Agency utilization rate: the target, how to calculate it, and why 100% is a warning sign

Most agency owners can tell you their revenue to the pound, but far fewer can tell you what share of the hours they pay for actually turns into work a client is billed for. That share is your utilization rate, and it sits underneath most of the decisions you make about hiring, pricing and whether you can take on the account you're about to be offered.

The target

For people whose job is delivery, we work to 70% to 80%. For anyone who also sells, manages or trains, 60% to 70% is more realistic, because the other 30% to 40% is going somewhere useful even though no client is paying for it directly.

Those ranges are deliberately not higher, which surprises people. An account manager sitting at 95% has no room to onboard the client you're about to sign, and a designer at 100% has no room to fix the thing that comes back from review. If your whole team is genuinely running above 85%, what you have built is an agency with no slack in it, which looks like efficiency on a spreadsheet and tends to fall over the first time somebody takes two weeks off.

How to calculate it

The formula is straightforward, and the inputs are where it usually goes wrong.

utilization = billable hours / available hours

Available hours means contracted hours minus holiday and public holidays, which isn't 2,080 a year. A UK employee on 25 days holiday plus 8 bank holidays has roughly 1,850 available hours, so using the bigger number flatters your utilization by around 11% and every decision downstream inherits that error.

Billable hours means time spent on work a client is paying for, which isn't the same as time spent at a desk, and not the same as time logged against a client code because it had to go somewhere. The distinction that causes the most trouble is internal meetings about a client, which aren't billable unless the client is paying for them. Most agencies quietly book them as billable, partly because the alternative is admitting that a meaningful slice of the week goes to coordination that was never priced.

Why the number you're tracking is probably wrong

We see three failure modes, roughly in order of how common they are.

The first is including holiday in available hours, which inflates the figure and makes an overloaded team look comfortable. The second is treating every logged hour as billable, which happens whenever time tracking has a bucket per client and no bucket for internal work. When that's the setup, utilization reads around 90% while the team is visibly exhausted, because the real billable figure is closer to 60% and the difference is coordination nobody costed.

The third is measuring it across the whole company. Blending a founder who spends half their week selling with a designer who delivers full time produces an average that describes neither of them, and there's no useful decision you can make from it.

What each direction is telling you

Below 60% usually means you're carrying delivery capacity you have not sold yet, which is a pipeline problem wearing an operations costume. Hiring will make it worse, and it's worth looking at whether the last two hires were made for demand that never arrived.

Between 60% and 70% is normal for senior and hybrid roles, though it's worth a closer look for pure delivery staff, where it more often means work is unevenly distributed than genuinely absent. One person is usually drowning while another has room.

Between 70% and 80% is where you want to be, with enough load to be profitable and enough slack to absorb a new account without anything breaking.

Above 85% is the one people misread as a good result. In practice you're one resignation, one illness or one new client away from either missing a deadline or making a hire under time pressure, and hires made under time pressure tend to be the expensive kind, because you pay a premium for speed and skip the part where you check whether the person is any good.

What to do about it

Start by fixing the measurement before you act on it, which means recalculating available hours without holiday and separating internal time from client time for about four weeks. You will end up with a different number than the one you have been quoting, and the new one is the one worth acting on.

From there, measure it per role instead of per company, because the gap between roles is usually where the actual fix lives. Then set a target and staff to that target, not to demand, so that when a role is running at 90% against a 75% target you can calculate what the 15 point gap is worth before you decide whether to hire.

The last part is deciding what the slack is for, because slack that has not been allocated tends to get absorbed into utilization drift within a quarter. The agencies that hold 75% on purpose can usually tell you exactly what the other 25% is doing, whether that's onboarding, quality control or internal improvement.

How utilization and agency profitability connect

Utilization on its own doesn't pay anyone, and it only turns into profit once you multiply it through the rate the hours were sold at and set that against what the hours cost. Fully-burdened cost is salary multiplied by 1.25 to 1.4, divided by roughly 1,700 productive hours a year, and every unbilled hour still carries that cost. Pricing the work to at least a 50% gross margin is what lets a team held at 75% pay for the slack that keeps it from breaking.

An agency running at 80% on underpriced work will lose money faster than one running at 65% on properly priced work, because it's doing something unprofitable more efficiently. Pushing utilization up on an account priced below cost widens the loss, so the order of work is price first and utilization second.

The healthy range for agency gross margin is 50% to 60%, and below 40% there is no capacity left to fund growth. When margin sits under that line while utilization is already above 80%, working the team harder has nothing left to give and the fix sits in the price of the work, which is covered in how to price an agency retainer, why your agency is not profitable and why agency growth eats margin.

What usually happens when people measure it honestly

Nearly every agency we have worked with that measured this properly for the first time found the real figure lower than they believed, usually by 15 to 20 points. That gap is the coordination cost of running a service business and it has always been there, so the team has not suddenly got slower. The difference is that once the number is visible you can staff and price around it, rather than discovering it at year end.

Read next

• How many clients per account manager: the ratio most agencies use, and the hours arithmetic that should replace it
• Why your agency is busy and still not profitable
• Why agency growth eats margin, and how to price so it doesn't
• Agency financial benchmarks: the numbers a healthy agency actually hits
• Agency capacity planning: how to know what one more client actually costs