Utilization rate

"Utilization Rate" is an important number for firms that charge their time to clients. It shows the billing efficiency of an individual or a firm. There are two methods to calculate utilization rate:

The first method calculates the number of billable hours divided by the number of hours recorded in a particular time period. For example, let's say that I recorded 40 hours of time this past week but only 30 hours of that was billable. My utilization rate would then be 30 / 40 = 75%.

With this method, however, it's easy to see how this utilization rate can be gamed: if I stop recording non-billable time, my utilization rate will always be 100%.

The second way to calculate utilization rate is to take the number of billable hours and divide by a fixed number of hours per week. For example, let's say that I recorded 32 hours of billable time in a 40 hour week. My utilization rate would then be 32 / 40 = 80%.

Note that with this second method it's possible to have a utilization rate that exceeds 100%. If I recorded 50 hours of billable time last week then I'd have a utilization rate of 50 / 40 = 125%.