Utilization in Consulting: How to Measure, Improve, and Optimize Consultant Utilization Rates
One of the most important KPIs you can focus on in a consulting firm is staff utilization. I’m often surprised by the number of technical consulting firms I speak with that aren’t measuring their team’s utilization rate. And then, unsurprisingly, they tend not to be in the group of the most profitable ones. Those firms that do measure utilization tend to be the most profitable. In their case what I see more often is some level of uncertainty on whether they are measuring utilization in consulting in the right way for the context of their firm.
What Is Utilization in Consulting?
Definition and Importance
At its most basic, utilization is:
number of hours doing work/total number of hours available = UTILIZATION
Simple right? Well, as many of you have probably found in your experience – it isn’t that simple.
How much of the work done was actually billed? And how much should have been billed (Not the same thing!). Should you take paid time off (PTO) or other missed time into the equation? Is all that time accurately logged by everyone on the team anyway?
While challenging, I highly encourage all our clients to find a way to measure utilization in their firm.
The starting point is to answer three key questions:
- What constitutes “hours doing work”? Some work obviously belongs – billed hours on a time and materials project should definitely go in there and is relatively easy to pull together. But what about the work on that fixed-fee project that is over budget? What about useful but non-billable work? Quoting and proposal-preparation work on won projects? There is a lot to consider regarding the activities that your employees undertake in your firm.
- The other major thing to decide is what to use as the denominator (hours available). Do I use the standard 2080 hours in a year? Less allocated vacation? Do I exclude company holidays? Is it different for employees who are allocated more vacation? What about contractors (aka: 1099’s)?
- Once I’ve figured out how I want to measure utilization, can I even track it without spending hours and hours doing it? Do the tools I have supported my ability to measure this now and a year from now?
As you approach these questions, understand that what is more important is not how you answer them, but that you actually do answer them and set a consistent framework. You may want to consider how other consulting firms in the industry measure their utilization in case you want to benchmark – or you may not. In any case, once our clients have worked through these questions they quickly start to move forward measuring utilization.
Billable vs Non-Billable Hours
Understanding the distinction between billable and non-billable hours is essential for accurately measuring utilization and ensuring profitability. Billable hours include the time spent on client projects that can be invoiced, such as consulting work, reporting, and direct project-related tasks. Non-billable hours, on the other hand, encompass essential but indirect activities like internal meetings, business development, training, and proposal preparation. While non-billable time is necessary for long-term growth, excessive non-billable hours can reduce profitability if not managed properly. A clear categorization of these hours allows consulting firms to better assess their financial health and make informed decisions about staffing, pricing, and operational efficiency.
Why Consultant Utilization Rates Matter
Consultant utilization rates are a direct reflection of how efficiently a firm is using its workforce. A well-managed utilization rate ensures that billable hours are maximized while still allowing room for necessary non-billable activities like training, business development, and internal projects. Firms that fail to track utilization often struggle with profitability, as unaccounted time can lead to revenue leakage and misallocated resources. On the other hand, overloading consultants with excessive billable work can lead to burnout and decreased quality of service. Striking the right balance is key—understanding and optimizing utilization rates helps firms improve financial performance, allocate resources effectively, and create a sustainable workload for their teams.
Impact on Profitability and Resource Management
Consultant utilization rates have a direct impact on both profitability and resource management. A firm with low utilization may struggle with revenue shortfalls, as too much time is spent on non-billable activities without a clear return. Conversely, firms with extremely high utilization risk overworking their staff, leading to burnout, turnover, and declining work quality. Properly tracking and optimizing utilization allows firms to maintain a steady revenue stream while ensuring employees have enough capacity for professional development, internal initiatives, and business growth. By balancing billable and non-billable time effectively, firms can improve forecasting, allocate resources efficiently, and maintain a sustainable, profitable operation.
Utilization in Consulting vs Other Industries
Utilization is a critical metric across many industries, but how it’s measured and its implications vary significantly. In consulting, utilization primarily focuses on billable hours—ensuring that staff time contributes directly to revenue. This differs from industries like manufacturing, where utilization might refer to machine uptime, or healthcare, where it could measure patient-facing hours. Unlike fields with tangible outputs, consulting relies on human expertise, making accurate tracking of work hours, project demands, and client expectations essential for profitability. Additionally, consulting firms must balance client work with business development, training, and internal projects—factors that don’t directly generate revenue but are crucial for long-term growth. Understanding these differences helps consulting firms refine their utilization strategies while drawing insights from other industries’ best practices.
How to Calculate Consultant Utilization Rate
If you’re wondering where to start, here’s my advice on moving forward:
Take small steps
An overly simplistic view isn’t a bad place to start – include all the work that is easy to get and you’re confident belongs in the numerator. This can serve as a meaningful benchmark as you get more sophisticated in how you measure. As for the denominator, pick a starting point that you think is consistent with how other firms may measure and is simple – like 2080 hours.
Or, as I often do with our clients, start off with measuring billable utilization simply with the data that is entered into the system:
number of billable hours performed/total number of hours available = billable utilization
This accomplishes two things. First and foremost, it emphasizes using only the information that is in your time tracking system and therefore is easy to get to. Second, the measurement is easily understood by those entering time, making it easier for you to manage.
Measure it in different ways
As you begin to refine your utilization measurement, don’t throw out tracking your previous measurements. More often than not, placing different lenses on the team’s performance will get you deeper insight into your actual productivity and the activities that are truly contributing to the success of the firm – and likely uncover some major inefficiencies.
Be consistent
It’s a marathon, not a sprint – so sticking with measurement over time will get you better insights that can lead to meaningful change. Flip-flopping between different measurements can leave you frustrated and undermine what you’re trying to achieve in measuring utilization.
Find tools that make this process easy.
I love spreadsheets and highly encourage their use. They are a great starting point when you are beginning to plan, track, and manage new KPIs. There is also that sense of pride and ownership that comes with my highly customized spreadsheets but – over time – exporting, cleaning up, cutting and pasting and tweaking will take up a lot of your (and your team’s) time. Often I can’t even get to the data I need to make my calculation meaningful. And the reality is that I can get precious hours back by using flexible tools with direct access to the data I’m trying to analyze. That is why one of our primary goals at EVX is to make measuring utilization (and other consulting KPIs) simple and easy.
Practical Example with Step-by-Step Calculation
To better understand utilization in a consulting firm, let’s walk through a practical example.
Step 1: Define the Timeframe
A consulting firm wants to calculate utilization for an employee over one month. The employee is full-time and works 40 hours per week.
- Total available hours in the month: 160 hours (40 hours/week × 4 weeks)
Step 2: Identify Billable and Non-Billable Hours
The employee logs their time as follows:
- 120 billable hours (client projects)
- 20 non-billable hours (internal meetings, training, proposal writing)
- 20 PTO or holidays
Step 3: Choose the Denominator
The firm decides to exclude PTO and holidays from available hours, meaning the new total available hours is:
- 140 available hours (160 total - 20 PTO)
Step 4: Calculate Utilization
Using the standard utilization formula:
Utilization=(Billable Hours / Available Hours) × 100
Utilization= (120 / 140) × 100 = 85.7%
Step 5: Interpret the Results
An 85.7% utilization rate suggests the consultant spends most of their time on billable work, with a reasonable allowance for internal tasks. If utilization is too low, it may indicate inefficiencies, whereas too high a rate could risk burnout.
By consistently tracking and adjusting utilization, consulting firms can maintain a healthy balance between revenue generation and employee well-being.
Consulting Utilization Targets: Industry Benchmarks & Best Practices
Setting appropriate utilization targets is key to balancing profitability and employee well-being. While specific targets can vary depending on the firm’s focus, size, and business model, there are common industry benchmarks and best practices to consider.
Industry Benchmarks
In general, most consulting firms aim for utilization rates between 70% to 85%. This range accounts for the need to balance billable client work with necessary non-billable activities such as internal meetings, training, business development, and administrative tasks.
Best Practices for Setting Utilization Targets
- Align with Business Goals: Ensure that your utilization targets align with the overall objectives of the firm—whether that’s increasing billable work, managing employee workload, or focusing on long-term growth activities.
- Adjust for Employee Roles: Tailor targets based on the role and experience level of each team member. A balanced mix of billable and non-billable hours will vary depending on whether the consultant is junior or senior.
- Factor in Non-Billable Time: Non-billable activities are essential for firm growth and employee development. Aim to allocate sufficient time for activities like training, team collaboration, and internal project work.
- Monitor and Adjust Regularly: Continuously track utilization rates and adjust based on fluctuations in workload, business needs, or external factors. Setting monthly or quarterly reviews helps ensure targets remain realistic and achievable.
- Use Technology for Tracking: Implement tools like EVX Software to accurately track time entries, categorize billable and non-billable hours, and generate insights for optimizing resource allocation.
By setting clear utilization targets and following these best practices, consulting firms can effectively manage profitability while fostering a healthy and sustainable work environment for their teams.
Average Utilization Targets in Consulting Firms
Utilization targets in consulting firms vary based on several factors such as firm size, type of consulting (e.g., management, IT, engineering), and employee role. However, there are general industry standards that most consulting firms follow to ensure profitability while maintaining a manageable workload for employees.
1. Junior Consultants
For entry-level or junior consultants, utilization targets typically range between 65% and 75%. These employees often spend a significant portion of their time learning, attending training, and supporting senior consultants. Although they contribute to billable work, their role may involve a higher proportion of non-billable hours spent on professional development and internal tasks.
2. Mid-Level Consultants
Mid-level consultants, who have gained more experience, generally have higher utilization targets between 75% and 85%. At this stage, consultants are expected to handle more client-facing work, including project execution and client meetings. They may also begin to take on leadership roles for smaller projects or teams, increasing their billable hours.
3. Senior Consultants and Managers
Senior consultants and managers, who are often responsible for leading larger projects and teams, typically have utilization targets around 80% to 90%. These roles are more client-facing, with fewer non-billable hours dedicated to internal tasks. Their time is largely dedicated to project management, client consultations, and overseeing day-to-day project work.
4. Partners and Executives
At the top of the hierarchy, utilization targets for partners and executives are usually 60% to 75%. These leaders spend much of their time on high-level responsibilities such as business development, client relationship management, and strategic decision-making, which are critical for the firm’s growth but are typically non-billable. However, they still contribute to billable hours through key client projects or leadership of large engagements.
5. Firm-Wide Averages
For many consulting firms, the average utilization target across all employees tends to fall between 70% and 80%. This ensures the firm is efficiently managing resources, while allowing space for non-billable activities essential to firm operations and growth. For firms with a heavy focus on billable work, such as specialized technical or engineering firms, the average target may skew closer to the 80% mark.
How to Set Realistic Utilization Goals
Setting realistic utilization goals is crucial for ensuring a consulting firm remains profitable while maintaining a sustainable workload for employees. Here are the key steps to follow when setting these goals:
1. Understand Your Firm’s Financial Goals
Before setting utilization targets, it’s essential to align them with your overall business objectives. Ask yourself:
- What are the revenue targets for the year?
- How much billable work needs to be completed to meet those targets?
- What overhead or non-billable activities are necessary for the firm’s long-term success (e.g., business development, training, internal projects)?
This understanding will help determine the necessary balance between billable and non-billable hours for each role in your firm.
2. Assess Employee Roles and Experience Levels
Utilization goals should be tailored to different roles within the firm. Junior consultants, senior consultants, and leadership should each have different expectations based on their responsibilities:
- Junior consultants will need more time for training, mentoring, and learning, so their utilization targets should be lower.
- Mid-level and senior consultants typically focus on client projects, with higher utilization targets between 75% and 85%.
- Partners and executives focus on high-level client relationships, business development, and strategic decision-making, with utilization targets closer to 60% to 70%.
By assessing the role and responsibilities of each employee, you can set utilization targets that reflect both their ability and workload expectations.
3. Consider Firm-Specific Factors
Each firm is unique, so set goals based on the specific context of your business:
- Firm size and structure: Smaller firms or teams may require a higher utilization target to meet financial goals, while larger firms with more internal resources can afford a more balanced approach.
- Project type: Firms working on fixed-fee projects may experience different utilization dynamics compared to those on time-and-materials projects, as billable hours can vary widely.
- Seasonal fluctuations: Some consulting firms may face periods of high or low client demand, so it’s important to adjust utilization goals throughout the year. Consider your client pipeline, expected project load, and industry trends when setting realistic targets.
4. Set a Range for Each Role
Instead of having a single target, consider setting a range of acceptable utilization for each role. For example:
- Junior consultants: 65% to 75%
- Mid-level consultants: 75% to 85%
- Senior consultants and managers: 80% to 90%
- Partners and executives: 60% to 70%
Having a range allows for flexibility while still providing clear expectations for performance.
5. Factor in Non-Billable Time
Non-billable time (e.g., training, internal meetings, business development) is critical to long-term firm health. Be sure to allocate reasonable amounts of time for these activities when setting your targets. Ensure that consultants have enough space in their schedules to maintain a work-life balance and continue developing their skills.
6. Monitor and Adjust Regularly
Utilization goals should not be set and forgotten. Regularly monitor performance against the targets, and adjust if necessary:
- Track utilization rates through time tracking tools (like EVX Software) to gather data.
- Review quarterly or monthly to identify any imbalances, such as overutilization leading to burnout or underutilization leading to revenue gaps.
- Adjust targets based on client demand, staff feedback, and business performance.
7. Communicate Clearly with Your Team
Once you’ve set realistic utilization goals, ensure that they are clearly communicated to your team. Transparency about how utilization impacts the firm’s success, as well as individual expectations, fosters a culture of accountability and motivation.
Factors That Influence Utilization in Consulting
Several factors influence utilization in consulting, including the type of projects being worked on, the role and experience level of consultants, and the firm’s business model. Billable hours are affected by project complexity, client demands, and whether the work is time-and-materials or fixed-fee based. Non-billable activities such as training, business development, and internal collaboration also impact overall utilization. Additionally, seasonal fluctuations, employee workload, firm size, and internal resource allocation can all alter the balance between billable and non-billable time.
Project Scope, Client Demands, and Team Capacity
Project scope, client demands, and team capacity are key factors that directly impact utilization in consulting. The project scope determines the amount of work required and its complexity, which influences the number of billable hours a team can realistically achieve. Client demands play a crucial role, as tight deadlines, frequent scope changes, or high expectations can either push consultants to work longer hours or, in some cases, lead to inefficiencies if expectations aren't clearly defined. Finally, team capacity reflects the firm's ability to allocate the right number of consultants with the necessary expertise to meet project needs without overloading them. Balancing these three elements is crucial for achieving optimal utilization and ensuring both project success and employee well-being.
The Role of Time Tracking Tools
Time tracking tools play a vital role in managing and optimizing utilization in consulting firms. These tools help capture accurate data on the time spent by consultants on billable and non-billable tasks, offering valuable insights into productivity. By automating time logging, they reduce the risk of errors and ensure that no billable hours are overlooked. Additionally, time tracking tools allow firms to monitor whether consultants are meeting their utilization targets and identify areas for improvement. They also provide the data needed for accurate invoicing, reporting, and financial forecasting, while offering transparency and accountability to both employees and clients. In essence, these tools help firms strike a balance between maintaining profitability and preventing consultant burnout by ensuring realistic workloads.
How to Improve Consultant Utilization Rates
Improving consultant utilization rates requires clear communication, efficient resource management, and regular tracking. Start by setting clear utilization targets and aligning projects with consultants’ skill sets. Use time tracking tools to capture accurate data, manage resource allocation to avoid overload, and reduce non-billable time. Minimize scope creep by managing project expectations, and invest in employee development to enable consultants to handle more billable tasks. Finally, regularly monitor utilization and adjust as needed to maintain optimal productivity.
Strategies for Increasing Billable Hours
Increasing billable hours in a consulting firm requires a focus on efficiency, clear processes, and effective resource management. Here are some strategies to consider:
- Enhance Project Planning: Ensure detailed planning at the start of each project, with clear objectives and timelines, to avoid delays and scope creep that can eat into billable hours.
- Streamline Processes: Automate time tracking and project management to reduce administrative work and ensure consultants spend more time on client tasks.
- Prioritize High-Value Tasks: Focus on activities that are directly related to client deliverables, and minimize time spent on non-billable activities like internal meetings or excessive reporting.
- Improve Resource Allocation: Assign the right people to the right projects based on skills and expertise, ensuring that consultants are working on tasks that match their strengths, improving efficiency and reducing time spent on learning or correcting mistakes.
- Reduce Downtime: Monitor consultants’ schedules and allocate time efficiently, ensuring they have a steady stream of billable work and minimizing gaps between projects.
- Client Communication: Set clear expectations with clients on project timelines and scope, reducing the likelihood of disputes and extra work that can be non-billable.
By implementing these strategies, you can maximize billable hours while ensuring high-quality service and maintaining employee satisfaction.
Balancing Utilization with Employee Well-being
Balancing utilization with employee well-being is crucial for maintaining productivity and morale. Set realistic utilization targets, avoid overloading staff, and ensure there’s time for rest and professional development. Regularly monitor workload distribution to prevent burnout while maintaining high billable hours, fostering a sustainable work environment for both the firm and its employees.
Common Mistakes When Measuring Utilization (And How to Avoid Them)
Common mistakes when measuring utilization and how to avoid them include:
- Inaccurate Time Tracking:
Mistake: Relying on manual or inconsistent time tracking methods can lead to errors.
Solution: Implement reliable time tracking tools that automate logging to ensure accuracy for both billable and non-billable hours. - Not Accounting for Non-Billable Activities:
Mistake: Failing to differentiate between billable and non-billable work can skew utilization rates.
Solution: Clearly define and categorize non-billable activities (e.g., internal meetings, training) and ensure they are tracked separately from billable hours. - Setting Unrealistic Utilization Targets:
Mistake: Setting overly ambitious utilization goals can lead to consultant burnout and lower morale.
Solution: Set realistic, achievable targets that take into account workload fluctuations, employee well-being, and project complexity. - Neglecting Regular Reviews:
Mistake: Not reviewing utilization data regularly can result in missed opportunities for adjustments.
Solution: Continuously monitor and adjust utilization metrics to reflect project changes, resource allocation, and team capacity.
By addressing these mistakes and using a more structured approach to measuring utilization, firms can enhance both profitability and employee satisfaction.
