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Firm economics

How to calculate utilization rate and set targets by role

Utilization rate is billable hours divided by available hours for a period. A person with 1,410 billable hours out of 1,880 available is 75 percent utilized. Targets should differ by role: principals and managers spend time on business development and management, so their targets are lower than those of production staff.

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Updated Oct 14, 2026

The formula

Utilization = billable hours / available hours. Billable hours are hours charged to client projects. The choice of denominator matters more than most firms realize, so define it once and use it everywhere.

  • Gross basis: all paid hours, typically 40 hours x 52 weeks = 2,080 a year for a full-time person.
  • Net basis: paid hours minus holidays and paid time off, which counts only hours the person could actually have worked.

Worked example

A full-time engineer has 2,080 paid hours, 80 hours of holidays, and 120 hours of paid time off. Available hours on a net basis are 2,080 - 80 - 120 = 1,880. The engineer logged 1,410 billable hours.

  • Net utilization: 1,410 / 1,880 = 75.0 percent.
  • Gross utilization: 1,410 / 2,080 = 67.8 percent.
  • Same person, same year, two numbers. Comparing one person on a net basis with another on a gross basis is meaningless.

Why targets differ by role

A single firm-wide target punishes the people whose job includes unbillable work. Principals win the work, manage clients, and run the firm. Project managers carry coordination that is often only partly billable. Production staff should spend most of their time on project work. Administrative staff are usually not expected to bill at all.

Set a target per role, based on what that role is expected to do with the rest of its time. Then the firm-wide figure follows from the mix of people.

Worked example: a blended firm target

Take a hypothetical ten-person firm where everyone has 1,880 available hours, and where the firm has chosen these targets for itself: two principals at 50 percent, six technical staff at 85 percent, and two administrative staff at 0 percent.

  • Principals: 2 x 1,880 x 50% = 1,880 billable hours.
  • Technical staff: 6 x 1,880 x 85% = 9,588 billable hours.
  • Administrative staff: 0 billable hours.
  • Firm total: 1,880 + 9,588 = 11,468 billable hours out of 10 x 1,880 = 18,800 available, or 61.0 percent.
  • If one principal's utilization rises to 70 percent at the expense of business development, the firm figure improves this year and backlog may suffer next year.

Using utilization well

Utilization measures how time is spent, not whether it was profitable. Pair it with realization: billable hours that are written down still count toward utilization but produce no revenue.

  • Review it monthly and on a rolling twelve-month basis; one month is noisy.
  • Look at it alongside backlog. Low utilization with thin backlog is a sales problem; low utilization with full backlog is a staffing or scheduling problem.
  • Treat persistently very high utilization as a warning about burnout and missing time for training and review, not only as success.

Where Hubity fits

Hubity records time on timesheets against projects and tasks, in the same workspace as invoicing, so billable hours come from the time people actually log.

See how it works

Terms used here

  • Utilization rate
  • Billable hours
  • Realization rate
  • Write-down
  • Backlog

Sources

  • Billable hours (Wikipedia) (opens in a new tab)

Work it out on your own numbers

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Utilization rate calculator

Billable hours against available hours, net of time off, with the weekly hours a target needs.

Billing rate and multiplier calculator

From salary, overhead and profit to a breakeven rate, a billing rate and the multiplier behind each.

Common questions

  • Either choice works if it is consistent. A net basis that excludes holidays and time off measures how well available time was used; a gross basis measures billable output per paid hour. Say which one each report uses.
  • In most firms, yes. Both describe the share of time charged to clients. Some firms count time on internal projects as chargeable, so check the definition before comparing figures.
  • Only after confirming the survey uses the same denominator and the same definition of billable time. Your own trend by role is usually the more useful comparison.

More on firm economics

What an effective multiplier is and how to calculate it

Effective multiplier explained: net service revenue divided by direct labor cost, how it compares with the breakeven multiplier, with worked examples.

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