How to calculate billable hours and utilization rate
The two numbers every service business should know, with the formulas, a worked example and the mistakes that make them lie.
Short answer
What is the formula for utilization rate?
Utilization rate is billable hours divided by total available hours, expressed as a percentage. If a consultant logs 120 billable hours in a month with 160 available working hours, utilization is 120 ÷ 160 = 75%. Realistic targets are 60% to 70% for a small agency and 70% to 80% for a dedicated consulting team.
Key takeaways
- Utilization rate = billable hours ÷ available hours. Keep the denominator consistent or comparisons are meaningless.
- Available hours should exclude holidays and public holidays, but not internal work: that is what you are trying to measure.
- A utilization rate above 85% is usually a warning sign, not an achievement.
- Billable does not mean billed: track write-offs separately or profitability will look better than it is.
Billable hours: what counts and what does not
A billable hour is an hour of work you can legitimately invoice to a client under your contract. Everything else, from internal meetings to prospecting, tooling, training and admin, is non-billable, even though it is often essential work.
The classification is a decision, not a fact, so write it down once and apply it consistently. The most common grey areas are travel time, pre-sales work, project management overhead and rework caused by your own error. See how consultants track billable hours with Simple Timesheet.
- Billable: client deliverables, client meetings, contractual project management
- Usually non-billable: prospecting, internal meetings, recruitment, training
- Decide explicitly: travel time, pre-sales, rework, warranty fixes
The two formulas
Utilization rate answers how much of your available capacity went to client work. Billable rate, sometimes called realisation, answers how much of the work you did was actually invoiced.
Utilization rate = billable hours ÷ available hours. Realisation rate = invoiced hours ÷ billable hours. You need both, because a team can be fully utilised and still lose money if a third of its billable hours are written off.
A worked example
Take a consultant over one month. There are 20 working days, so 160 available hours. She logs 120 hours on client projects and 40 hours on internal work. Utilization is 120 ÷ 160 = 75%.
At invoicing, 10 of those 120 hours are written off after a scope dispute, so 110 are invoiced. Realisation is 110 ÷ 120 = 92%. Effective billable capacity is therefore 110 ÷ 160 = 69%, and that last number is the one that pays salaries.
What a healthy utilization rate looks like
Targets depend on the model. Small agencies with sales and delivery in the same people usually land between 60% and 70%. Dedicated delivery teams in consulting firms sit between 70% and 80%. Anything above 85% sustained over a quarter tends to mean nobody has time for pre-sales, improvement or holidays, and burnout follows.
Do not compare rates between teams unless the denominator is defined identically. Firms that include holidays in available hours mechanically report lower numbers than those that exclude them.
Getting inputs you can trust
Both formulas are only as good as the hours behind them. Reconstructing a week from memory on Friday typically shifts individual project totals by 20% or more, which is enough to make a marginal project look profitable.
Three practical habits fix most of it: log time the same day, mark each project as billable or non-billable once in the project settings rather than deciding at entry time, and export the raw data monthly so the calculation is reproducible rather than a spreadsheet nobody can audit.
- Log hours daily, ideally from a phone when working on site
- Set the billable flag at project level, not per entry
- Recalculate monthly and keep the export as an audit trail
- Review write-offs with the same attention as unlogged hours
Frequently asked questions
Should holidays be included in available hours?
Exclude public holidays and paid leave from available hours if you want to measure how well working capacity is used. Include them only when you are computing an annual capacity figure for pricing, and state which convention you used.
Is a 100% utilization rate a good thing?
No. It means no time is left for sales, internal improvement, training or absorbing an incident. Sustained utilization above 85% is a leading indicator of turnover and quality problems.
What is the difference between utilization and billability?
Utilization measures the share of available time spent on client work. Billability, or realisation, measures the share of that client work that was actually invoiced after discounts and write-offs.
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