As a consulting or contracting organization, what should my target billable utilization rate be? This number is one of the most important targets, and will affect your profitability and ability to grow. Too low: You will lose money. Too high: You will burn out your team, and will not have time to develop your skillset and improve processes. 

Let’s think about this from a job-shop perspective. Keep in mind that the type of work you do, whether your projects are short term or long term, whether you need to charge for specialty knowledge, the type of specialist in your org, how much personal time you want, will all contribute to your optimal target utilization. 

However, some rule of thumbs are available based on our years of experience running consulting organizations. If you work chiefly on long term projects, then 80% is a good utilization target. This is a common benchmark and is applied across many industries. If you are engaged in quick response consulting, then 50% may be a more appropriate utilization. Note that your bill rates need to be adjusted up to match. For staffing organizations, 90% is a common metric to hit, though every point up allows you to decrease your charge rate. Note that these targets include both billable and nonbillable people. In many organizations, nonbillable staff will also do some billable work, as well as the nonbillable: management, business development, etc.

However, can we be more precise than this? Yes, by using mathematical modeling. Modeling your consulting/contracting practice as a job-shop, we can model projects coming in from customers. In our model, we will assume projects appearing at random, with random times to complete each project, and you have c people to do the work. (If you are a 1-person shop, then c=1.) Then the utilization (assuming projects will wait in line indefinitely) can be calculated as the project arrival rate * mean service time / c, where project arrival rate = 1 / mean time between project arrivals. Note that if projects can last only a short while in the backlog, then the utilization rate will necessarily be lower.  The equations in this case are not for the faint of heart (e.g., https://rossetti.github.io/RossettiArenaBook/app-qt-sec-formulas.html) but can be displayed in any particular case in a graphical format that is easy to read and interpret. We will dig in deeper in another post. 

Have questions about how this applies to your organization? Our mission is to help you get the most of your time. TimeCatchApp provides consulting and analytical expertise to help consulting organizations grow and manage their operations more efficiently. If you would like to discuss your challenges and how we can help, let us know via the contact form. Initial discuss will be at no cost to you, and of course your invoices will come from TimeCatchApp’s invoicing system.

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