Agency Utilization Rate: How to Use This Metric to Increase Efficiency
As an agency, managing you and your team's time spent on client-facing tasks can be a challenge. Without careful consideration and monitoring, your employees could be working either too much or too little, and both can have a negative impact on the overall performance and efficiency of your agency.
Tracking your agency utilization rate will help you to monitor the capacity at which your team is running, and allow you to optimize their time spent on client-facing tasks.
Too little time spent on client-facing assignments could mean that your employees don’t have enough work to do. Too much time means that they can face burnout when it comes to internal-facing tasks, such as administrative, sales, and marketing.
What is Agency Utilization Rate?
Agency utilization rate refers to the amount of time an employee spends focused on client-facing projects vs. their total contracted working hours. This metric gives you an overview of the time spent on tasks that actually earn you money.
On the other hand, a utilization rate of 100% isn’t desirable, as that means your employees will need to work more than 100% capacity in order to complete internal tasks required to maintain and grow the agency.
How Do You Calculate Agency Utilization Rate?
Time-tracking is the key to accurately monitoring your agency’s utilization rate. By knowing how many hours an employee is working on client-facing tasks vs. their total contracted hours, you can calculate the percentage of time that they’re spending on revenue-generating tasks.
A successful digital agency will generally report a utilization rate of between 85 and 90%
As you can see, even a successful agency doesn’t max out their employees on client-facing work and leaves them with enough bandwidth to focus on internal matters.
Why is Agency Utilization Rate Important?
Agency utilization rate is possibly the most important metric to track for your agency as a whole. It gives you a clear picture of wasted time resources, or if your employees are going to hit burnout.
By calculating your agency utilization rate, you can begin to adjust time and money resources more efficiently and focus on the areas that will have the greatest impact on your bottom line.
For example, if you calculate that an employee’s utilization rate is 65%, you can safely assume you have the bandwidth to take on more clients. On the other hand, if an employee’s utilization rate is at 95%, there may be some quality and burnout issues to address.
How Do You Track Agency Utilization Rate?
To track your agency’s utilization rate, it’s important to implement time-tracking when it comes to client-facing activities. If an employee tracks themselves as spending 35 hours a week on client-facing tasks and is contracted to work a total of 40 hours, you can calculate their utilization and evaluate whether they’re as efficient as they could be.
A few useful time-tracking tools to consider include:
The Ideal Agency Utilization Rate
Every agency will have different standards for what their most profitable and efficient utilization rate is. A good ballpark, however, is to aim for a utilization rate of between 80-90%. This means your employees spend the majority of their time on revenue-generating activities, yet still have time for other internal tasks.
A few issues that can arise with too high utilization rates include:
- Burnout: Employees can quickly reach burnout if they’re spending more than 100% of their time on client-facing work. This can lead to resentment for the work that they’re doing and them requiring more time off in terms of sick days.
- Poor Work Quality: Being overworked and overwhelmed with too much work means that projects may not be getting the attention to quality and detail that they require. Working too fast due to the stress of getting everything done leads to mistakes, which in turn can lead to higher client turnover.
- Lack of Time: If your employees are working at or over capacity, this leaves them no time to focus on important internal matters such as meetings or your own marketing. It also takes time away from learning and improvement opportunities, meaning you can’t keep pushing the boundaries of the work that you’re putting out.
Low Utilization Rates can also identify issues in your agency:
- Too Much Free Time: While we want to get away from the 'time is money' mantra, when it comes to working with clients this old saying couldn’t be more true. Clients pay you to do work, and if you have employees only working at 50% capacity, there are opportunities to increase your revenue.
- Not Enough Clients: A low utilization rate also means that you don’t have enough clients for the size of your team. While your team might be doing great work, there’s simply not enough for them to do. They can take on more client-facing work, allowing you to run your agency more profitably.
- Poor Work Quality: This can also be a way to identify employees who need to increase their quality of work. Sometimes clients will request an employee not to work on their account for any number of reasons. This low utilization rate will give you the insight required to investigate as to why a specific employee has more free time than others.
That being said, not all employees need to have a high agency utilization rate in order to be productive. This method of tracking generally applies to any working primarily on client-facing tasks. Your C-Levels or Directors may have a utilization rate of 0% yet still be highly important to the profitability of the agency.
How Can You Use Utilization Rate For Your Agency?
To put your agency utilization rate into action, begin tracking the time your employees spend on client-facing activities for the next month or two. After that, you’ll have some data that you'll be able to analyze to see where there is room and opportunity for improvement, either by increasing or decreasing your employees’ workload.
Written by Alex Girardi
Alex is in product marketing, pushing the great work from the engineering team out into the world. When he's not marketing, he's probably rock climbing or researching the latest eCommerce trends!