“Utilization” Is Not a Single Metric: The 3 Key Utilization Metrics
Businesses talk about measuring “utilization” but actually there are three key metrics you need to understand in order to drive profitability.
As a professional services firm or project-based business, there are two key factors to maximizing revenue – utilization and billing rate. While individual firms have some ability to manage billing rates, it is primarily driven by external factors – market fluctuations, economic issues, labor availability, regulatory changes – driving supply and demand. Utilization, on the other hand, though not immune from external impacts, is much more internally driven. There is a lot of opportunity for businesses to make internal changes to improve their utilization.
That’s where measuring utilization comes in. What could be more important than understanding if your people are overworked or under worked; which skills and services are in most demand; which parts of your business should be invested in; or which parts of your business are most and least profitable?
3 Key Metrics to Measure Utilization
Truth is, businesses talk about measuring utilization but actually there are three key metrics you need to understand in order to drive profitability:
Utilization Rate
This measures how many productive hours are actually worked from the total available work hours.
Realization Rate
Related to utilization rate, this metric measures the total billed hours as a percentage of total billable hours.
Chargeable Utilization
This measure tells you what percentage of total billable hours is actually chargeable to a customer and results in revenue.
Using Utilization Metrics to Drive Profitability
The fastest way to increase profitability is to increase billable hours — measured by the Utilization Rate — by improving team and individual productivity. The problem? You won’t be able to do that if your business is operating with disconnected systems of people, processes, and technology. When each department has its own siloed way of working, and using their own systems, the lack of integration makes it impossible to track and measure what’s happening across the organization.
The Solution? Connected Systems
This may seem obvious, but the solution is to connect your systems! A connected, integrated system allows for optimized utilization — measured by the three metrics discussed above — which leads to improved performance and profitability and the ability to achieve business objectives and goals.
Find out more about the three key utilization metrics and how Velosio’s solutions can connect your systems so that you can better measure and use what you learn to drive your business’ success.
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