Defying the odds, or succumbing to the slowdown? See how your business measures up to average utilization rates in your sector.
Let’s get the bad news out of the way upfront. Utilization rates in service businesses are down across the board. Cold comfort though this may be, if utilization rates are falling in your organization, at least know – you’re not alone.
Declining utilization rates indicate that demand for services is slowing. But we all know that, don’t we?
We all read the news. We all have talented, smart friends who have been laid off, and then it takes them months to find a new job. There’s less work coming in and the margins are getting tighter.
But how is this slowdown impacting your business in measurable terms?
If you understand what the standard looks like for your sector, you can see where you stand in context. Is your business buoyant against the odds, meeting average expectations, or slowly sinking?
The optimal average rate is generally around 80–85% overall scheduled resource utilization (including a mix of scheduled billable and non-billable work). Within that, 80-85% of the time would ideally be billable.
This lets you balance productivity and sustainability – delivering strong business results without overwhelming your people and driving some of them to burn out.
Let’s do the math on this: consider an employee with a typical 40 hour work week. 85% of 40 hours is 34 hours, and 85% of 34 hours is just under 30 hours.
So, a good expectation for this individual is that 30 hours out of their 40 hour work week would be spent on billable work. The other 10 hours would be spent on non-billable tasks – be that admin, internal meetings, training, business development tasks, or team building activities.
However, that headline 80-85% utilization target is only a ballpark figure.
In some roles and sectors, 80% would be low. But for other roles, expecting 30 hours out of a 40 hour week to be spent on client-facing work would be unreasonable. All the other responsibilities of the position would fall by the wayside.
It’s highly context-dependent. So, let’s dig into some of that context – starting with industry-specific utilization targets.
But these are averages across firms. Bear in mind that target utilization rates for different roles differ wildly, and these balance out to create the firm-wide average.
You might assume that the goal of resource utilization is to reach 100% capacity utilization, but that’s unrealistic because:
When you don’t build in a buffer for the realities of working life – from the ‘could you just’ requests that drive us crazy, to the water-cooler chats that keep us sane – even a small disruption can send project plans off the rails.
Ultra-high billable targets are also a recipe for disaster. If you listen to engineers and consultants who are in the thick of it, you’ll often hear them discussing how extremely high billable utilization targets can have a vastly negative impact on their work-life balance.
A target of 90%+ billable utilization can result in people having to work significantly over their actual contract hours, simply because that’s the only way that they can realistically hit their targets.
Often these kinds of targets are the norm for junior and individual contributor roles in competitive industries like consulting, giving these industries a reputation for poor work-life balance.
And we don't really need to restate this, but let's be clear: it's neither ethical nor sustainable, smart business practice to burn out and churn through people by setting uncompromising targets that do not account for the realities of their work.
By far the most sustainable way to run a service business is to maintain that aforementioned optimal utilization rate of around 80–85%.
Achieving this balance helps you avoid the familiar “feast or famine” cycle common in professional services – where some months leave employees underutilized, while others spiral into long nights and overwhelming workloads.
But reaching consistent, sustainable utilization levels doesn’t happen by chance. It takes smart capacity planning and a bit of foresight to balance workloads before things swing too far in either direction.
If you’d like to dig deeper into how capacity planning can help you build a more stable, sustainable business, we’ve got plenty of helpful resources to get you started:
