Ask the owner of a consultancy about their most important operational KPI and nine times out of ten you get the same answer: utilisation rate. Makes sense. If the percentage of billed hours goes up, your profitability goes up. If it goes down, the margin drops. Every consultancy guru teaches the same mantra: keep your utilisation above 75% and the rest will take care of itself.
That mantra is wrong. Or more precisely: it is half the story. Utilisation rate is a necessary indicator, but on its own not a sufficient predictor of profitability. We regularly see firms with 80% utilisation that stay in the red, and firms with 65% utilisation that run solid margins. The difference lies in what you measure alongside utilisation.
What utilisation rate does and does not tell you
The utilisation rate tells you exactly one thing: what share of available hours was charged to a client. Not: what those hours earned. Not: whether the rate covers the costs. Not: whether the client eventually paid. It is a volume measure, not a profit measure.
A consultant can bill 90% of their hours and still be loss-making. Three patterns make that possible. Sometimes the hourly rate is structurally below the actual loaded cost rate: a junior who costs €75 per hour internally and is charged out at €70 increases your loss with every billable hour. Sometimes many hours were worked that were not invoiced: scope creep, extra research, unplanned delivery. The utilisation table shows 90%, but in reality 120% was worked and only 90% invoiced. And sometimes high utilisation masks underlying problems: if everyone is fully booked, nobody can work on business development, quality or training. In the short term the numbers look fine; in the longer term both your pipeline and your team erode.
The metric firms forget: margin per billed hour
What you actually want to know is not how many hours you billed, but how much margin each billed hour contributed after all costs. The formula is simple: invoiced revenue minus direct and indirect costs, divided by the number of billed hours.
That calculation combines three elements that are usually measured separately: utilisation, rate realisation and cost allocation. The result is one number you can compare directly across consultants, teams, clients and sectors. And it shows much better where your margin comes from.
An example. Consultant A has a utilisation of 85%, a rate of €125 and an actual loaded cost rate of €85. Consultant B is at 70% utilisation, bills €175 per hour and costs €95 internally. On utilisation A clearly wins. On margin per billed hour B wins: €80 against €40. Over a year B achieves almost the same margin as A, working fewer hours and with more time for development.
How it works out in practice
A consultancy with twelve consultants came to us because margins were falling despite stable utilisation of around 78%. Plenty of hours. Plenty of clients. And yet the result lagged behind three years earlier.
When we linked their time tracking, CRM and accounts, the cause became visible. Three of the twelve consultants achieved a margin per billed hour of €45 to €55. Three others were at €90 to €110. The rest hovered in between. The conversation that followed made one thing clear: the "expensive" consultants were consistently deployed at clients who only wanted to pay standard rates, while the "cheap" consultants were placed with strategic clients who were actually willing to pay more.
Within one quarter the staffing was redistributed, three client rates were renegotiated and two non-strategic clients were phased out with a polite letter. Utilisation fell from 78% to 74%. Total margin rose by five percentage points. That was the price of better measurement.
How to introduce margin per billed hour
The calculation itself is not complicated. The challenge is data consistency: you need actual time tracking, actual invoice data, and a correct cost calculation per employee. In practice it comes down to four steps.
Calculate the actual loaded cost rate per employee: annual salary plus employer social charges plus an overhead allocation, divided by billable hours (not by available hours). Link time tracking to invoice data, so for each hour you can see which invoice it ended up on and at what rate. Count unbilled hours as costs: scope creep is not an "extra service", it is a loss on that client. And track the metric per consultant, per client and per service, because only at that level of detail do you see the patterns that matter.
Real-time visibility per consultant and per client
At Strategie InZicht we link time tracking, CRM and accounts. As a result, margin per billed hour is in your dashboard in real time, not only in the annual accounts. You see deviations while you can still do something about them.
What you do with it next
Once you measure margin per billed hour, you can make decisions that are impossible with utilisation alone. Which clients do you want to give more hours to? Which consultants do you deploy for strategic work and which for volume work? Which rates deserve an increase and which a rethink? Which service scales profitably and which does not?
Further reading: Why fixed-price deals in IT projects make a loss more often than you think. New: How an IT services firm reads the Rule of 40 when its margin drops from 15 to 9 percent in a growth year.
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