Utilization rate

For the percentage of various classes of milk in federal milk marketing orders, see Utilization rates (milk).

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%.