Utilisation-to-profit calculator

As your consultancy firm grows, the more permanent team members you will typically have and consequently the more important it is to ensure your team is productive.

The traditional method of measuring productivity is to use a metric typically called utilisation.

Utilisation can be defined as the % of days a consultant spends on chargeable work as a percentage of available days.

How firms calculate available days can vary, the important thing is that you are consistent.

However, founder-led firms often resist time sheets and utilisation tracking, driven by a desire not to re-create a ‘big four’ culture.

Some firms have succeeded in focusing on project outputs rather than inputs, but this is not always easy to do and will depend on the nature of your consulting work.

Which ever way you cut it, not measuring the productivity of your team is highly likely to result in progressive margin erosion.

So how important is utilisation?

In a tougher economic climate, as consultancies face increased pressure to maintain operational profitability and manage their costs effectively, measuring utilisation rates can help you identify if you are underutilising resources or not operating at full capacity.

This was highlighted in the last Consultancy BenchPress report, the leading annual benchmark survey for founder-led consulting businesses in the UK and Ireland. For the second year running, top-performing founder-led consultancies highlighted profit and pricing as key growth opportunities.

With an average 1% improvement in utilisation delivering a 20% improvement in operating profit (for teams of 20 and above with average gross margin and net profit levels), managing your consultancy’s utilisation better could be the difference between sinking or swimming in challenging economic times.

The key question is:

What would the incremental profit value be of a 1% improvement in utilisation in your firm?

Why stop at 1% improvement? If you achieved a 5% improvement then the profit impact would be 5x as great.

Like any process of targeting and accountability, the way you introduce and manage the communication around such targets is what will define your culture, not whether you choose to measure such critical success factors or not.

This is one example of how you can improve your consultancy’s performance. For more actionable insights and to compare your KPIs with the best-performing consultancies in the market, explore Consultancy BenchPress: an abridged version of the report is available to everyone, whereas the full report is available to participants of the Consultancy BenchPress survey and members of The Consultancy Growth Network.