210 a month from one person, or $14,520 a year.

How to work out your own rates

1. ( 01 )

   Take one full month

   Use the last complete month of timesheets for everyone who does client work, you included.

2. ( 02 )

   Work out available hours

   Start from paid hours. Take out vacation, sick days and holidays.

3. ( 03 )

   Split client hours in two

   Hours inside an agreed scope or invoiced, and hours beyond scope that nobody paid for. Ask the team if the timesheets cannot tell you.

4. ( 04 )

   Divide both by available hours

   Do it per person first, then for the team. A team figure hides the one person absorbing the overruns.

5. ( 05 )

   Put a cost on the gap

   Multiply each person's unbilled client hours by what an hour of their time costs you. That is the monthly price of the gap.

What to do with the answer

There is no target to borrow here. The rate that matters is the one your prices already assume. If your hourly cost assumes the team bills 75% of its hours and it bills 63%, every quote starts too low.

If the billed rate sits well below the client rate, hold off hiring. Fix scoping and change orders first, because those hours are already on your payroll.

If both rates are high and work still slips, the team is genuinely full. A hire then pays for itself, and your timesheets show by how much.

Run it every month. When the billed rate climbs while the client rate holds, your scoping fixes are working. Each point gained is hours you now get paid for.