Calculate your resource utilization rate to increase revenue
As a managed service provider (MSP), what informs your critical business decisions? Are you a data-driven organization or do you tend to lead with your gut?
Using key performance indicators (KPIs) to measure your business can help you accurately and objectively gauge whether you’re on the right track. Having benchmarks and quantifying progress towards hitting those metrics empowers business leaders to make decisions with confidence and to move forward deliberately.
The KPIs you will measure will depend on a number of factors, ranging from your business goals to the needs of your various departments. But for anyone running a business, a critical KPI is resource utilization.
What is resource utilization?
Resource utilization refers to how your company uses its resources, e.g. the members of your team. Are they booked up, busy and billable? By measuring this KPI, you can find out how much time your team spends on tasks that generate revenue, and how much precious time you’re wasting on non-billable tasks.
Calculating your company’s resource utilization rate helps you see if you need to make process improvements to optimize your team’s performance. Are there things you can automate, so your techs spend more time resolving client issues instead of performing admin work?
If you don’t manage to this KPI, you might also miss opportunities, since you won’t know you have the capacity to take on new clients. Or you might not see that your team is fully booked, and that additional projects will only hurt your business.
By contrast, when you optimize resource utilization, you can increase billable hours, complete projects on schedule, and increase your profit margin by seizing every available opportunity.
How to calculate resource utilization
While average utilization rates vary between companies, 50 to 60% is typical for managed service providers. But best in class companies come closer to 80%.
The formula for calculating your resource utilization rate is simple: take total utilized time and divide it by total time. To reach an accurate resource utilization rate, you’ll first need to track the time your employees spend on billable and non-billable projects. You may also want to record your number of clients and the number of projects your team completes per month.
To truly put your rate into action, use our resource utilization calculator. After plugging in information about your company, your utilization rate, and your clients, you can see how much revenue you’re losing, what your capacity is for taking on new clients, and how you compare to best-in-class MSPs. Then you can start improving your rate and building a more effective, more profitable business.