Most professional services firms track one number and call it utilisation. That number is usually a blend of three separate things, which is why the diagnosis is so often wrong.
Separate them and the problem becomes obvious.
The three numbers
Utilisation — are we busy enough?
Chargeable hours ÷ available hours
A person with 1,600 available hours who charges 1,200 is at 75%.
Benchmarks: delivery staff 70–80%. Senior staff with business development 55–65%. Owner-operators 40–55%, and lower is often correct — an owner at 80% utilisation has no time to run the business.
Realisation — are we billing what we do?
Fees billed ÷ fees at standard rate
If you did $100,000 of work at standard rates and invoiced $82,000, realisation is 82%.
The 18% went to write-offs, scope creep absorbed, discounts, and the quiet decision not to bill for something awkward.
Benchmarks: 90%+ is healthy. Below 85% signals a scoping or confidence problem.
Effective rate — what do we actually earn?
Fees collected ÷ total hours worked
Nominal rate $250. Effective rate frequently $150–$180.
This is the only one that pays wages, and it is the one least often tracked.
Why separating them matters
Two firms, both “struggling”:
| Firm A | Firm B | |
|---|---|---|
| Utilisation | 85% | 58% |
| Realisation | 68% | 97% |
| Effective rate | $170 | $194 |
Firm A is busy giving work away. Everyone is flat out, nobody has capacity, and a third of the work is not billed. Hiring another person makes it worse — more capacity to give away.
Firm B has a sales problem. They bill properly for everything they do. There is just not enough of it. Hiring is exactly wrong; selling is the fix.
Opposite problems. Opposite solutions. A single blended “utilisation” number gives you neither answer.
Where realisation actually leaks
Scope creep absorbed silently. The extra meeting, the additional revision, the “quick question” that took ninety minutes. Individually trivial, collectively 10–15% of capacity.
Write-offs at billing. Someone reviews the WIP, decides the client “won’t wear it,” and reduces the invoice. Frequently the client would have worn it — the discount was pre-emptive.
Unbilled admin on client work. File notes, correspondence, follow-ups. Real work, real hours, not on the invoice.
Junior inefficiency billed at zero. Someone takes six hours on a three-hour job and the extra three are written off. Legitimate for genuine training. A systemic problem if it happens every time.
Fixing each
Low utilisation → sell more. Not a delivery problem. Do not restructure delivery to fix a pipeline problem.
Low realisation → scope better and bill with confidence.
– Written scope on every engagement, with an explicit variation process
– A default answer for out-of-scope requests: “Happy to do that — it’s outside the current scope, so I’ll send a variation.”
– Stop pre-emptively discounting. Bill it, and let the client raise it if they want to.
– Review write-offs monthly by person and by client. Patterns appear fast.
Low effective rate with healthy utilisation and realisation → your rates are too low. The rate is the problem, not the operation. → Getting off the hourly rate
Track it properly
Monthly, by person and by client. Quarterly trend matters more than any single month.
The most useful view is effective rate by client — the same logic as gross margin by service line, applied to a services firm. It reliably reveals that the client everyone complains about is either your best or your worst, and rarely the one people assume.
Where to go next
- Professional Services: Getting Off the Hourly Rate\n- Gross Margin by Service Line\n- How to Fire an Unprofitable Client\n- Pricing for Profit
Benchmark ranges are indicative and vary by discipline, firm size and service mix. General information, not financial advice.