3 Types of Utilization & Why You Need Them

Better resource visibility starts with measuring utilization. Here are three types of utilization that will give you a fuller picture.

Despite the common belief, tracking billable utilization alone won’t help you hit higher revenue goals.

If anything, keeping your eyes on hours spent doing client work will only give you half the picture. The other half? Hours of work gone into internal meetings and projects that are often overlooked because they don’t generate revenue or help with cost control.

But if you’re serious about driving more revenue, you need the full picture, including all revenue- and non-revenue-generating projects your employees work on.

In fact, we highly recommend tracking three types of utilization – based on the insights we've got from experts in the resource management space we chat with in our monthly webinars.

This short, no-nonsense guide details the types of utilization to track, why to monitor them, and ways to optimize each utilization type. On we go:

1. Billable utilization

Billable utilization is the time your employees spend doing work directly billed to your clients, calculated as:

Billable utilization rate: Billable hours/capacity hours (industry standard is 2080) x 100%

So if an employee works 1,560 hours in a year, their billable utilization rate would be 75%.

1,560 billable hours/2,080 total hours x 100% = 75%

Because the metric shows you the direct revenue tasks generate, it’s typically the most prioritized metric to track in consulting firms.

Of course, tracking billable utilization comes with several perks. For instance, it is useful for:

Determining how much time goes into driving direct revenue.
Justifying and informing pricing and profitability reviews with clients.
Deciding on hiring more full-time employees or contractors.

By keeping tabs on each employee’s utilization rate, you can also get a deep understanding of how well they’re contributing to the company’s growth. In turn, the insights can be used to inform pay raises and reduce bench time.

Put simply, billable utilization is critical to improving revenue growth — it even contributes to better project planning by showing the actual (not estimated) time it takes to complete specific tasks and different clients’ projects.

Runn’s top three tips to improve billable utilization:

Set clear targets and project goals per role/team, so less time goes into wasting and more into working.
Include buffer time in your project plans, accounting for delays or revisions to keep employees focused and reduce idle time.
Use real-time dashboards to track hours worked and resource utilization and course-correct before it’s too late.

2. Non-billable utilization

Non-billable utilization is the time employees spend on tasks that are neither billable nor chargeable. For instance, time spent on overhead or internal work that isn’t billed to clients, such as team meetings, admin work, and time dedicated to learning, upskilling, and even reskilling.

It’s calculated as:

Non-Billable Utilization Rate: Non-billable hours/capacity hours (industry standard is 2080) × 100%

So if an employee does 420 hours in non-billable work, their non-billable utilization rate would be 75%.

420 non-billable hours/2,080 total hours x 100% = 20%

Because nonbillable utilization doesn’t immediately or directly contribute revenue, it’s easily overlooked. However, monitoring it is essential for:

Conducting an all-around, comprehensive utilization review.
Highlighting the time your team spends on necessary but non-revenue-generating tasks.
Revealing internal operations and workflow inefficiencies.

By correctly estimating the time it goes into non-billable tasks, you can also better allocate time to them. In turn, this helps reduce workplace burnout as it assists in penciling in non-billable work hours/tasks in employees’ work schedules.

The best way to optimize this metric is to understand what non-billable tasks employees are doing and track the time they take. From there, settle on exactly how much time employees should be spending on each of the tasks – then track against the set goal.

types of utilization — *Track billable and non-billable utilization with Runn's refined and customizable reports*

Runn’s top three tips to improve non-billable utilization:

Automate repetitive admin or workflow tasks to reduce time going into essential but unnecessary manual work.
Limit internal meetings and/or only set meetings that have a clear agenda. Use tools like Loom to save more time here.
Regularly track and audit non-billable time to see how well you’re managing it and determine where you could be saving more time.

3. Productive utilization

Productive utilization is a measure of the time employees spend on what isn’t billed to clients but funded internally. This could involve internal projects like marketing campaigns and product development that contribute to significant business value.

For instance, developing a research report drives growth by generating pipeline and strengthening your industry authority as a consulting firm. The metric is calculated as:

Productive utilization rate: Billable + productive hours/capacity hours (industry standard is 2080) x 100%.

So if an employee works 1,560 billable hours and 320 productive hours, their productive utilization rate would be 90%.

1,560 billable hours + 320 productive hours/2,080 total hours x 100% = 90%

Tracking productive utilization is essential for:

Determining the time it takes to do strategic growth work that drives business forward.
Understanding the time invested in driving business growth and relevant metrics.

Most of all, tracking productive utilization gives you a holistic view of team impact. It also assists you in focusing on high-value internal projects instead of filler internal initiatives.

Runn’s top three tips to improve productive utilization:

Define what productive work in your company is and educate employees on it so their productive billable hours go into high-impact work.
Track the time, costs, and outcomes of all internal initiatives to differentiate between strategic growth internal projects and filler or low-impact tasks and reduce time dedicated to the latter.
Align internal efforts with business goals instead of chasing new trends. At the same time, allot a little time to continue testing new ideas for growth.

And a final word of advice as we wrap this up: never chase a 100% resource utilization rate.

Realistically speaking, you can’t expect employees to be working around the clock, regardless of whether the tasks they do fall under billable, non-billable, or productive tasks.

If anything, overwork stifles creativity and strategic thinking — levers that differentiate your company. Not to mention, certain non-billable work is essential for team building and employee morale.

So, our final tip is to set realistic goals for all three types of utilization. Track billable, non-billable, and productive utilization to boost consultancy revenue, control costs, and plan strategically. Calculate rates and optimize team time for efficiency.