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Running a business

How to Calculate a Utilization Rate

If you bill clients for your time in your small business, calculating utilization rates makes it easy to see how productive and efficient your employees are. As the name implies, a utilization rate shows how productively you or your employees use the amount of time available.

It’s important for you to know these numbers so you can make better staffing decisions and drive profitability. Does an employee have a great utilization rate and need to be rewarded? Which employees have a lower utilization rate and need improvement plans?

To calculate a utilization rate, follow these steps:

  1. Calculate the number of hours an employee is on the clock during a standard week.
  2. Calculate how many hours the employee actually works on client work. This can easily be tracked with time log software or calendars.
  3. Divide the hours used for client work by the total hours the employee was available during the week.

For example, an employee worked 40 hours the previous week. Time log software shows that the employee worked on client specific tasks for 25 of those hours. The employee’s utilization rate is calculated as: 25 / 40 = 62.5 percent.

This number shows that the employee is utilizing 62.5 percent of his potential time to make the firm money. While this figure may make it seem as if the employee could be more productive, don’t forget to calculate how much time various employees need to spend on non-client-related tasks such as keeping up with email, continuing their education through professional development events and webinars, attending internal meetings, or handling other non-client-related responsibilities on a position-by-position basis. Once you have those figures in hand, you can calculate an average to understand which employees are being the most efficient and productive.

Consider whether you would benefit from tracking utilization rates regularly to assess trends in your employees’ performance. Utilization rates can help you make sound decisions regarding employee assignments.

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