Balancing client satisfaction and billable utilization: What you need to know

In any services organization, exceptional client service is non-negotiable for client retention and renewal. But so is optimizing billable work to maximize revenue and profitability. It's this balance between client satisfaction and billable utilization that drives the growth and success of any professional service organization. 

In this blog post, we look at everything you need to know about nurturing healthy client relationships while optimizing the efficiency of your services team. Before we dive in, let’s set some context.

What is billable utilization?

Billable utilization is the percentage of available hours your resources spend on billable work. Billable work is work that generates revenue and can be directly charged to the client. It’s called so simply because clients will pay for the hours it takes to complete. Non-billable work, on the other hand, cannot be charged to the client. Team meetings, training sessions, admin duties, and attending conferences or events are all examples of non-billable work.

If you're a professional services provider, billable utilization reveals

1. How well you manage resources and
2. How you can improve resource utilization rate
3. To increase project profitability

You can calculate billable utilization by dividing the number of billable hours by the total number of available hours (holiday time not typically included) expressed as a percentage.

Billable Utilization = (Number of Billable Hours/Total Hours) x 100

According to Statista, the  billable utilization at professional services organizations across the world hovers around 71 percent.

Why you need to track and improve billable utilization

In professional service organizations, the better the resource utilization, the more revenue you generate against the salary or hourly rate of your team members. Billable utilization is key to tracking productivity and profitability.

High billable utilization rates indicate that your capacity utilization is effective — or that team members are effectively using their time to generate revenue. However, excessively high utilization rates can lead to increased working hours, stress, burnout, decreased quality of work, and a direct impact on client satisfaction.

You need to strike a balance between maximizing billable utilization and ensuring professionals have enough time for non-billable activities such as professional development, client relationship building, and administrative tasks.

The pros and cons of a billable hour approach for Professional Services

The billable hour approach has long been a widely used method for tracking and invoicing client work. However, it has its share of pros and cons.

Pros

1. Visibility into revenue generation: Billable hours provide a straightforward method to generate and measure revenue. It allows service teams to directly correlate time spent on client work with income or sales, making it easier to bill clients for the services provided.
2. Transparency: It offers a transparent way to demonstrate the effort and time dedicated to each client's work, helping build trust and credibility with clients.
3. Flexible pricing options: The billable hours approach gives services teams flexibility in pricing, allowing them to adjust rates based on the complexity of the work. This allows for fair compensation based on the effort and expertise of resources required for different projects.

Cons

1. Focus on time over value: Billable hours can shift the focus away from the value and outcomes delivered to clients. Your team members might prioritize spending more time on tasks to increase billable hours, rather than focusing on the efficiency and results of these tasks. 
2. Billing disputes: Tracking of billable hours can be contentious if clients are not satisfied with the assignment of resources or the fairness and accuracy of the hours billed. This can strain client relationships and create additional administrative tasks to resolve project billing discrepancies.
3. Pressure and burnout among employees: The emphasis on billable hours can create pressure for professionals to consistently meet targets, leading to burnout and a focus on quantity over quality. This can impact work-life balance and overall job satisfaction of team members.

5 ways to balance client satisfaction and billable utilization

Client satisfaction is a measure of how well you meet your clients' needs and expectations. It includes factors, such as the quality of work, responsiveness, communication, and overall client experience.  Here are five ways to improve billable utilization while ensuring client satisfaction.

1. Allocate resources before the contract is signed

When you assign resources reactively, you end up wasting time to move resources between projects, and on training or prepping them for different projects. You need to proactively assign resources to the project right after the sale/contract stage. This way, resources can spend most of their time working on billable work.

However, resource forecasting or predicting resource needs can be a  challenge for most service firms. It’s easy to understand the skepticism that project managers have when it comes to the data in the sales pipeline. Deals often fail to materialize, clients go into ghosting mode, and project kickoffs are often delayed.
However, you could have a project management approach that soft-books resources as soon as the project reaches a threshold of probability.
This forward-looking approach to billable utilization will empower project managers and stakeholders to set the right expectations with clients to ensure that there is no negative impact on revenue and client satisfaction.

2. Make time tracking simple and conduct regular audits

To improve time tracking efficiency/accuracy and optimize billable utilization, consider the following :

1. Simplify and standardize: Streamline time-tracking processes by simplifying and standardizing project plans. Utilize templates and automated tools to make time tracking as straightforward as possible for team members. Leverage automation wherever feasible. This reduces manual effort, minimizes errors, and ensures consistent recording of billable and non-billable hours. For instance, Rocketlane has a Smart Suggestions feature to prompt team members on tasks they were engaged in over the week. That way, they no longer have to independently track all the tasks they were involved in.
2. Conduct regular audits: Implement regular audits of time tracking and utilization to maintain data integrity. Conduct them at least once every month although weekly audits are recommended. Identify any underutilized or overutilized team members to facilitate resource balancing.
3. Track non-billable activities: Acknowledge the importance of non-billable work and track it in detail. Start by identifying key non-billable activities such as collaborating with marketing or product teams, or performing administrative tasks.

3. Give clients visibility into your project management approach

While efficient project management plays a huge role in balancing client satisfaction and billable utilization, so does transparency. This transparency starts right with establishing clear project goals, scope, and milestones during the kickoff meeting — and goes all the way to allowing clients visibility into how the project is proceeding.

By keeping clients updated on the project status on an ongoing basis, you can minimize surprises and maintain trust, even if adjustments to billable hours are necessary.

For instance, you can ensure that your clients can check the status of the project any time they want – without having to set up a status update meeting. One way to do this is by providing them visibility into your project management approach via the tool you use for it.  

The key is to be able to invite your clients to your project — while ensuring that they see only what they need to do. Professional services automation tools  are built to do this. For instance, on Rocketlane, you could invite your clients to your project — while keeping internal documents, tasks, updates, and conversations private.  You can also create custom domains/portals that clients can access for project updates. For instance, Rocketlane allows you to create custom domains with your brand logos, and custom themes to ensure a consistent customer experience.

4. Integrate feedback collection into your process

To enhance customer satisfaction, you need to  integrate feedback collection into your process at various touchpoints along the client journey. By automating CSAT (Customer Satisfaction) or feedback collection surveys, you can gather insights and promptly address any concerns or issues raised by clients.

Implementing automated feedback surveys at key milestones, such as project completion, delivery of specific services, or after significant interactions, is one way to do this. It enables you to assess client satisfaction levels, identify areas for improvement, and address any potential issues before they escalate — while helping you make data-driven decisions to optimize billable utilization.

Implement systems and processes to categorize and prioritize feedback based on urgency and impact. This enables you to address critical issues quickly, demonstrate your commitment to customer satisfaction, and foster stronger client relationships.

5. Pick the right tools for the job

Improving billable utilization rates is impossible without complete visibility into up-to-date and accurate project and resource data. To ensure client satisfaction, you need insights into the

1. Progress of projects across portfolios and clients
2. Time already spent on billable work
3. Time still required before project completion

However, relying on spreadsheets to track and manage utilization or even glean insights is a huge drain on productivity.

This is where professional services automation tools or PSA software have a role to play. They allow you to access accurate and up-to-date information on the progress/state of projects as well as current resource utilization, for

1. Visibility into the balance of demand and supply across projects,
2. A granular view of time spent across resources, and projects
3. Insights and capabilities that capacity utilization and resource management much more intuitive
   

Try Rocketlane for your professional service automation needs

A unified project management tool like Rocketlane comes preloaded with resource management capabilities to make life easier for everyone on your team.  Find the right people for every project, get project and people visibility, measure progress, speed up project delivery, and ensure complete transparency for your customers -- all in one place.

If you're still managing your resources on spreadsheets, you're slowing your team down.  Whether it is to ensure that the right resources are available for high-value projects, resource forecasting, or insights into your resource utilization, Rocketlane does it all, and better.

Don't take our word for it. See it for yourself.
Click here to book a Rocketlane demo.

FAQs on billable utilization and client satisfaction

1. What is billable utilization? What is an example of billable utilization?

Billable utilization refers to the time that can be directly billed to clients or customers. It is an important metric used in professional services industries to assess the productive output of employees and the revenue generated by their billable hours.

An example of billable utilization can be seen in a consulting firm where consultants work on specific client projects. If a consultant spends eight hours per day providing direct services to a client (such as analysis, strategy development, or implementation),

those hours would be considered billable utilization. These hours can then be billed to the client at an agreed-upon hourly rate, contributing to the firm's revenue.

2. What is the formula used to calculate billable utilization?

The billable utilization rate is calculated by dividing the total number of billable hours worked by an employee within a specific period by the total number of working hours in that same period.

For example, if an employee worked 120 billable hours in a month and the total working hours in that month were 160, the billable utilization rate would be 75% (120/160 * 100). This formula is commonly used in professional service industries to measure the efficiency and profitability of employees or teams.

3. Why is the calculation of utilization rate important?

The calculation of the utilization rate is important because it provides valuable insights into how effectively resources are being used.

Utilization rate helps businesses and organizations determine the efficiency and productivity of their services. Additionally, it can be used to measure performance, set realistic goals, and make informed decisions regarding resource allocation and capacity planning.

4. How can professional service firms measure client satisfaction?

There are several ways to measure client satisfaction. A common approach is through surveys such as Net Promoter Scores (NPS) or Customer Satisfaction Ratings (CSAT). Additionally, tracking customer retention and repeat business can serve as indicators of client satisfaction. Lastly, monitoring key performance metrics such as response time, problem resolution rate, and customer complaints also provides useful data on client satisfaction.

5. What does balancing customer satisfaction with business goals mean? Why does it matter?

Balancing customer satisfaction with business goals entails providing exceptional customer service while delivering products or services that are profitable and sustainable for your business.

The strategies to do this include

1. Understanding customer preferences
2. Implementing effective marketing and sales strategies
3. Delivering high-quality products or services, and
4. Improving and adapting business processes to meet changing market demands, etc.