How to Calculate Your Agency's Utilization Rate

Most agencies have no idea what percentage of their team's time is actually billable work. They think "we're pretty busy" or "we have a slow month." They don't have actual numbers.

Utilization rate is one number that tells you if your business is healthy or broken. Here's how to calculate it and interpret what it means.

The Formula

Utilization rate = (Billable hours / Available hours) x 100

Available hours = working days per month x 8 hours x number of employees

Billable hours = hours spent on client work that you charge for

Example:

One employee, one month (20 working days, 8 hours/day):

Available hours = 20 x 8 x 1 = 160 hours

Let's say this person spent:

120 hours on client projects (billable)
20 hours on internal meetings (not billable)
10 hours on training (not billable)
10 hours on admin (not billable)

Billable hours = 120

Utilization = (120 / 160) x 100 = 75%

What Different Utilization Rates Mean

Below 50%: You're overstaffed or not getting enough work. At this rate, you're bleeding money. Either you need to lay people off, raise prices to drive more volume, or you're not tracking billable hours accurately.

50-65%: You're still too low. This is where agencies go out of business because they can't cover payroll with client revenue. You need to either add work or reduce team size immediately.

65-75%: Starting to get healthy, but still concerning. You have a lot of non-billable work (meetings, training, admin). 65% utilization means you're only selling 65 of every 160 hours.

75-85%: This is healthy. You have 75% billable time and 25% for internal work, training, and slack. This is the target for most agencies.

85-95%: Too high. Your team has no time for training, professional development, or internal projects. They're burning out. Profit margin looks good short-term, but you'll lose people.

Over 95%: Unsustainable. Your team is overworked and will quit. This never ends well.

The magic number is 75-80%. That's when you have enough billable work to be profitable, but enough slack to do training, internal projects, and not burn out.

How to Calculate Monthly

Create a simple spreadsheet:

Employee	Available Hours	Billable Hours	Utilization
Alice	160	124	77.5%
Bob	160	108	67.5%
Carlos	160	128	80%
Team Total	480	360	75%

Track this monthly. You should see patterns:

Consistent 75-80% = healthy
Dips in slow months (60-70%) = normal, plan for it
Spikes in busy months (85-90%) = hire contractors or reduce scope

Common Mistakes in Calculating Utilization

Not subtracting time off: If someone takes a week of vacation, don't include those hours as "available." They weren't available.

Available hours = (working days - vacation days - sick days) x 8 x number of employees

Billing everything as billable: Internal work, admin, and training aren't billable. Don't inflate your numbers by including them.

Including meetings in billable time: Only count time directly spent on client deliverables. If it's a project kickoff call with the client, count it. If it's an internal standup, don't.

Not tracking actual hours: If you're estimating billable hours instead of tracking them, your number is garbage. You need a time tracking tool or project management tool with time logging.

Forgetting about meetings: Most agencies forget that project meetings, status updates, and revisions take time. They only count "execution" hours. Real utilization includes all project-related work.

How to Improve Utilization

If you're below 65%:

Option 1: Increase sales. Your team has capacity.

Go get more work. This is a sales problem, not an operations problem.

Option 2: Reduce team size. If you can't get more work, layoffs are coming anyway. Better to cut now than hope.

Option 3: Reduce scope. Stop doing custom work.

Offer packages or templates. Same team, more billable output.

If you're at 65-75%:

Option 1: Increase prices. Your team is busy enough to be efficient, but you need higher margins. Raise rates 10-15%.

Option 2: Get picky. Start turning down low-margin work.

Fire your bottom 10% by profit. Redirect that team time to better clients.

Option 3: Add products. Create offerings that are highly flexible (templates, workshops, audits). Same team, different revenue.

If you're above 85%:

Option 1: Hire. You're leaving money on the table and your team is at burnout risk. Hire before someone quits.

Option 2: Raise prices. If you can't hire, raise rates to cool off demand. Better to have 80% utilization at higher rates than 95% at current rates.

Option 3: Add contractors. Bring in help on seasonal work instead of hiring full-time.

Track Utilization by Employee and Client

You should also track:

Utilization by person (Alice is 77%, Bob is 68%)
Utilization by client (Client A is 40% of team time, Client B is 25%)

If Bob is consistently 20% below team average, he's either struggling or not tracking hours. Have a conversation.

If Client A is taking 40% of team time but only paying 30% of revenue, that client is unprofitable.

Utilization Targets by Agency Stage

1-5 people: 70-75% (you're doing some project work, some sales, some admin)
5-10 people: 75-80% (you have PMs now, so more of the team is billable)
10-20 people: 75-85% (more specialized roles means higher utilization)
20+ people: 80-85% (economies of scale, but some admin overhead)

Smaller agencies have lower utilization because owners are doing everything. Larger agencies have higher utilization because more people are pure delivery.

FAQ

What tool should I use to track billable hours?

Any project management tool with time logging works (Asana, ClickUp, Monday, Linear all have this). Or use Toggl or Clockify. The tool matters less than discipline - every team member logs their time daily.

Should I bill clients for meetings and admin?

Yes. Include it in your project price. Don't separate "execution" from "meetings" - that's confusing. Price the whole project, which includes all the hours.

What if my utilization is great but profit is terrible?

Your prices are too low. Calculate your revenue per billable hour. If you're at $50/hour billable, you need to raise rates to $75-100/hour to hit 15%+ profit margins.

How often should I calculate utilization?

Pull the number every month. Watch the trend over three months.

If it's trending down, address it immediately. If it's trending up past 85%, hire or raise prices.