Guide
How to Calculate Agency Utilization Rate
“Are we busy” and “are we utilized” are different questions with different answers. A team can feel slammed while its actual billable percentage is unremarkable, or feel relaxed while quietly running at a healthy rate. The calculation removes the guesswork.
What utilization rate actually measures
Utilization rate is the share of someone’s total available working time that was spent on billable work, over a given period. It is a backward-looking measure—what already happened—not a forecast of upcoming work. See utilization tracking software for tools that calculate this automatically from logged time.
The formula
Utilization rate = Billable hours ÷ Total available hours × 100
Billable hours is time logged against client work that is actually charged for, not merely time spent on a client-related task. Total available hours is the working hours a person was actually available for—a standard work week minus holidays, leave and public holidays for that period, not a flat assumption like 40 hours every week regardless of time off.
A worked example
Take a person scheduled for a standard 40-hour week over a 4-week month, with one day of leave taken during that period. Total available hours: 40 × 4 = 160, minus 8 hours of leave = 152 available hours. If that person logged 106 billable hours during the month, utilization rate = 106 ÷ 152 × 100 ≈ 69.7%.
Compare this to simply dividing by a flat 160 hours without adjusting for the leave day: 106 ÷ 160 × 100 = 66.25%. The difference is small in this example but grows with more time off, which is why adjusting for actual available hours matters for an honest number.
What counts as billable, precisely
Define this clearly before calculating anything, since different tools and agencies draw the line differently. Common practice counts direct client delivery work as billable, and excludes internal meetings, business development, admin and training as non-billable—even when that non-billable work is genuinely necessary to run the agency. Whatever definition you choose, apply it consistently so numbers are comparable over time.
Interpreting the number
There is no single correct target utilization rate. The right number depends on role (a founder doing sales has different expectations than a delivery specialist), on how much non-billable work the agency genuinely needs from that role, and on the agency’s own business model. Treat any specific percentage you see quoted elsewhere, including a generic industry figure, as a starting reference point to adapt, not a target to hit at all costs.
Limitations of this metric alone
A high utilization rate does not guarantee profitability—it says nothing about whether billing rates actually cover true cost. See how to calculate agency gross margin for that separate calculation. Utilization also says nothing about whether the work was delivered well, only how much of it was billable.
Common mistakes
Using gross hours instead of available hours
Ignoring leave and holidays understates the real rate and can make a healthy team look underutilized.
Inconsistent definitions of billable time
If different people categorize time differently, the aggregate number is not trustworthy for comparison.
Chasing a borrowed target number
A target that fits another agency’s model may not fit yours. Set expectations based on your own roles and business model.
Reading utilization without margin
High utilization at low billing rates can still mean poor profitability. Read the two together.
How software helps
Once time is tracked consistently, most time tracking and utilization tracking tools calculate this automatically, broken down by person, client or project, and adjusted for logged leave. Software removes the manual arithmetic; it does not remove the need to agree on a consistent definition of billable time first.
Frequently asked questions
What is a good utilization rate for an agency?
There is no single correct answer. It depends on role, expected non-billable work, and your agency’s own business model.
Should leave and holidays be excluded from available hours?
Yes, for an honest number. Counting time someone was not actually available to work understates real utilization.
Does 100% utilization mean the agency is doing well?
Not necessarily. It says nothing about margin, and it may also be unsustainable, leaving no room for training, business development or rest.
Conclusion
Utilization rate is billable hours divided by real available hours. Calculate it consistently, read it alongside margin, and set your own target rather than borrowing one from elsewhere.
Find My Software Stack