"Staff is clocking 40 hours a week but we're billing 15 to 20. Where's the other 20 to 25 hours going?"
That's an agency owner describing the problem in one sentence, and it's the reason utilization rate exists. It's a way of putting a number on the gap between the hours your team works and the hours a client pays for.
Here's the formula, then the worked example, then what to do with the answer.
How do you calculate agency utilization rate?
Agency utilization rate is billable hours divided by available hours, times 100. If someone has 160 hours of capacity in a month and 104 of them are billed to clients, their utilization rate is 65%. It tells you what share of a person's time actually earns money.
Utilization rate = (billable hours ÷ available hours) × 100
(If you landed here looking for credit card utilization, that's a different thing. This page is about agency hours.)
Two decisions change the answer, so make them once and stick to them:
- What counts as billable. Hours you can invoice a client for, or hours inside a retainer or fixed fee that is paid for. Internal meetings, admin, pitching and unbilled revisions are not billable.
- What counts as available. Usually working hours for the period, minus public holidays and approved leave. Some agencies divide by a flat 40 hours a week instead. Either works. Mixing them from month to month doesn't.
The choice matters because the same month produces different numbers depending on how you count. Pick a definition, write it down, and measure the same way every time. The trend is worth more than any one month's figure.
A worked example: one person, then a team
One person. A designer has 160 working hours in March after leave and holidays. They log 160 hours in total. Of those, 104 go on client projects and 56 go elsewhere: 14 on admin, 16 on internal meetings, 14 on helping with pitches, and 12 on revisions nobody agreed to pay for.
- Available hours: 160
- Billable hours: 104
- Utilization rate: 104 ÷ 160 = 65%
A team. Four people on the delivery side, each with 160 hours of capacity, which makes 640 in total. Their billable hours are 104, 120, 88 and 96.
- Billable hours: 104 + 120 + 88 + 96 = 408
- Available hours: 4 × 160 = 640
- Team utilization rate: 408 ÷ 640 = about 64%
Calculate each person as well as the team. A healthy-looking 64% can hide one person at 75% who is burning out and one at 55% who has room to take more.
Why utilization alone isn't the number to chase
A high utilization rate is not the same as a profitable agency. What matters is whether the billable hours cover what the people cost you. A quick check is the break-even utilization rate.
Say the designer's loaded cost is $50 an hour over all 160 hours, which is $8,000 a month, and you bill them at $120 an hour.
- Revenue if every hour were billable: 160 × $120 = $19,200
- Break-even utilization: $8,000 ÷ $19,200 = about 42%
Below roughly 42%, that person costs more than they bring in. At 65%, the 104 billable hours bring in $12,480 against an $8,000 cost. At 90% you'd be a long way ahead on paper, and have no slack left.
The 56 non-billable hours cost $2,800 at $50 an hour. That's an internal figure: it tells you what the unbilled time cost you, and it isn't something to add to a client invoice.
What is a typical utilization rate?
A typical agency utilization rate depends on the role. Production roles, such as designers and developers, are expected to run higher than account managers, project managers or founders, whose jobs include a lot of non-billable work. There is no single number that applies to every person.
I'm not going to quote a benchmark from memory. The published ones vary by role, agency size and how each study defines "billable", and a figure that doesn't match your definition will mislead you. Set your own targets per role instead:
- Delivery staff: the highest target, because their job is billable work.
- Project managers and account leads: lower, because coordinating and client calls are often not billed.
- Founders and owners: lowest, because selling, hiring and running the place come first.
Then look at your own trend. If your rate has slid from 70% to 55% over six months and nothing else changed, that's information, whatever the benchmark says.
Is a 30% utilization rate good?
For someone whose job is billable client work, 30% is low, and it deserves a look. For a founder who sells, hires and runs the agency, 30% can be normal. Whether it's good depends on the role and on whether the person's billable hours still cover their cost.
Run the break-even check above. If 30% covers the cost of the person, the problem is more likely pricing or the rate. If it doesn't, you have either too much capacity for the work you've sold or too much time disappearing into unbilled work.
The usual fixes are different for each:
- Too much capacity: the work isn't there. That's a sales problem, or a sign to move a person onto something else.
- Too much unbilled work: the work is there but the hours aren't getting charged. Revisions beyond the scope, "quick favours", and time nobody logged to the right project.
Where do the other hours go?
The gap between hours worked and hours billed usually has four sources: time spent on internal work, time that was logged but never invoiced, work that was out of scope, and time that was never tracked at all. Finding which one is biggest tells you what to fix first.
An easy way to find out is to split a month of hours into four buckets:
- Billed: on an invoice.
- Billable but not billed: logged to a client project, never invoiced. This is the cheapest money to recover, because the client already agreed to the work.
- Unbillable by agreement: inside the scope of a fixed fee or a retainer that's already paid. Fine, as long as it's meant to be there.
- Internal: meetings, admin, training, pitching.
Bucket two is the one that surprises people. It's the retainer that ran 11 hours over and nobody noticed, or the hourly work that was tracked on Thursday and left off Friday's invoice.
A spreadsheet will do this for you. The capacity planner template is a 12-week planner that shows each person's utilization by week against their billable target. It helps you see who is over, who has room, and which projects are burning through their hours.
If you don't want to rebuild it each month, Handl can show the same thing from time you already track. Its utilization report works from hours logged against capacity, and shows the billable share and what those hours earned and cost, per person. That cost side is for you only. Handl's costs features show cost and bill rates side by side when you allocate people to a project, so you can see its margin while there's still time to change it.
How do you track billable hours?
To track billable hours, log time against a client project as the work happens, and mark each entry billable or not at the moment you log it. A timer or a daily timesheet both work. What matters is that the entry names the project, the person and the hours, and that it's done the same day.
Most of the hours that go missing go missing at the end of the week, when somebody tries to rebuild Tuesday from memory. Some habits that stop that:
- Log daily, not weekly. Ten minutes at the end of the day beats an hour of guessing on Friday.
- Decide what's billable once. Client work, yes. Internal meetings and pitching, no. Write the rule down so two people don't make two different calls.
- Log against the project, not just the client. You can't tell a profitable job from an unprofitable one if all the hours land on the same client name.
- Look at it weekly. Compare logged hours with what each person had available. A gap is either unlogged work or spare capacity, and you want to know which.
Use the hours you've tracked to see who has room. The capacity planner template lays out who has how many hours across 12 weeks and where they're going, so you can see the gap before the month ends.
How do you estimate a project cost?
To estimate a project cost, list the roles the work needs, estimate the hours for each, multiply each by what that person costs you per hour, and add any outside costs such as contractors and software. That gives you what the project costs you. Your price is a separate decision made on top of it.
Worked example. A website project needs 40 hours of design, 60 of development and 20 of project management. At internal costs of $50, $60 and $45 an hour:
- Design: 40 × $50 = $2,000
- Development: 60 × $60 = $3,600
- Project management: 20 × $45 = $900
- Internal cost: $6,500
Add a contractor at $1,200 and the cost is $7,700. If the client pays $12,000, the margin is $4,300, about 36%.
Two things make these estimates better. Use your loaded cost per hour, not just salary, and add a buffer for revisions, because that's where jobs run over. And keep the cost side to yourself: it's how you check you're charging enough, and it isn't a line to add to a client invoice.
The project P&L sheet has one row per project with live gross margin, so you can compare your estimate with what the job actually cost.
How do you improve utilization without burning people out?
Raise the share of hours that are billed, rather than pushing people to log more. Do that by closing the gaps in scope, capturing time that's already been worked, and bringing in work to fill genuine idle time. Running people flat out for months leaves no room for a late client or a sick day, and that's a risk to the work, not a gain.
A short list that works:
- Measure the same way every month. Same definition of billable, same definition of available.
- Look at each person, then the team. A good average can hide two problems.
- Check the break-even rate for each role. Know what the number needs to be, not just what it is.
- Chase bucket two first. Billable hours not yet invoiced are the quickest win.
- Put revision limits and change-order wording in the scope. Out-of-scope work that's invoiced as a change is billable. Out-of-scope work done for free is the hole.
- Leave some slack. An agency running everyone at 95% has no room to absorb a late client, a sick day or an urgent request.
FAQ
What's the difference between utilization rate and billable rate?
Utilization rate is the share of available hours that are billed. A billable rate is the price per hour you charge. You need both: a high rate at low utilization and a low rate at high utilization can end up at the same revenue.
Should I include paid leave in available hours?
Most agencies take approved leave and public holidays out, so available hours reflect time people could actually work. Whichever way you choose, stay consistent.
How often should I calculate it?
Monthly is enough to see a trend. Weekly is useful for the team lead who has to decide who takes the next piece of work.