Agency utilization rate is a key performance metric that can make or break an agency’s performance. It’s often said that you can’t improve what you aren’t measuring—your agency utilization rate is a near-perfect example of that adage.
The ability to make improvements based on cold, hard numbers is the reason why agencies must know the health of their revenue, which is directly impacted by their (billable) resource utilization rates.
So whether you’re a seasoned industry professional or new to the agency world, understanding utilization rates is crucial.
Below, our expert-led guide with real-world insights goes deeper into what agency utilization rates are, how they’re calculated, why they matter, and how to optimize them to help drive agency growth.
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What is an agency utilization rate?
Agency utilization rate measures how effectively your agency’s resources are being used. The result tells you the percentage of time that your team spends on projects that actually bring in money. It answers the vital question: Are you making the most of your available working hours?
Your agency utilization rate is typically tracked in your resource management software, where you also get a breakdown of billable hours.
A high utilization rate means your team is focused and efficient. Alternatively, a low rate suggests wasted resources and lost revenue opportunities. Both directly impact your bottom line.
Calculating agency utilization rate
To get the full picture of exactly how an agency’s utilization rate gets calculated, let’s break down each component:
- Total available hours: This is the amount of time that your agency’s employees are available for work in a given period. Holidays, vacations, and other non-working hours are typically excluded from the total available hours.
- Billable hours: These are the hours your team spends on client projects. Billable hours directly contribute to revenue.
- Non-billable hours: These hours cover internal tasks, like administrative work, training, or non-client meetings. Despite not being directly billable, they’re essential to the agency’s operations.
- Productive utilization: This is the percentage of total working hours that your team spends on billable work. It’s calculated by dividing billable hours by total working hours.
- Billable efficiency: This metric is the percentage of billable hours out of total hours worked, including non-billable tasks. It’s calculated by dividing billable hours by total hours worked.
So if you want to calculate agency utilization rate, here’s how to do it:
Using the formula above, let’s say Graphic Designer Jenna Moore had 32 billable hours out of a total of 40 available hours in her working week. Using our formula, Jenna’s utilization rate would look like 32 / 40 x 100 = 80.
This means we’d be looking at a healthy 80% utilization rate for that week.
⚠️ A few things on utilization rate calculations
It’s important to understand that “total available hours” includes both billable and non-billable hours. These could range from client projects to internal meetings and administrative tasks.
Our focus in this article is primarily on “billable hours,” which are the hours dedicated solely to client-facing, revenue-generating tasks. The formula we use for agency utilization rate considers only these billable hours.
Both approaches are valid but serve different purposes:
- Using “total available hours” gives you a comprehensive view of how all employee hours—billable or not—are being used.
- Focusing on “billable hours” provides a more targeted insight into how efficiently your agency is generating revenue.
Choose the utilization formula that best aligns with your agency’s operations.
6 reasons why agency utilization rate is important
If your goal is to increase efficiency and profitability, then knowing your utilization rates is essential.
Consistently monitoring utilization helps you:
- Optimize resource allocation: Don’t just guess where to put your team—know it. It’s important to have visibility around where your resources are going. This means staying on top of your capacity planning. For example, if your designers have a 90% utilization rate while your developers are at 30%, it’s time to reevaluate. You may need to redistribute projects or even consider hiring more designers.
- Boost revenue: Want to grow your bottom line without inflating your payroll? Focus on increasing billable hours so you grow your bottom line without necessarily inflating payroll or hiring more staff. Let’s say you have a team of 10, and each person increases their billable hours by just 2 per week. That’s 20 extra billable hours per week, potentially translating into thousands of dollars per month.
- Identify bottlenecks: Spot the areas in your system where work is piling up or projects are stalled. If your utilization rate shows that project owners responsible for the account are consistently overbooked, it might be why projects are lagging, missing deadlines, or double booking appointments. Finding the weaker processes in your workflows enables you to apply a fix—maybe it’s time for an additional hire in that department.
- Improve project planning: Informed project planning avoids overcommitment and underutilization. If your data shows that utilization rates dip during the third quarter every year, then use that information to plan project timelines more strategically. Plan to frontload certain projects, schedule staff training accordingly, or schedule maintenance tasks during those off months.
- Foster work-life balance: A balanced utilization rate means a happier team because it helps promote work-life balance. No one wants to be idle, but no one wants to be overworked either. Knowing your agency utilization rates allows you to balance workloads fairly, lower team conflicts, and confidently give time off when needed.For example, if you happen to find that one department is consistently underutilized, maybe it’s time for some cross-training so both departments benefit from a more balanced workload.
- Reduce risks before they escalate: A sub-optimal utilization rate can be an early warning sign of projects derailing further down the road.
For example, if a senior staff member’s rate suddenly drops, it might indicate a looming workload issue that you need to address before deadlines are missed and client updates fall through.
Factors impacting agency utilization rates
Agency utilization rates are influenced by many internal and external factors. It takes understanding these factors to optimize resource allocation and improve agency efficiency.
Here are some key factors that impact agency utilization rates:
Client demand and workload
Fluctuations in client demand and project volume affect how resources are allocated. High demand may lead to better utilization, while sudden drops often result in underutilization.
When you land a big client, your team’s billable hours rise, which directly increases your utilization rate. The opposite is also true—a drop in projects decreases your total billable hours, which decreases revenue.
Tracking utilization helps you adjust to the fluctuating effects of client demand changes. A declining rate could prompt reallocating staff to internal projects or training. A rising, sustainable rate might signal it’s time to outsource work, hire more staff, or expand services.
Project complexity and scope
A project’s complexity and scope play a big role in how you allocate resources. More complex projects typically require more time and specialized skills, which eat into your utilization rates.
On the other hand, simpler projects may increase your rate due to easier management. Monitoring these rates lets you react smartly and with plenty of lead time. A dropping rate on a complex project might prompt a scope review, while a rising rate on simpler tasks could indicate a profitable area of focus.
Resource allocation and availability
Effective resource allocation hinges on matching the right skills with project needs because it directly influences your utilization rate. For example, assigning a senior developer to a simple website update can lead to the overuse of high-value resources, bringing down overall utilization.
On the flip side, underuse happens when a skilled team member is available but not assigned to projects that match their expertise. Imagine you have a data analyst sitting idle while there’s a project that requires heavy data interpretation. Repeat this mismatch enough times and you end up with lower usage rates.
Monitor these rates to ensure you’re allocating your team wisely. This is where resource management software bridges the gap between underusing your agency resources and getting projects done on time and on budget.
Once you automate the tracking of resource usage, it’s easier to pick up on poor allocation signals that’ll prompt you to reassess team assignments.
Those same automations will help you pick up on steady, high rates that suggest you’re on the right track, optimizing both your team’s skills and your agency’s profitability.
Resource planning and forecasting
For example, if you predict a surge in client work in Q4, pre-booking team members ensure you meet demand without overstretching. Missed forecasts, like anticipating projects that fall through, can lead to idle team members and a drop in resource usage.
Regularly update your forecasts to reflect real-time data. An uptick in confirmed projects should trigger a review of available resources. This way, you ensure you aren’t short-staffed and unable to meet demand, thereby maintaining optimal utilization rates.
Resource management tools
Putting comprehensive resource management tools to work significantly streamlines your allocation processes. For example, software that tracks real-time availability, as well as skill sets, is able to quickly match the right team member to a new project, which improves your utilization rate.
Don’t underestimate the analytics resource management tools offer. A dip in utilization despite a high project volume could reveal inefficiencies in your current allocation methods, prompting you to recalibrate. At the same time, consistently high utilization rates validate how effective your agency tools are.
Project management and efficiency
Effective agency project management processes, such as agile workflows and clear communication, improve how efficiently projects are executed, directly impacting utilization rates.
Your project management approach directly impacts your utilization rates. Streamlined workflows mean projects are executed more efficiently, freeing up team members for more billable work. For example, a project with a well-defined process and clear communication is likely to meet deadlines and stay on budget. As a result, it’ll keep utilization rates high.
However, a project that’s plagued by inefficiency, like frequent scope changes without client approval, eats into billable hours and brings down your utilization rate. Tracking these metrics helps you spot gaps and course-correct them quickly.
Client relationship management
Strong client relationships lead to repeat business, stabilizing your project flow and, by extension, your utilization rates. For example, a long-term client who consistently sends projects your way ensures a baseline of billable hours, keeping your team’s utilization steady.
Conversely, poor client management, like a lack of communication about project delays, leads to canceled projects and a dip in utilization. Keeping clients informed and setting realistic expectations are key to maintaining a steady flow of work.
Seasonal demand changes can significantly sway your agency’s utilization rates depending on the industry you operate in. For example, a digital marketing agency for e-commerce brands might see a spike in demand during holiday seasons, requiring more staff to meet client needs and thus increasing utilization rates.
Conversely, if your agency specializes in outdoor advertising, winter months might slow down billable hours, causing a dip in utilization. This is best managed by proactive planning, which resource management solutions help solve.
The strength of your agency’s culture indirectly yet significantly affects your utilization rates. A motivated team is generally more productive, completing projects faster and more efficiently. For example, a collaborative environment where team members freely share expertise can lead to quicker problem-solving. In turn, this boosts billable hours and raises utilization rates.
Low morale, on the other hand, slows down project completion and drags utilization rates down.
Economic factors and market trends shape your client demand, directly affecting your agency’s utilization. An economic downturn might cause clients to cut back on advertising spend, reducing your project volume and lowering utilization rates.
Competitive pressures also play a part. If several agencies in your niche drop their prices during an economic downturn to attract more business, you might feel compelled to follow suit, potentially affecting your revenue and utilization rates.
Utilization rate benchmarks for agencies
There’s no one-size-fits-all answer to what constitutes a “good” agency utilization rate. However (while a more general benchmark), the global employee billable utilization at professional services organizations from 2014 to 2021 hovered around 71%.
Keep in mind that this changes significantly based on the agency’s focus, size, and client base. To add, Gartner advises managers to optimize project resource utilization rates by not striving to work at capacity 100% of the time.
9 ways to improve your agency utilization rates (including expert tips)
Improving agency utilization rates involves optimizing how efficiently your team’s time and resources are used for billable work.
By implementing the right strategies and best practices, you can increase your agency’s productivity and profitability. Here are some key steps to improve agency utilization rates:
1. Optimize resource allocation
Balance workloads: Ensure that workloads are distributed evenly among team members to prevent overloading or underutilizing individuals.
Match skills to projects: Assign team members based on their skills and expertise, matching them to projects where they can contribute most effectively. It’s important that you keep team members on projects from beginning to end. It’s a great way to enable clear, consistent communication with your clients from day one.
2. Effective project management
Streamline processes: Features like Resource Guru’s drag-and-drop scheduling let you adjust plans quickly, which cuts down on administrative time sinks. Anything that can be outsourced, automated, or outright eliminated from your workflow will help strengthen your project management process from beginning to end—it eliminates redundancies and resource-sucking roadblocks.
Set clear objectives: This ensures everyone is aligned with the project’s scope and timeline. These objectives—sometimes referred to as key performance indicators—will be different depending on the industry your agency serves.
But setting clear objectives isn’t just an internal team priority, Vanhishikha explains:
3. Get ahead with scope management
Set clear scope boundaries: Defining a project’s scope with razor-sharp clarity is essential. Resource Guru’s “New Project” feature helps you lay out project milestones and deliverables, which makes it easier to communicate them with the client.
Monitor scope changes: When the scope of a project changes, it affects resource allocation and timelines. Set up automated alerts and notifications to keep the team informed about scope changes immediately. This helps in making quick adjustments to resources and schedules.
At Contentsify, Vanhishikha makes sure to manage scope expectations from the start.
4. Establish a culture of open communication
Regular updates: Open lines of communication are critical. Workflows that complete tasks like automatically generating email updates ensure that both clients and team members receive regular updates on project status, which can eliminate surprises and improve project flow.
For example, Resource Guru’s reporting features can get granular down to the resource level. It allows you to sort by ‘work’ or ‘downtime’ to see all of the resource’s booking data.
Daily stand-up meetings: Daily standup meetings internally are key if you can manage them. But keep in mind that not every team works the same way, or needs the same interactive cadence. Here’s where you want to use tools like activity dashboards to your advantage—you get a clear overview of what’s in progress.
Vanhishikha has her own way of running her marketing team.
5. Invest in technology to automate management tasks
Automation: Sure, there’s lots of work that goes into the output of an agency—but there are also a lot of management tasks that help carry projects through the finish line. This is where automation has the potential to save your team hours of work. It’s one of the best ways to free up additional resources for more value-added work.
Resource management software: A resource allocation and planning tool simplifies what could be a complicated process of managing and assigning tasks as well as resources.
For example, Resource Guru’s reports section allows you to track utilization rates, how much capacity you have, and other crucial data points, which makes it easier to allocate resources quickly.
Sort by week or a specific date range, and switch between days and hours to choose the format your data is displayed. By default, human resources are set to an 8-hour day while non-human resources (such as equipment or vehicles) are set to a 24-hour day. Resource Guru allows you to adjust these daily hour settings as well.
6. Train and develop your employees
Training and development: Investing in your team’s skills is non-negotiable. Knowing their capabilities helps you identify areas that need training. More versatile team members increase your ability to match the right skills to the right projects, which optimizes your utilization rates.
Professional growth: Retention is easier when employees see a path for career advancement. But that doesn’t make it any easier to do. If you’re experiencing higher turnover rates than usual, it may be because you need to revisit your employee development approach.
7. Manage client expectations proactively
Set realistic expectations: Effective client management starts with setting realistic expectations. Use project planning tools as well as automated alerts and notification features to provide clients with a detailed plan and timely updates. This makes it clear what clients can expect in terms of deliverables and timelines, which in turn helps to maintain optimal utilization rates.
Scope agreements: Preventing scope creep is crucial for keeping a project on track. Linking to project documentation such as scope agreements on project bookings and making sure they’re always accessible to teams so they can manage client expectations accordingly is optimal.
As an agency founder, Vince emphasizes the importance of clear client communication:
8. Performance metrics and analytics for data-driven insights
Data-driven decisions: Decisions driven by data require that data be centralized and with plenty of visibility. The more you can use tools to paint a detailed picture of resource allocation efforts, project timelines, and team performance—the better your project outcomes.
Monitor key performance indicators (KPIs): Regularly monitoring performance metrics is essential for agency growth. Resource Guru makes it easy to instantly get visibility into your agency’s resource utilization rates by showing you a resource’s availability. This makes it easy to adjust resources accordingly.
Vince doesn’t underestimate the value of monitoring KPIs at ScaleCrush:
9. Run regular client reviews
Client reviews: Periodic reviews with clients offer a structured way to collect feedback and any project scope changes that may surface. For example, if a client has increased scope, utilization might be an issue, but regular check-ins will keep the client informed in case there are any delays.
Team reviews: Consistent check-ins with your team allow you to spot inefficiencies and make real-time adjustments. This proactive approach to resource management increases the likelihood that your resource utilization numbers stay at an ideal rate. Communicating through regular reviews helps your team see the direct impact their time and effort is making on all projects, KPIs, and bottom line profitability.
From billable hours to bottom line impact
Don’t underestimate the value of tracking your agency’s utilization rate. It’s the key to a profitable and sustainable business model. Make it a priority. Know it, measure it, improve it.
Happy employees mean a happy business—and that starts with tracking, managing, and optimizing your agency utilization rates.
To help, get started with a free trial from Resource Guru today.