Optimizing consultant utilization remains one of the most critical—and challenging—tasks for Professional Services (PS) organization leaders. Many PS teams struggle with the fundamentals of utilization, but mastering the basics can unlock significant efficiencies and growth opportunities.
Drawing from three decades of experience in the professional services business, I’ve witnessed firsthand the importance of tracking utilization and leveraging data to drive success. In this blog post, I’ll share key lessons and strategies for optimizing utilization, ensuring your professional services team can thrive, even in challenging economic times.
The Importance of a Professional Services Charter
Before diving into utilization, it's essential to discuss the foundation: the PS Charter. Every time I start working with a new client, I ask to see their PS Charter. Surprisingly, many organizations either lack a formal charter or have a vague, unstructured one.
A formalized PS Charter is crucial. It should be a document shared across the enterprise, bringing clarity to your team’s primary responsibility, financial model, key performance indicators (KPIs), activities, roles, and dependencies.
Your PS Charter should clearly define your team’s primary mission: is it revenue and margin, customer adoption, or supporting and enabling your partner community? Once you’ve established this, it’s vital to identify which components of your mission are non-negotiable and which are open for adjustment. Also, regardless of what your primary mission is, it's important as a services leader to maintain a core set of metrics, as well as identify key risks and dependencies that are essential for your team’s success.
Utilization Fundamentals: Tracking Time to Optimize Efficiency
Now, let’s delve into utilization—a topic near and dear to my heart. Utilization is one of the most commonly discussed metrics in professional services, and it’s essential to ensure that you’re always comparing apples to apples when calculating it.
The basic utilization formula is simple: Total Billable Hours / Total Available Hours. For instance, in the U.S., 2,080 hours is typically the total available work hours in a calendar year. That's the total amount of time, not taking out vacation. That's not taking out holidays. That's not taking out anything. That is just the total available hours in a standard given year as far as the number of weeks and the number of hours a week. This is a highly debated topic, as many organizations have a different view on what number to use for the denominator in this formula. However, the TSIA (Technology Services Industry Association) recommends using this number as an industry standard. This is the best way to ensure alignment internally and externally on what the actual utilization is for the services team.
The current Industry average using the 2080 denominator lands at right around a 63% utilization rate for technology professional services organizations. However, this can vary widely depending on many factors. I’ve seen utilization rates as low as 40% and as high as 95%, but it’s important to understand what drives these numbers up or down in your specific context.
Core Elements of Utilization Tracking
Time is money, especially in professional services. Tracking how your consultants spend their time is vital for optimizing utilization. At a minimum, services leaders should focus on the following six core elements:
Billable Project Time: The most critical metric is how many hours your consultants spend on billable projects. It’s essential to distinguish between billable and non-billable time within each project.
Non-Billable Project Time: This includes any hours worked on a project that are not directly billable. Tracking this helps you understand where you might be losing efficiency.
Enterprise Support Activity: The focus here is on the amount of time consultants spend on helping the enterprise to achieve its goals. Examples include product enhancement/feedback activities, sales and marketing efforts, and customer support or CSM related projects. These are often the most significant non-billable activities for which PS organizations do not receive sufficient credit.
Administrative Time: Many organizations are surprised by how much time their consultants spend on administrative tasks, such as attending internal meetings or developing content. Tracking this can reveal opportunities for efficiency gains.
Education and Training: Investing in your team’s development is important. Track any time spent on enhancing technical or soft skills to ensure your consultants are growing in their roles.
Time Off: Track any time consultants are unavailable due to vacations, personal leave, or other reasons. This helps you accurately calculate utilization rates.
Beyond Basics: Granular Utilization Tracking
Once you’ve mastered the basics, you can take utilization tracking to the next level by incorporating more granular details at the project level. I recommend that you start with a delivery model or methodology for each of your professional services offerings, and track utilization at the phase level.
Most services offerings will have four to seven core phases in the delivery cycle, and this is generally a good starting point. A common methodology may look like this: Kickoff, Initialize, Build, Activate, Run. Depending on the length of your projects, these phases could take weeks or months to complete. A best practice is to develop an estimated time in calendar days as well as in person hours/days to complete each phase. As your team delivers these services and documents the phase efforts on their timesheets, you will get solid data to confirm your estimates or highlight where changes need to be made.
Over time, this data will help you refine your project planning, improve efficiency, and reduce friction points. Even if you’re just starting and your estimates are rough, tracking this data is crucial. It allows you to identify where you have deviations and challenges, and it provides insights into how to optimize your projects for greater profitability.
Conclusion: Start with the Basics, Then Refine
Optimizing utilization for profitability isn’t a one-time effort; it’s an ongoing process that requires attention to detail and a commitment to tracking and leveraging data. Start with the basics—track the core elements of effort that consume your consultants’ time and build more granular tracking as you progress on tasks and deliverables as your organization matures.
By focusing on these fundamentals, you’ll be well on your way to building a more efficient, effective, and profitable professional services organization. Remember, time is money, and every hour you track brings you one step closer to optimizing your project delivery.