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?

Well, on average a 1% improvement in utilisation will deliver a 20% improvement in operating profit. This average is for teams of 20 and above with average gross margin and net profit levels.

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 to improve gross margin, you can find more ideas to increase your firm’s profitability in our Insights.

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Article | Strategy and leadershipPeople and talent

Written by

Marc Jantzen

Founder

The Consultancy Growth Network

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

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