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Profit & Growth Tips for Digital Agencies

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How to Calculate Your Agency’s Staff Utilisation Rate

Posted by Nicolas Jacobeus on Sep 5, 2016

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Your digital agency’s staff utilisation rate is a useful key performance indicator to monitor: this metric will help you track how efficient your agency team is at using its time for billable work, in order to maximise project profitability.

But what does your agency’s staff utilisation rate reveal about how your agency works, and what is the best way to calculate it?

How to Calculate Staff Utilisation Rate

Staff utilisation rate calculates what percentage of your employees’ time is spent on billable work. In order to calculate your agency’s staff utilisation rate, you need two things:

  • A time-tracking tool which your employees use to log their time every day.
  • A way to differentiate between billable and non-billable work.

There are two main ways of calculating staff utilisation rate:

Option 1: billable hours worked ÷ total number of hours worked (allowing for overtime)

or

Option 2: billable hours worked ÷ fixed number of hours worked (not allowing for overtime)

While these look very similar, they reveal very different insights about how your agency team works.

Examples of the Staff Utilisation Rate

In the first calculation, employee 1 has worked 35 billable hours, but has logged a total of 45 work hours. In this example, your agency has a 40-hour work week, so this calculation also includes 5 hours of overtime:

Option 1: 35 ÷ 45 = 0.778 = 77.8% utilisation rate

In contrast, the second calculation gives a very different result. Instead of factoring in additional overtime, this calculation caps the total number of hours worked at 40:

Option 2: 35 ÷ 40 = 0.875 = 87.5% utilisation rate

Similarly, look at what happens to staff utilisation rate for employee 2, when your agency is going through a really busy time with lots of big deadlines to meet. This time, they log 45 billable hours, with a total of 50 work hours logged:

Option 1: 45 ÷ 50 = 0.9 = 90% utilisation rate; or

Option 2: 45 ÷ 40 = 1.125 = 112.5% utilisation rate

The second calculation is the only method by which you can end up with a staff utilisation rate of more than 100% - when your team is working more billable hours per week than they are contracted to work in total. For this reason, option 2 is the best way of calculating staff utilisation rate, as it gives you the best insight to the level of your agency’s workload.

Why Do You Need to Calculate Staff Utilisation Rate?

Monitoring your agency’s staff utilisation rate gives you a measurable insight into your team’s workload, both on an individual, and whole team level.

If you have a staff utilisation rate of close-to, or over 100% for any length of time, this suggests that your agency has a staff shortage, rather than a temporary increase in workload. You can also get more specific insights, such as whether your staff shortage is in a particular skill. For example, if your developers are consistently working at 95% utilisation rate and your designers are only working at 75% utilisation rate, this indicates that your developers have a much higher workload than your designers.

Measuring staff utilisation rate can also help you maximise the profitability of your projects, by improving team efficiency. However, it’s important to realise that, when it comes to staff utilisation rate, higher isn’t always better. A team operating at 100% utilisation rate won’t have any time to dedicate to improving processes, learning and personal development, or marketing your agency to attract new clients.

While staff utilisation rate is a good KPI for your agency to monitor, it’s important that it shouldn’t be the only way you measure the value of your team’s contributions.

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