How to calculate agency utilization rate (and the number to aim for)
Utilization is the most quoted and least understood number in agency operations. Here is the formula, the benchmarks, and the three ways the calculation goes quietly wrong.
Topic
Profitability
Working out whether the work you just did made any money.
Catching scope creep before it eats the retainer
Scope creep is rarely one big unreasonable request. It is forty small ones, none of which was worth an argument, and the only reliable detector is a number you check monthly.
Effective hourly rate: the number that tells you a retainer has gone wrong
Your rate card says $150 an hour. Effective hourly rate is what you actually got. The gap between the two is where agency margin quietly disappears.
What an hour of your team actually costs
Salary divided by 2,080 is the wrong answer, and it is wrong in the direction that loses money. Here is how to work out the number you should be pricing against.
How to tell whether a project actually made money
Revenue minus obvious costs is not profitability. Here is the calculation that includes the parts agencies routinely leave out, and when to run it.
Numbers like these, without the spreadsheet
Utilization, effective hourly rate and project margin, straight out of tracked time.
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