What is a good employee utilization rate?
While a good utilization rate is often considered to be above 65%, and the perfect one - above 75%, there is not a single number that would fit all the industries.
The exact desired utilization rate depends on different factors - here are a few of them.
What does an utilization rate depend on?
Utilization rate for a given employee changes dynamically depending on a few different factors.
First is the seniority of the specialists in question. The range of responsibilities and assigned tasks changes with the person’s position - the higher position, the more organizational processes affect the utilization. Because of that:
- interns and juniors are expected to spend around 90% of their time on billable tasks,
- more experienced employees should be booked for at least 80% of their time,
- senior employees, who usually participate in the organizational processes as experts, should spend around 60-70% of their time on development tasks,
- managers, as they are mostly responsible for supervising the work, only allocate around 30-50% of their time,
- executives rarely book their capacity at all; their range of responsibilities is simply too broad to be assigned to a single project.
Second is the industry. Companies in certain fields are simply more likely to monitor the time their employees spend on different tasks. For example, an average utilization rate in a production company is above 80%, while in architecture that value is closer to 60%. The difference is huge!
Utilization rate in different industries - benchmark
Here’s how the average good utilization rate looks like in different industries that tend to measure this KPI for their employees:
- professional services: around 70-75%, depending on the specialization,
- production and manufacturing: 80-90%,
- IT services: 75%,
- marketing: 70%.
How does utilization affect your company’s performance?
It has been proven time and time again that improving utilization improves financial performance of the company.
Just to give you an example, in its 2022 survey, SPI Research has discovered that higher utilization results in rapid and positive changes in other KPIs. For example, the higher the utilization:
- the higher the chance that the project will be delivered on time; companies with 90% utilization have a 87% chance of such a success!
- the higher percentage of annual margin target is achieved, with over 93% of a goal being achieved by companies with over 90% of utilization.
- the better the EBITDA - the best companies have over 19% of it.
To add to that, utilization also affects two other key performance indicators: cost overrun and annual revenue per employee.
Utilization vs annual revenue per employee
According to 2022 PSMB Projector, improving billable utilization also improves annual revenue per employee. In the research, the organization has shown that the higher the utilization, the higher the revenue - and the difference can bring you up to 14% more income.
Utilization vs project overrun
2022 PSMB Projector has also proven that utilization can drastically reduce project overrun in the companies. Companies with the billable utilization below 50% had a 11% chance of experiencing the issue; however, the businesses that improved the utilization to over 90%, encountered such problems in only 8% of cases.
Why is 100% utilization impossible to achieve?
Many managers think that only 100% utilization rate is perfect; however, that is simply impossible to achieve.
A day of every single employee consists of numerous activities, including meetings, breaks and communication with other team members and organizational units. As a result, an employee simply cannot spend 100% of their time on planned activities. For that reason, there is no industry that can take pride in its 100% utilization rates.
Do you want to know more about managing utilization?
No problem - we have all the knowledge you will ever need to monitor it like a CEO of the greatest organizations in the world.
Feel free to read more about:
- team utilization,
- solving schedule conflicts,
- workforce optimization,
- resource forecasting,
- workload management process,
Or, if you want to get straight to the point, book a demo with our advisors or start a demo with Primetric