Utilization Rate Report

Introduction

In the quest to understand performance and boost profitability, most businesses continually measure a ton of different metrics, ranging from customer satisfaction and employee engagement, to lead generation, marketing conversions and sales indicators. But perhaps the most universal metric for any business Utilization Rate. 

If you don’t understand your utilization rate, you can’t understand your efficiency and productivity – which means you can’t begin to evaluate the profitability of your business. That’s why a multitude of businesses, from creative agencies and professional services through to law firms and independent consultants, closely monitor their utilization rate.

According to the 2021 Clio Trends Report, your firm’s utilization rate allows you to measure your firm’s workload and productivity. It’s one of the most important KPI your law firm should follow.

What is utilization rate?

Simply put, utilization rate is the percentage of a person’s total working hours that are spent on work that can be billed to a client. No matter how motivated or productive an employee is, no matter how determined they are to do the absolute maximum, time will always be their limiting factor. There are only 24 hours in the day – and as we’ve explored in depth before, human beings don’t do well when we strive towards being “always on”.

While an employee may work 40 hours a week, it’s pretty much impossible to do 40 hours of billable work. Meetings, lunch breaks, phone calls, training and business development all eat into it. But when it comes to utilization rate, it’s important to get the balance right: if it’s too high, your business may be cutting corners with essential internal work and you probably need more resources; if it’s too low, you may not bringing in enough work for your head count.

Why should you monitor utilization rate?

There are several reasons why it’s so important to monitor utilization rate. Any company that bills by the hour – whether that’s an agency or a law firm – needs to know whether they’re billing enough to cover their costs plus overhead. If you have a healthy utilization rate, you’ll know you’re billing efficiently. Plus, once you’ve figured out your ideal utilization rate, you can then use it to help understand many other important business functions.

Utilization rates are especially important when it comes to resource management, and can significantly improve forecasting and resource optimization. As a company grows and teams expand, the importance of having visibility into your future becomes even more vital – and your utilization rate can let you know whether you have the capacity to take on a new client, whether you need to hire more people, if you’re spending enough time on client work and whether you should invest more in internal projects.

How do you calculate utilization rate.

Knowing how to calculate utilization rates is critical for law firms. When you know how to calculate utilization rate for your law firm, that knowledge can provide insight into your firm’s billing efficiency. While knowing how to calculate utilization rate is important, you should also keep in mind these other key law firm KPIs: 

• • Utilization rate: As stated above, the utilization rate measures workload and productivity. You can calculate the utilization rate by dividing billable hours worked by the number of hours worked in a day.

  • Realization rate: This measures the potential value of work performed. You can determine your law firm’s realization rate by dividing the number of billable hours invoiced by the number of hours worked.

  • Collection rate: This rate measures the ability to capitalize on work performed. You can determine this by dividing the number of hours collected by the number of hours invoiced.

So, what’s the best way to calculate utilization rate? The basic formula is pretty simple: it’s the number of billable hours divided by the total number of available hours (x 100).

So, if an employee billed for 32 hours from a 40-hour week, they would have a utilization rate of 80%. There are actually several different ways you can calculate utilization rates depending on whether you want to understand pricing, hiring, organization health, etc.

To work out your utilization rate on a firm level, just divide the total of all employee utilization rates by the total number of employees. Most robust time tracking solutions can provide this information for you at both an employee- and business-level.

How can the LawKPIs Utilization Rate be used for your Law Firm?.

Calculating utilization rates gives lawyers the important data and insights they need to make informed business decisions. For example, you can use utilization rates to better understand the profitability potential for different legal services.

Utilization rates can also provide insight into resource allocation. For example, if an attorney’s utilization rate is quite high, they might need more resources and support. 

A utilization rate that’s continually close to 100% suggests that staff are overworked and potentially close to burnout. If this is the case for you, it’s an indication that it might be time to hire new people. If you have a utilization rate above 100%, that’s usually indicative of too much out-of-scope work or poor planning.

But on the flipside, if there’s a big gap between utilization and realization rates, it either means your team is spending too much time on non-billable tasks, or there isn’t enough work in the pipeline – which suggests there are risks ahead. It could also suggest that you have too many freelancers involved in projects. The bottom line, however, is that it means you need to bring in more billable work.

Increase your Firm’s utilization rate by –

Track your firm’s utilization rate

What gets measured, gets managed. Set a calendar reminder to record your firm’s utilization rate regularly. This might be weekly, bi-weekly, or monthly depending on your goals.

Have a clear, realistic goal

If your goal is to have a utilization rate of 45% in January, record this and set your tracking notifications accordingly. Planning backwards from your benchmark goal enables you to be clear on what you’re working towards and stay accountable.

Track time

Record all your work in real-time. Track time from inbox, add time entries from phone. Time tracking and calculating law firm’s KPIs go hand in hand. Tracking time doesn’t have to be complicated or laborious. Once you understand how to track utilization rates and the importance of it, it’s evident why you should prioritize time tracking.

Automate your law firm with cloud-based legal practice management software like Clio

It’s never been easier to automate non-billable, administrative tasks. Automation simply means you can reduce the amount of time you spend on non-billable work. With automation, you can free up your time to take on more billable, and client-centered work.

Delegate and do less non-billable work

Not even the best attorneys can do everything themselves. On the contrary, the best attorneys succeed largely thanks to their ability to delegate. With the right legal practice management software, assigning tasks (from a workflow perspective) is a lot easier.

Optimize your law firm’s workflows and processes

Streamlining processes right from client intake to billing will have profound effects on your firm’s workflow. Moreover, optimization should enable you to take on more billable hours, therefore supporting your utilization rate goals.

Summary –

By dividing the resource costs, overhead and profit margin by the total available hours and billable rate, you can calculate the ideal utilization rate – which is the optimal utilization rate for a company to reach the desired profit margin.

Before you can begin to work any type of utilization rates, however, you need to be able to gather accurate information on where your time is actually going and how much of your work is billable. Understanding your utilization rate is vital if you want to successfully judge the profitability of your employees, team and company – and while it’s a simple measurement, it can have far-reaching effects on how your business runs.

Using an all-in-one practice management software with time tracking and reporting capabilities will help you measure your utilization rate. And ultimately, work towards tracking progress and growing this number, all while prioritizing the client-centered experience.