Billable Utilisation

Data architecture

Data Source

The most cost-effective and least complex setup uses dedicated software solutions that have all components shown in the metric formula present into one single system. This setup allows contractors and employees to see for themselves how well they are performing relative to their targets. Properly functioning and intuitive Billable Utilisation tracking tools are: Float, Productive and Timeular. Each of these tools have price ranges of 10 to 25 USD per month per user depending on the feature-list. 

Data Model

When you want to have a solid understanding whether your company is an effective billable hour machine, the most common setup is by attributing the billable type to each employee whether the person's role is focused on being either billable or non-billable. For example customer support, finance, sales, marketing and general staff are non-billable. A common setup used is by structuring the source system based on departments. Each department is either billable or non-billable. This setup has the benefit that the billable utilisation target of for example 80% can be distributed across let's say 12 people. Team based attribution of the billable type enables a more organic and natural distribution of tasks. Junior people tend to hit 90-100% utilisation and more senior people have lower utilisation reaching 50-60%. Senior people tend to have lower ratios, since they are more involved with personal development, sales support, client meetings, planning and strategy.

Semantic Model

The billable utilisation should be chartable based on the following periods: day, week, month, quarter and year. The trailing metrics that are most useful are the 3M and 12M time-windows. Especially the 12M give the department leaders and company executives a clear long term trend how the performance of the company is progressing. Semantic layer providers with trailing-metric optionality and dependable services are dbt and cube.

Data Quality

The billable utilisation is a notoriously unreliable metric, since its input measures are predominantly manual and require weekly and monthly checking and reminders by data quality owners. To improve the reliability of the metric, the following input measures should be periodically reviewed:

1. Scheduled Hours - Do all employees have a set and correct scheduled hour plan?
2. Holiday Hours - Do all employees have their holidays planned 3-6 mths in advance?
3. Sickness Hours - Are these hours allocated during sickness and several days in the future?
4. Non-billable Hours - Are all hours that are available allocated to specific non-billable projects, or are most hours allocated to that one 'Non-billable General' project?
5. Billable Hours - Are all billable hours allocated to projects have specific enough descriptions to keep accountability towards clients high enough?

Governance

Dimensions

The dimensions used to segregate the metrics by are employee, employee-type, employee-title, team, department, cost center, account, project and entity. The top 3 most used dimensions are: 1. department, 2. cost center and 3. employee-name.

Extensive usage

Once the basics are in-place and the metric is correctly tracked, modeled and operationalised, then you can consider leveraging the metric for the following use-cases:

1. Track non-billable hours for people from sales, account management, sales engineering and operational team members. 
   Tracking these hours per project allows you to get a better understanding which projects are still hitting their metric targets including all indirect-hours allocated to the project. When considering this granular setup, consider the cost-benefit, because this analysis requires end-to-end non-billable hour tracking for all your team members. When you want this level of granularity in your metric, then there exist multiple levels of granularity that you can choose from. The most granular approach is to create a new project in your resource management tools once a deal has moved to the scope-stage. A more light-weight approach, is creating a sales-project and account-management project per client and ask all participants to book their hours on these multi-year projects. The simplest setup is to have a singular sales project where everyone who works on sales related tasks allocates their hours. When you find that the billable utilisation is too low, due to the non-billable hours that are allocated to billable projects, then this gives you arguments in follow-up projects to raise your hourly rates. Secondly, you can decide to start charging for some of the non-billable hours that are required at the start of each project, such as fees for exploration, scoping,  quicks scans and sprint zero's to name a few. In most hour-based businesses the people who should be billable, should allocate a max of 5% of their available hours to non-billable sales-related tasks.
   
   
2. Track billable hours per support and O&M contract. 
   Whenever your company has support and/or O&M contracts with its clients, you can decided to start tracking billable utilisation for work with a fixed monthly retainer. Tracking this time gives you and your client a clean insight how much time and effort is allocated to keeping a process, setup or system up-and-running. For this specific use-case a billable utilisation that is >60%, is unwanted, because it removes the flexible layer that is required to handle multiple ad-hoc issues in parallel without breaching the service-level-agreement metrics. In a similar fashion, when the billable utilisation goes below 40%, you are probably overcharging your customer, and thereby potentially harming the trust they have in you as a steward over the budget they allocate to your company. When you create an open metrics culture with your clients, you can agree on a band-width of 40-60% and whenever your billable utilisation deviates too much, you can adjust the monthly budget. This approach can increase the trust your clients have in your company to correctly allocate their budget, and thereby increases the chance that your client allocates a higher budget amount in the next fiscal year for other O&M contracts and/or ad-hoc fixed-fee projects.

Related metrics

The billable utilisation on itself tells you a powerful story about the resource efficiency of your company, but the metric provides limited information on whether your teams are profitable enough. Therefore the most commonly used metric alongside the billable utilisation ratio is the contribution margin. You can have a great utilisation, but when your commercial team are giving significant discounts on hourly rates then your company could run into cashflow and liquidity issues.

Risks

The most common risk for companies that overly focus on this singular metric, is the loss of focus on the needs of your employees. Employees should be given 5% of their time for non-billable meetings and gatherings, 5% of their time for training and education, 5% to research & development, 5% of their time to sales and 5% of their time to pure idle time (e.g. table top foosball). When you decide to under-allocate time to each of the above domains, you run the risk of negatively affecting your long term capability to maintain a vibrant company culture, adjust to market dynamics and consistently generate a profit.