What is Utilization Rate? How to Use it Effectively
As a business owner, you can probably rattle off a list of metrics that your team tracks. There are financial, sales and marketing, customer service, and human resources metrics — the list goes on. But do you know which single measurement can boost your company’s overall performance?
Answer: Utilization rate (UR), which is the percentage of an employee’s work time that adds value to the company within a set period.
Think of utilization rate as a way to shine a spotlight on efficiency, highlighting whether personnel are over- or under-utilized, what your projected hiring needs are, and whether you have gaps in resource allocation.
Let’s take a closer look at how utilization rate impacts your business operations.
How to Calculate Utilization Rate
Improving Your Utilization Rate
What is Utilization Rate?
While UR is most often calculated in the professional services sector, you can use it in nearly any industry to optimize productivity. Healthy utilization rates vary by company and depend on factors such as:
- Resource availability: The availability of qualified staff to complete tasks efficiently
- Demand: Higher demand means more work to be done, which often leads to higher utilization rates — a sign it might be time to hire
- Downtime: Any period of inactivity — breaks, internal meetings, travel time — that cause billable utilization rates to dip
- Automation: Automating repetitive processes frees up time for employees and increases their productivity
- Regulatory requirements: The amount of time dedicated to meeting industry requirements
- Working days: The total number of days in a period of time an employee has worked
- Assignment demand: The number of tasks and complexity of each, which dictates how many resources need to be allocated.
How to Calculate Utilization Rate
Understanding your organization’s utilization rate allows for data-driven, proactive decision-making. Use this formula to calculate UR:
- Actual output divided by maximum possible output x 100
Get started by:
- Choosing a period of time. It could be a day, week, or month’s worth of data to analyze. For example, if you’re evaluating the UR of employees in a particular department, you might choose to analyze data for a month to get an idea of their average workload and productivity over time.
- Measure the actual amount of time the employee was productive during the chosen time period. Refer to your time tracking system for accuracy. This metric should include time logs for every touchpoint on a task or project.
- Identify total available time. This is the maximum amount of time the employee could have logged if they continuously worked. For many workplaces, this is 40 hours per week.
- Plug your figures into the utilization rate formula above.
- Review your results. Maximum capacity is 100%, but the goal is not to get as close to that number as possible. A utilization rate that is too high could result in burnout and high turnover. Similarly, a low utilization rate doesn’t necessarily mean employees are unfocused — It could be an indication that systems need to be improved, processes streamlined, or efforts reallocated.
Improving Your Utilization Rate
Save your business time and resources by considering these tips for improving utilization rate:
- Use UR to get a sense of demand and adjust employee schedules accordingly. Aligning staffing levels with UR is a great way to ensure that the organization’s needs are met and employment costs are under control.
- Eliminate inefficiencies in production by cutting steps that don’t add value. Streamlined processes not only save you time, but can reduce operational costs as well.
- Train workers to share responsibilities where it makes sense. This enables smoother transitions between tasks and departments, reducing downtime due to skill gaps.
- Keep an eye on performance and share best practices when UR is strong. Encouraging collaboration among stakeholders fosters a culture of improvement that can carry your organization far.
