Utilisation is far from yet another dry business metric; it’s the heartbeat of any professional services organisation. But if you’re not careful, it can become a fluffy, meaningless number that tells you nothing about the health of your business. Many people fall into the trap of broadening the definition to include non billable ‘customer-facing’ activities. This article is a plea for a stricter, purer definition. Because when it comes to utilisation, there is no such thing as being “a little pregnant.”
Be unambiguous!
The problem with utilisation often is a lack of clarity. By trying to include any and all valuable tasks that people do, we can make this metric utterly useless. The temptation to let valuable work count towards your team’s utilisation is understandable, but unfortunately it is wrong. In my opinion the utilisation metric is only meaningful if it ties directly to your team’s bottom line.
Here’s the only formula you should ever use:
Utilisation % = Billable Hours / Total Available Hours * 100
And the devil, as always, is in the detail.
- Billable Hours: This metric includes ONLY time that is directly charged to a client and generates revenue. This means we are ruthlessly excluding all the other things that feel productive but don’t generate an invoice. Time spent scoping a project, engagement management (if not billed explicitly), or fixing a bug under warranty? Not billable. Not a part of this calculation.
- Total Available Hours: This is the total time an employee is expected to work in a given period, with a crucial caveat: you must exclude time off, holidays, and sick leave. This is about what an employee can actually do, not what a calendar says is possible.
Why The Only Billable Hours Are Truly Billable
The moment you start including ‘near-billable’ tasks in your utilisation metric, you’re on a very slippery slope. If writing a Statement of Work is considered billable, why not the time spent on a pre-sales call? Or attending a conference to meet potential clients? Where do you draw the line? The most unambiguous marker is whether the customer gets an invoice for it.
This strict definition isn’t just about avoiding a fuzzy number; it’s about business reality.
- It Drives Your Invoicing: Billable hours are the core component of your customer invoice. Any ambiguity in what counts as ‘billable’ on the internal side will inevitably lead to confusion and mistakes on the external side. You don’t want to mess with what’s bringing in the cash.
- It’s a Lead Metric for Margin: While margin is a lagging indicator (you only know it after the books are closed), billable utilisation is a leading one. A low utilisation rate today directly signals a potential margin problem tomorrow. If your bonus is tied to margin, this metric is your best friend. It’s the closest thing to a crystal ball you’ll ever get.
- It Sets the Right Tone for the team: If your team understands what really matters to the business’s profitability, they will act accordingly. There should be no mystery as to what activities are driving the department’s success. Your team members should understand this is the metric the CFO will be scrutinising when deciding on budgets, headcount, and growth.
An Honest Look at the Denominator
The denominator – your team’s ‘Total Available Hours’ – is just as important as the numerator. If you include holidays in the calculation, you’re sending a ridiculous message to your team: 100% utilisation is an impossible dream, unless they sacrifice their holidays. That’s a surefire way to breed resentment and burnout. This metric should be a measure of productivity, not a punitive tool. When the natural maximum is 100%, it’s intuitive and encourages efficiency in non-billable time.
Talking to the Rest of the Business
Explaining the importance of a strict utilisation metric to other departments can be a challenge. To a sales leader, the PS team is a means to an end – a way to get a deal done, not a revenue generator in its own right. They’ll want PS to do whatever it takes to close a deal, without worrying about whether the time spent is billable.
Similarly, a product leader might see the PS team as a great way to get customer feedback, and they’ll want the team to spend time on product demos or feedback sessions, regardless of whether it’s billed.
Your job is to show them that a healthy PS business is a sustainable business. If your team is spending all its time on unbilled activities, it’s not generating the revenue needed to grow the team, train new staff, or invest in better tools. A transparent and strict utilisation metric shows them the trade-off. It’s not about being unhelpful; it’s about ensuring the department can continue to be a strategic asset, rather than a cost centre bleeding resources.
Specifically in the Enterprise Software space, I believe the right MBO for PS is to “Maximise ARR without loosing money”. From a utilisation perspective, that means you are not trying to drive up U% for maximum PS profitability. On the contrary! You will keep billable utilisation on the lowest level possible to still make a small margin. (Big enough to stay out of the cross hairs of your CFO). That allows your team to contribute to the success of the company, alongside the billable work. What we do with all the non billable time you now have on your hand, is the topic for another post.
Summary
The utilisation metric is powerful, but only if it’s honest. By sticking to a strict definition of billable hours and a realistic denominator, you’ll create a metric that is not only a leading indicator of your department’s financial health but also an honest reflection of your team’s productivity. You’ll gain clarity, empower your team, and have the data to prove your value to the rest of the business.
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