How To Calculate Resource Utilization Rate (With Formula)

By optimizing your team’s resource utilization rates, you can lower your decision-making costs, improve team member productivity, and increase billable time on your projects. This keeps your leadership, clients, and teams happy—you’ll increase profitability, deliver work on time, and make sure team members aren't over or underworked.

I’ll provide a formula for calculating utilization rate and explain how to track and improve it for your projects, and provide my top expert tips for carrying out this process effectively.

What Is A Utilization Rate?

Utilization rate is a performance metric that quantifies how much of a resource's available time is spent on productive, revenue-generating activities. 

Utilization rate can be applied to human resources, equipment, and financial capital. A higher utilization rate typically indicates that you’re making good use of your resources, while a lower rate may signal inefficiencies or potential issues within your operations.

In a professional service-based organization, for example, utilization rate might focus primarily on team members’ billable hours—how much of their time can you charge for?

Why It’s Important To Track Utilization Rate

Tracking resource utilization rates is essential for several reasons: 

• More accurate benchmarks for performance: Different fields and orgs have varying expectations for what constitutes a "good" utilization rate. Benchmarking your team’s utilization against these standards can help you with strategic capacity planning and give you a starting point for increasing or decreasing resource allocation accordingly.
• Better operational efficiency: When resource utilization is optimal, you can easily see where you need more support or investment on your project, identify inefficiencies, and make informed decisions about where to allocate resources. This results in improved productivity and reduced operational costs.
• Improved staffing decisions: With better utilization data, you can identify specific resources that are consistently underutilized or overworked and restructure the team, reallocate team members, or hire additional staff as needed. By paying close attention to resource management, you can make sure team members have a balanced workload.
• Better resource forecasting: Tracking utilization rates helps you analyze past utilization trends and use data to more accurately forecast future resourcing needs. This also helps with capacity planning and making sure your team can handle their workload without burnout or delays.

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How To Calculate Utilization Rate

Use this utilization rate formula to track how much work team members have on their plates and reallocate work amongst the team to create more balance, increase billable time, and improve profitability.  

Utilization rate formula: Utilization Rate (%) = (Total Billable Hours / Total Available Hours) x 100

• Total billable hours: the time spent on tasks or projects chargeable to clients.
• Total available hours: the time resources are available to work, excluding any time off or unproductive hours. 

For instance, if an employee works 40 hours a week and spends 30 hours on billable tasks, the calculation would look like this: 

Utilization Rate = (30 / 40) x 100 = 75%

This means the employee utilizes 75% of their available time on projects that generate revenue. 

What about calculating utilization for the whole team? Let’s say a consulting firm with a team of five consultants has each consultant work 40 hours a week, totaling 200 available hours for the team. If the consultants spend 160 hours on billable client projects during that week, the utilization rate would be calculated as follows:

Utilization Rate = (160 / 200) x 100 = 80%

This suggests the consulting team uses 80% of their available time on billable client work.

However, if the same team only bills 80 hours another week, this drops utilization down to 40%. This kind of a drop would prompt you to investigate the cause—whether it was due to fewer client engagements, increased administrative tasks, or other non-billable work.

How To Track Utilization Rate

Here are some strategies for tracking utilization rates:

• Develop a system for collecting data: Establish a system for recording time spent on various tasks. You can use time tracking software or tools to log your team's hours for specific projects or activities. Set up processes that enable your team to record their time accurately and make sure that the data you’ve collected is reliable.
• Categorize types of hours: Categorizing each team member’s time by billable and non-billable hours will help you calculate the utilization rate accurately. Adopt specific guidelines for when team members should track work as billable versus non-billable, and make sure everyone is aligned on definitions.
• Generate reports: Review the data periodically to make sure you’re catching all opportunities for improvement. Generate reports highlighting trends and variations in utilization rates over time. This can help you identify patterns, such as peak busy periods or underutilization of specific resources. This will then help balance workloads using resource smoothing or resource leveling.

What Is A Good Utilization Rate?

A utilization rate of 70% to 85% is considered healthy. The ideal utilization rate is subjective and varies by industry, but aim for a rate of around 80%—anything above this can risk employee burnout, and anything less means the team’s time isn’t being used efficiently.

💡Tip

Higher utilization rates may be expected in organizations with more variable workloads, like consulting firms or marketing agencies. Some firms even aim for rates exceeding 85%, particularly during busy project cycles. However, remember that excessively high utilization rates can lead to employee burnout, increased project constraints, and diminished quality of work, as staff may become overwhelmed with excessive workloads.

 

Conversely, a low utilization rate (i.e. below 65%) may indicate inefficiencies or potential issues that need attention. This could signal that resources need to be deployed more effectively or that there is a lack of demand for services.

Tools For Managing Utilization

Here are some of the different types of tools you can use to monitor and manage utilization rates: 

• Resource management software can help you manage resources more effectively with features like automated scheduling and rescheduling when the plan changes, automated calculations for utilization, and quick reallocation of assignments when needed.
• Project management software is used to monitor project timelines and manage workloads. It can also (usually) integrate with your time tracking tool, so you can keep an eye on utilization rates and project progress vs hours logged. This also lets you automatically create invoices based on entries and bill clients easily.
• Larger organizations might use enterprise resource planning (ERP) systems. These systems often come with advanced reporting tools for analyzing key metrics like resource utilization across departments and projects. They can also centralize data from multiple sources to provide an overview of utilization and help make resource optimization decisions.

Tips For Improving Utilization Rates

Here are some additional tips that are helpful for improving resource utilization rates. 

1. Foster a culture of accountability

Foster a culture of accountability by:

• Encouraging team members to record their hours consistently and accurately, which will help you obtain better data and make more informed decisions.
• Explaining to team members precisely how their work aligns with specific, broader goals, and that the purpose of time tracking is to help balance their workloads
• Providing training or workshops on time management and utilization
• Working with team members to identify ways to improve their productivity and time management

2. Regularly review workload distribution

Review your team’s workload distributions on a regular basis. This can help you identify which team members may be overburdened and who can take on additional tasks. A more balanced workload improves your team member’s productivity, job satisfaction, and overall utilization rates.

3. Invest in development and training

Provide opportunities for professional growth to help your team members feel valued and motivated. Equipping your staff with the necessary skills and tools to enhance their productivity and efficiency can lead to increased engagement and improved resource utilization across the board.

Resource Utilization Challenges

Here are some challenges that you might run into when calculating and tracking resource utilization rates. 

• An unclear definition of utilization: Without a clear definition of utilization, you can fall into the trap of measuring output without considering the quality of work. This can lead to misinterpretations of efficiency and missed opportunities for improvement.
• Workload variability: It can also be a challenge to accurately calculate resource utilization rates when there’s variability in workload. For example, a project team might experience fluctuations in demand based on project timelines or client requirements. These inconsistencies can result in team members being overworked or underutilized. This is where scheduling tools can make a difference. 
• Overlooking indirect factors: There is also the risk of overlooking indirect factors that affect utilization. This can include things like time spent on training, administrative tasks, or even downtime due to equipment failure. These factors can skew utilization figures and lead you to make decisions based on incomplete or inaccurate data. 

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