Q:  How do you eat an elephant?
A:  One bite at a time.

In a world of increasingly complex projects, constant competitive pressure, and diminishing margins, today’s Services leaders face unprecedented pressure to improve every facet of services delivery to drive profitability.  But with so many moving parts and limited bandwidth, the real question is “Which bite should I take first?”

Most of us have a laundry list of initiatives we’d like to pursue:  stop revenue leakage, improve reporting and forecasting, standardize and automate processes, increase project profitability, improve utilization, decrease invoice cycle time… and the list goes on from there.  The problem is that we can’t tackle it all at once, and it can be extremely challenging to prioritize the urgency of accomplishing each objective.


We all know that improving resource utilization belongs on that list, and most of us track utilization (as best as we can) - but few of us have taken the time to model the profound effect that an improvement in this area can have on top line revenues and bottom line profitability.  Once you’ve seen what the math really looks like, it becomes clear that improving utilization should be a top priority.


Consider this question:  One billable resource at an Average Bill Rate (ABR) of $150/hr achieves a 1% increase in utilization.  What is the revenue impact?


At 160 total available hours in a month, a 1% increase in utilization yields an incremental 1.6 hours billed per month.  Multiply that by the ABR of $150/hr and you get incremental billed revenue of $240/month.  Annualize that number and you’re billing an incremental $2880/yr - for one consultant with a 1% increase in utilization. 

What if you could achieve that same result across an organization with 30 billable resources?  100?  500?  Moreover, what if you could achieve an even greater increase in utilization?

Organizations that adopt the appropriate processes and tools can often achieve much greater improvements than this.  Aberdeen Research has determined an increase of 7.8% in utilization for externally billable professional services organizations attributed to implementing Professional Services Automation software (Aberdeen Professional Services Automation End User Research Study). Note that this is a direct point increase in utilization (e.g. if utilization before PSA implementation is 70%, Aberdeen predicts utilization will be 77.8% after PSA implementation.)

Clearly, increasing utilization this much results in a huge bottom line increase.  And bear in mind, Aberdeen found 7.8% to be the average improvement.  One of our largest clients was actually able to achieve a 14% improvement in utilization in the year following their implementation.

So let’s take a look at the annual impact of various resource utilization improvements across various org sizes, assuming an ABR of $150/hr, as in our example above.




It should be clear from the table above that improving utilization should be a top priority for every billable services organization.  To model and better understand the impact that specific increases to utilization could have on your organization, check out our Impact Calculator at http://www.quickarrow.com/impact. 


This is a great exercise for establishing appropriate organizational goals and setting realistic expectations with your team.  You’ll also be able to model the impact of decreasing revenue leakage, increasing project profitability, decreasing invoice cycle time, and automating administration. 


Then the next step is just deciding which bite to take first… Good luck!