Agency utilisation rate: the formula, and the denominator that decides it
Utilisation rate = billable hours ÷ available hours, expressed as a percentage — so a designer who logs 1,100 billable hours against 1,665 available hours is running at 66%. The formula is trivial; the denominator is the whole argument, because the same 1,100 hours reads as 66% against available hours and 56% against the 1,950 hours in a contracted working year, and agencies quietly pick whichever one flatters them.
Building an honest denominator
Start from the contracted year and take out the hours that were never available to sell. For one full-time person on a 37.5-hour week:
| Line | Working | Hours |
|---|---|---|
| Contracted year | 52 weeks × 37.5 | 1,950.0 |
| Annual leave | 25 days × 7.5 | −187.5 |
| Public holidays | 8 days × 7.5 | −60.0 |
| Sickness and training allowance | 5 days × 7.5 | −37.5 |
| Available hours | 1,665.0 |
Use your own leave entitlement and your own average sick days — those three deductions come to 285 hours here, and a different agency will land somewhere else. What matters is that the denominator is stated. An agency that reports "72% utilisation" without saying against what has reported nothing.
Two conventions, both defensible, neither interchangeable: available hours (1,665) measures how well you filled the sellable time, and contracted hours (1,950) measures how much of the payroll year reached a client. The first is the operating number; the second is the one that quietly matches the cost you are actually paying. Pick one, write it down, never switch.
The worked example
One designer logs 1,100 billable hours in the year.
1,100 ÷ 1,665 = 66.1% of available hours
1,100 ÷ 1,950 = 56.4% of contracted hours
Both are true. Both describe the same person. Quoting the first to your board and the second to your accountant is how an agency ends up with two incompatible plans.
Turning utilisation into money
Utilisation only matters because it sets the cost of an hour you can sell. Take the person's fully-loaded annual cost — salary plus whatever your payroll report shows as employer on-costs, plus pension, plus their share of software and desk. Say that comes to £58,000.
Cost per billable hour = £58,000 ÷ 1,100 = £52.73
At a £105 charge-out rate, each billable hour earns £105.00 − £52.73 = £52.27, a delivery gross margin of 49.8%.
Now drop utilisation to 55% of available hours — 916 billable hours, a fall of 184 hours, or about four and a half working weeks across a year:
£58,000 ÷ 916 = £63.32 per billable hour
£105.00 − £63.32 = £41.68 → 39.7% margin
The cost did not change. The rate did not change. Eleven points of utilisation took ten points off the delivery margin and removed 184 × £105 = £19,320 of billable capacity from a person you are still paying £58,000 for. That is the entire reason agencies track this number.
Across a whole agency
Twelve delivery staff, each with 1,665 available hours, is 19,980 sellable hours a year.
| Utilisation | Billable hours | At a £95 effective rate |
|---|---|---|
| 68% | 13,586 | £1,290,708 |
| 62% | 12,388 | £1,176,822 |
| Six points | 1,199 hours | £113,886 |
Six points of utilisation across twelve people is £113,886 of billings — roughly a mid-weight hire and a half, found or lost without anyone joining or leaving. Run this table with your own headcount and effective rate before you next debate whether to hire.
Utilisation is not realisation, and neither is the effective rate
Three different numbers get called "utilisation" in agency meetings. They are not the same and an agency needs all three.
- Utilisation = billable hours ÷ available hours. Did we fill the time? 1,100 ÷ 1,665 = 66.1%.
- Realisation = hours invoiced ÷ hours logged as billable. Did we actually charge for it? If 1,100 hours were logged but only 950 survived write-offs and fixed-fee overruns, realisation is 950 ÷ 1,100 = 86.4%.
- Effective hourly rate = fee income ÷ billable hours logged. What did an hour really earn? £99,750 invoiced (950 × £105) ÷ 1,100 logged hours = £90.68, not £105.
Re-run the margin sum at the effective rate and it tells a different story: £90.68 − £52.73 = £37.95, a 41.9% margin rather than the 49.8% the rate card implies. An agency with good utilisation and poor realisation looks busy and banks very little, and it is the second number that usually explains a year that felt hard and read flat.
What a "good" utilisation rate is
There is no defensible single answer, and anyone quoting one without saying which denominator they used, which roles they counted and which sector they are in is guessing. What is worth saying is the structure behind it: a target above about 85% of available hours leaves no room for the unbillable work an agency genuinely needs — pitching, internal projects, training, line management — so it tends to be met either by logging that time to clients or by people working unpaid hours, and both show up later as write-offs and attrition rather than as margin.
The useful version of the question is not "what should our rate be" but "what does our rate need to be". Take your fully-loaded delivery cost, divide by the billable hours you can honestly sustain, and compare that to your charge-out rate. That sum is specific to your agency and it answers the question properly.
Measuring it without an elaborate system
You need three fields per person per week: hours worked, hours logged to a client, and hours invoiced when the month closes. Everything above comes out of those three. Calculate available hours once a year per person, in a single column, and leave it alone.
Two traps to avoid. First, do not count non-delivery staff in the denominator — an account director who bills half their time and a finance manager who bills none should not be averaged together into an agency number nobody can act on. Second, recalculate available hours when someone goes part-time or joins mid-year; a starter in September has roughly 555 available hours, not 1,665, and leaving the full-year figure in place makes them look like the least productive person in the business.
Arithmetic and general information only — not financial, tax, legal or investment advice. Your own figures, and your own accountant, decide what any of this means for you.
Do this sum for free
free freelance hourly & day rate calculator — it runs the same available-hours arithmetic for one person and works back from the income you want to the rate it requires. It runs in your browser and nothing you type is sent anywhere.
If you would rather not build it yourself
The Marketing Agency Financial Model ($299) is the same utilisation arithmetic across every person you bill out, plus project and retainer margin by client, a cash flow forecast, a whole-business break-even point and the hiring question — what the next person has to bill to pay for themselves. One-time purchase, instant download.
Frequently asked questions
What is the utilisation rate formula?
Utilisation rate = billable hours ÷ available hours, as a percentage. Available hours are the contracted year minus annual leave, public holidays and an allowance for sickness and training — for a 37.5-hour week with 25 days leave and 8 public holidays, that is 1,950 − 285 = 1,665 hours.
Should the denominator be available hours or total contracted hours?
Either is defensible as long as you state which you used and never switch. Against 1,665 available hours, 1,100 billable hours is 66.1%; against 1,950 contracted hours it is 56.4%. The first measures how well sellable time was filled; the second measures how much of the payroll year reached a client.
What is the difference between utilisation and realisation?
Utilisation is billable hours ÷ available hours — did we fill the time. Realisation is hours invoiced ÷ hours logged as billable — did we actually charge for it. Logging 1,100 billable hours and invoicing 950 of them is 66.1% utilisation and 86.4% realisation, and only the second explains a busy year with thin margins.
What is a good utilisation rate for an agency?
There is no single honest figure, because it depends on your denominator, which roles you count and your sector. Structurally, targets above roughly 85% of available hours leave no room for pitching, internal work, training and line management, so they tend to be met by mis-logging or unpaid hours rather than by real capacity.
How much is a drop in utilisation actually worth?
Work it out directly: lost hours × your effective rate. One person falling from 1,100 to 916 billable hours loses 184 hours, or £19,320 at £105 an hour, with no change in cost. Across twelve people, six points of utilisation is 1,199 hours — £113,886 at a £95 effective rate.
How does utilisation affect the rate I need to charge?
Cost per billable hour = fully-loaded annual cost ÷ billable hours. At £58,000 and 1,100 hours that is £52.73; at 916 hours the same person costs £63.32 an hour to put in front of a client. Your charge-out rate has to clear that number plus the overhead and margin you need, so falling utilisation raises the rate you require.