Utilisation rates and billable work - the key to unlocking growth

05 March 2020 Consultancy.uk 4 min. read
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Utilisation rates, the percentage of time a fee earner spends doing billable work, are the best measure of productivity and performance in professional services organisations. They can also have a measurable impact on the bottom line; an improvement in utilisation can be immediately reflected in revenue. So too, a fall in utilisation predictably causes a decline in revenue.

To illustrate this more clearly: a company with 500 employees could gain over £1.5 million in additional revenue by achieving just a one per cent increase in utilisation for employees billing at £150 per hour. As such, improving utilisation should clearly be a top priority for any organisation.

Improving utilisation rates

Improving utilisation rates solely by focusing on the performance of your people is an arduous process. Better utilisation will be far easier, efficient and effective through the implementation of professional services automation (PSA) tools. These tools do away with the cumbersome method of using spreadsheets to manage projects, track resources and profitability, perform planning, and allocate staff – replacing them with built-in dashboards, expenses and invoicing systems, resource records and time trackers.

PSA drives consulting performance

A well-selected and effectively used PSA will boost utilisation, as the Service Performance Insight’s (SPI) PS Maturity Benchmark Report proves. This report is the industry standard for professional services benchmarking. The results show that in 2019, of the 660 professional services organisations surveyed those that adopted a PSA solution saw a 7% rise in utilisation and a corresponding 4% increase in annual revenue. 

The primary benefit of a PSA is that it allows organisations to have full visibility of their employees and processes, allowing them to become resource-ready. This is an oft-repeated message, and it bears repeating because visibility is crucial for effectively managing projects and, therefore, key to improving utilisation rates. A PSA will allow different teams to have visibility over each other’s time and resources allowing effective collaboration and targeted use of resources. 

PSA solutions can connect with CRM systems meaning that every aspect of a business can be tracked, measured and managed, thus enabling the creation of resource-ready, efficient and streamlined organisations. With every detail captured from supply and demand to forecasting revenue and protecting margins, even to calendars, this is the most effective way to improve utilisation. 

In fact, organisations that integrate their CRM with a PSA solution can expect to see a 4% higher utilisation rate than those that do not adopt this process, according to reports from leading industry analyst firms like Services Performance Insights and Technology Services Industry Association. 

PSA drives consulting visibility

Tracking utilisation to meet future scenarios

Implementing these processes will improve utilisation. However, if these rates are not tracked against profits or forecasted into the future, the extent to which they can help organisations grow will be limited.

There are two points here. The first is that utilisation rates are important only in the context of bill rates. Even if an organisation drastically improves its utilisation rates, if its bill rates are decreasing, profit will not increase. The target utilisation rate for professional services organisations is typically 75%. But, if a sales team is encouraged to secure as many deals as required to reach this goal, they may do so by offering discounted bill rates or projects. The result would be that they reach the 75% utilisation rate target, but at the expense of profit. 

Therefore, it may have been better for the team to target a 70% utilisation rate without sacrificing profit. PSA tools and integrated CRM systems enable sales teams and finance teams to coordinate and enable the tracking of utilisation against profit to ensure that one does not negatively affect the other. 

The second consideration here is planning for the future and forecasting utilisation targets accordingly. The correlation between meeting well-planned utilisation rates and achieving successful business growth can be extrapolated into the future to protect against potential slumps. The accessibility of real-time data analytics in today’s world makes this process easy. Using these tools, professional services organisations can gain insights on current processes as well as project these insights into the future. By doing this organisations can predict what utilisation rate they should target for the year ahead and ensure continued improvement. 

Following these processes will result in an increase in utilisation rates which in turn will lead to organisational growth. 

An article by Andy Campbell from FinancialForce, a provider of cloud-based ERP and PSA solutions.