Modern businesses rely on renowned business thinker Peter Drucker’s pragmatic words, “What gets measured gets managed.” But how do you know you’re measuring the right things at the right time to make the best decisions? Employee Utilization Rate is a key indicator of your organization’s overall health.
If you don’t fully understand this metric, it is difficult to make informed decisions about your digital agency’s efficiency and effectiveness. Let’s delve into how accurately tracking your employee utilization can boost your profit margins.
What is an Employee Utilization Rate?
Employee utilization measures the amount of time a team member spends on billable hours compared to the total hours worked.
Tracking your team’s time allocation gives you a clear picture of overall organizational capacity. It also helps maximize time spent on client-centered tasks.
Why Does Employee Utilization Rate Matter?
Time is in short supply, and everything requires it. How your team spends its hours is paramount to building organizational profitability. It’s also critical for creating a culture where people want to work and stay long-term.
Key ways employee utilization matters to your company include:
- Provides a Pulse on Performance. This metric tells you how much time your employees spend on tasks that earn you money. Your employee utilization rate reveals whether you’re billing enough hours to cover costs and reach profit margin goals.
- Informs Capacity for Growth. Experts herald employee utilization as a resource management tool. While this can be true, it’s also a lagging indicator of organizational strategic planning. As your company grows, effective and regular evaluation of utilization lets you establish hiring projections. It helps you know when and where to expand teams and client-facing services. Remember, it’s also important to make sure you’re charging enough to generate sufficient gross and net margins.
- Prevents Boredom or Burnout. A favorable utilization rate depends on your agency’s goals. Targets also vary by role and seniority. But if your utilization rate is consistently below strategic planning benchmarks, it could indicate that there is not enough work in the pipeline for your current staffing level. If your rate is consistently close to 100%, your employees could be working long hours to keep up with assigned tasks. They may be close to burning out.
Employee Utilization Rate Factors and Considerations
Your team doesn’t operate in a vacuum. Many aspects of your business impact Key Performance Indicators.
For employee utilization, pay close attention to the following:
- Inaccurately Tracking Hours. Accurate time tracking is key to calculating an actionable utilization rate. It also helps ensure you’re not undercharging for your services. It is a necessary evil in a service-based industry. We highly recommend investing in time tracking software or, at a minimum, setting up a shared spreadsheet.
- Varying Methods of Calculation. The most basic formula to calculate your Employee Utilization Rate is to divide the number of billable hours by the total available hours (x100). Make sure those tracking and reporting calculate this Key Performance Indicator the same way.
- Higher is Not Always Better. Overutilization leads to burnout or diminished work quality. Aim for the sweet spot, typically 70-90% for production level staff and 60-80% for account management. We often see much lower rates for partners and senior-level positions. Again, targets depend on your services and growth goals.
Keys to Maximizing Your Employee Utilization Rate
Correctly selected Key Performance Indicators to tell the story of your organization. They give you essential information about your efficiency, effectiveness, productivity, and culture. KPIs can also help forecast future capability and capacity needs to create sustainability and growth.
Utilization rate is a critical metric. It can boost your digital agency to new heights. But it isn’t helpful unless you take action based on it.
Boost Employee Utilization Rate impact with these best practices:
- Establish Clear Expectations. Most employees want to achieve. Set clear expectations of competency and utilization upfront.
- Cultivate Open Communication. If employees miss the utilization rate mark, it’s frequently a system issue. Open communication enables these issues to surface and you to address them.
- Project Manage for Master Scoping. Understanding your utilization rate empowers your team to scope their roles to be super successful.
Promethean Research Can Help
Your Employee Utilization Rate is just one of many metrics that indicates digital agency health. Learn how Promethean Research can help you use data to create strategies for sustainable growth.