What is a good billable utilization rate in professional services?

It varies by model, but billable utilization commonly sits in the 60 to 75 percent range. Higher is not always better, because pushing past practical capacity drives burnout and attrition.

How does bench cost affect margin in a consulting firm?

The bench is paid for but not sold, so its cost must be recovered from billed work. If a blended rate spreads it evenly, profitable clients subsidise the bench caused by others, and the real picture stays hidden.

What is the difference between billable and non-billable time?

Billable time can be invoiced to a client; non-billable time (bench, admin, training, pre-sales) cannot. The mix between them is the main driver of firm-level margin.

How much does a utilization gain improve profit?

In professional services a 5 percent gain in genuine utilization typically lifts operating margin by 3 to 5 points.

Professional Services · Go deeper

The bench is not idle time. It is unpriced cost.

Every professional services firm sells the same thing: time. The trouble is that a large slice of the time it pays for is never sold. People sit between engagements, attend internal meetings, do admin, train, write proposals. That gap between time paid for and time billed is where margin lives or dies, and a blended rate is built to hide it.

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The essentials

In professional services, utilization is the single biggest margin lever, because the firm pays for all hours but only bills some. Typical billable utilization sits around 60 to 75 percent, so 25 to 40 percent of paid-for time is bench, admin, training and pre-sales. A 5 percent utilization gain usually lifts operating margin by 3 to 5 points. TDABC prices that non-billable time and assigns the bench to the work it supports, instead of burying it in a blended rate.

60-75%

typical billable utilization, so a quarter to two fifths is never sold

3-5 pts

operating margin from a 5 percent genuine utilization gain

Practical

capacity, not 100 percent, is the target; past it, attrition rises

01The cost pain points

Paid for all of it. Billed for some of it.

A firm carries the full salary cost of its people every month, but only a fraction of those hours ever reaches an invoice. The rest is bench, internal work and pre-sales, all necessary, none sold. Manage that gap well and the firm prints money on the same headcount; manage it blind, behind a blended rate, and the margin leaks somewhere nobody is looking.

Billable is not the same as realised

Time recorded as billable is not the same as time actually invoiced and collected. The gap is realisation, and it hides inside utilization figures.

Bench is paid whether sold or not

Salaries run while consultants are between engagements. A blended rate smears that cost evenly across clients who did not cause it.

Internal time competes with billable

Proposals, recruiting, training and admin are necessary, but every hour on them is an hour not billed, and few firms cost them against the work they support.

The capacity trap

Pushing utilization too high burns people out and raises attrition, itself a large hidden cost. The target is practical capacity, not 100 percent.

FROM HOURS PAID FOR TO HOURS BILLED & COLLECTED

Illustrative. Bench, admin, pre-sales and write-downs each carve a slice out of paid-for time. What survives to billed-and-collected is the real utilization a blended rate never shows.

02The engagement cost equation

Load the bench onto the work it supports.

An engagement does not just cost its billable hours. It carries a share of the bench the team draws on, the internal and admin time the practice runs on, and the pre-sales the practice invested to win and keep work. Price all of it and the engagement's real cost appears.

Engagement cost = billable hrs x cost rate
  + (bench hrs allocated to the team x cost rate)
  + internal/admin hrs x cost rate
  + pre-sales hrs carried by the practice

Illustrative. The bench and internal terms are what a blended rate buries; assigning them to the practice that generates them is what makes utilization actionable.

03Where margin hides

Healthy headline utilization, thin real margin.

A professional services practice reported healthy headline utilization and was puzzled by thin margins. Running the numbers through TDABC showed the headline figure counted internal project work and long proposal cycles as if they were productive, while genuine billed-and-collected utilization was a good deal lower. Once the bench and the unbilled proposal time were priced and traced to the practices that generated them, two service lines turned out to be running on the back of one strong one. Rebalancing staffing and tightening the proposal effort on low-probability bids lifted real utilization by a few points, and the margin followed.

Frequently asked questions

What is a good billable utilization rate in professional services?: It varies by model, but billable utilization commonly sits in the 60 to 75 percent range. Higher is not always better, because pushing past practical capacity drives burnout and attrition.
How does bench cost affect margin in a consulting firm?: The bench is paid for but not sold, so its cost must be recovered from billed work. If a blended rate spreads it evenly, profitable clients subsidise the bench caused by others, and the real picture stays hidden.
What is the difference between billable and non-billable time?: Billable time can be invoiced to a client; non-billable time (bench, admin, training, pre-sales) cannot. The mix between them is the main driver of firm-level margin.
How much does a utilization gain improve profit?: In professional services a 5 percent gain in genuine utilization typically lifts operating margin by 3 to 5 points.

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Find the real utilization your blended rate is hiding.

The Profit Check needs no data upload. It points to where bench and unbilled time are most likely eroding your margin, and what a few points of genuine utilization are worth.

Duration: 10 minutes
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Proof

A distributor in New Zealand. €1.335M of cost-to-serve made visible, then halved, and 830 loss-making customers brought down to 295.

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Who you would be talking to

Miguel Guimarães, Founding Partner

Cost and profitability practitioner for 25+ years. Presented the Damco cost-to-serve case at Managing for Profit (Amsterdam RAI, December 2009), on the same programme as Robert S. Kaplan.

Call +351 910 313 731

The bench is not idle time. It is unpriced cost.

Paid for all of it. Billed for some of it.

Billable is not the same as realised

Bench is paid whether sold or not

Internal time competes with billable

The capacity trap

Load the bench onto the work it supports.

Healthy headline utilization, thin real margin.

Frequently asked questions

The cost of serving a client is not on the engagement letter

A few engagements carry the firm. Do you know which?

TDABC vs ABC, and when each fits

Find the real utilization your blended rate is hiding.

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