Billability vs. Utilization: Which One’s Your Real Issue

Your team looks slammed. Calendars are full, everyone’s “at capacity,” yet the revenue numbers don’t match the chaos. Something’s off and you’re trying to figure out what.

Is this a utilization issue or a billability issue?

This article gives you the quick, clear difference between utilization and billability, introduces the concept of billable utilization and shows you how to spot which metric is actually hurting your team (and your bottom line).

Key takeaways

• Billability and utilization can be connected but are defined differently in various industries.
• Utilization and billable utilization are two different metrics but they often get confused.
• Billability tells you which tasks generate revenue (billable vs. non-billable). It’s a classification, not a percentage.
• Utilization measures how much of someone’s available time is used overall, regardless of whether that time is billable.
• Billable utilization is the key profitability metric — it shows what percentage of available hours are spent on revenue-generating work.
• High utilization with low billable utilization means the team is busy but not profitable.
• Optimal billable utilization typically ranges from 70–85%, depending on industry and role.
• Use billability metrics to understand revenue and pricing issues; use utilization metrics to understand capacity and workload issues.

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What billability means

Billability answers the question whether a task can be billed to a client. It’s not a metric or percentage – just a classification of time or a task (billable vs non-billable). Activities marked as billable work count toward client revenue; those marked as non-billable work don’t.

Please note: You can track and automatically calculate billable vs non-billable time with a billable hours tracker like EARLY.

Many companies use “billability” informally to mean the share of a person’s time that is billable. This is however billable utilization, and you will find more about this concept below.

💡 Recommended article: Client billing 101

What’s the difference between billable time and non-billable time?

Billable hours include all the time spent on client-facing tasks, i.e. project delivery, client meetings, revisions, research directly tied to a client project, that are invoiced to a client and contribute to revenue generation.

Non-billable work covers all the other tasks that cannot be invoiced to a client, i.e. internal meetings, administrative tasks, professional development or sales team activities. This work is necessary for running your business, but it doesn’t directly generate revenue.

👉 Learn more about billable vs non-billable hours.

What utilization actually means

Utilization encompasses all the work employees do, both billable hours and non-billable hours. It measures how much of someone’s available work time is being used, regardless of whether they support revenue generation.

Think of employee utilization as your team’s capacity usage. If someone is scheduled for 40 hours and works 38 hours on various tasks (client work, internal projects, meetings, training), their utilization is 95%. The remaining 2 hours might be bench time or idle time.

High overall employee utilization rates (85-95%) generally indicates your team is productive and busy. But here’s the catch: someone can have 95% utilization while only 40% of their time is billable. They’re busy, but that busyness isn’t translating to revenue. This is why utilization alone doesn’t tell the whole story.

There are two types of utilization:

• Resource utilization – it’s focused on capacity and measures how effectively an company uses its total available hours.
• Billable utilization – it’s focused on revenue and measures how much of an employee’s time is spent on client work that can be invoiced.

💡 Recommended article: Read about what is block billing.

What is billable utilization?

Billable utilization is the percentage of time employees spend on work that directly generates revenue. It’s different from general utilization because it only counts the hours that can be invoiced to clients.

This is the key metric that actually impacts your bottom line. While overall utilization tells you how busy someone is, billable utilization tells you how profitable they are.

• Recommended article: Billable vs actual hours

How to calculate billable utilization

Billable utilization calculation is pretty straightforward:

Billable Utilization = (Billable Hours / Total Available Hours) × 100

“Billable hours” are the hours spent on client work that can be invoiced, while “total available hours” represent the person’s actual work capacity for that period (excluding PTO, sick days, and other approved absences).

Example: If someone is available for 40 hours but only bills 28 hours to clients, their billable utilization is 70% (28 ÷ 40 × 100).

Optimal billable utilization rate

Optimal billable utilization varies by business type: agencies and consultancies typically aim for 70–85%, IT and engineering services for 65–80%, and productized or hybrid service companies for 60–75%, depending on how much time their teams need for internal development, planning, and operations. These ranges balance profitability with the non-billable hours required to keep projects running smoothly.

Utilization also differs by role. Individual contributors usually land around 70–80%, team leads around 50–65%, project/account managers around 30–50%, and leadership far lower, often 0–20%, because their responsibilities are mostly strategic. The goal isn’t to maximize hours—it’s to set sustainable expectations that protect both performance and people.

👉 Read a full guide on how to calculate billable hourly rate.

What’s the difference between billability and utilization?

Here’s where things get confusing: billability and utilization can be connected but are defined differently in various industries. Some companies use these terms interchangeably, while others define them distinctly.

The clearest way to think about it: billability is about revenue-generating activities, while utilization is about capacity usage.

• Billability answers: “Which tasks are billable and which are not?”
• Utilization answers: “What percentage of my available time was actually used?” It’s calculated against available capacity. If your team had 120 available hours and worked 100 hours, your utilization is 83%.
• Billable utilization combines both concepts: “What percentage of our available time was spent on revenue-generating work?” Using the same example, if your team had 120 available hours and 75 were billable, your billable utilization is 62.5%.

Both billability and utilization are crucial for professional services firms to manage profitability and resource allocation. They give you different views of the same underlying question: are we making the most of our team’s time?

• Recommended read: Guide to project billing

Billability or utilization: Which one should you care about?

The honest answer: both, but for different reasons. They tell different stories about your business health.

• Monitor billability and billable utilization when you need to understand profitability and pricing strategy. If your billable utilization rate is low, you’re either spending too much time on internal work or you’re not capturing all the billable time you should.
• Care about utilization when you need to understand capacity and resource planning. If utilization is low, you either have too many people for the work available or you’re not allocating work efficiently.

For most service-based businesses, billable utilization is the key performance metric that matters most because it combines both concerns: it shows you how much of your available capacity is generating revenue.

💡 You might find it interesting: How to improve work efficiency

How billability and utilization impact productivity and profitability

These metrics directly influence your bottom line in concrete ways. When billable utilization increases, more revenue per employee there is. When utilization increases, you’re getting more value from your existing team without adding headcount.

Consider a 10-person team where each person costs $100,000 annually ($50/hour). If the team’s billable utilization is 60% and their billing rate is $150/hour, they generate $1.8 million in annual revenue.

Increase billable utilization to 70%, and revenue jumps to $2.1 million with the same team size and rates. That’s $300,000 in additional revenue just from improving how time is allocated.

Teams with clear visibility into billability and utilization make better decisions about what work to take on, how to staff projects, and when to push back on scope creep.

Can you have high utilization but low billability (or the opposite)?

Absolutely, and these scenarios reveal different problems in your business.

• High general utilization with low billabile utilization means your team is busy but not profitable. Too much time goes to internal projects, administrative tasks, or unbilled client work. This often happens when scope creep isn’t managed or when internal initiatives consume too much time. To fix it, audit where non-billable time goes, tighten project scopes, and automate administrative tasks.
• Low utilization with high billable utilization means when your team works, it’s profitable, but there’s not enough work to keep everyone busy. This might indicate a sales pipeline problem or seasonal fluctuations. To fix it focus on business development to fill the pipeline or consider whether team size matches actual demand.

How to measure both billability and utilization without spreadsheets

Tracking these metrics in manual timesheets becomes unmanageable fast. You need daily timesheets, categorization of every entry, and constant report updates. One person can manage it. Ten people makes it painful. Fifty people makes it impossible.

Automated time tracking software eliminates this headache by capturing work time in the background and categorizing it automatically. Tools like EARLY track which projects and tasks team members work on throughout the day without requiring manual time entry.

Real-time dashboards show you current rates across individuals, teams, and the entire organization. You can see at a glance who’s underutilized and available for new projects, who’s overworked, and whether your team’s time allocation matches your revenue goals.

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How to improve billable utilization and general utilization rates

Improving billable utilization, resource utilization and general utilization requires better processes, clearer boundaries, and smarter resource allocation.

• Start by auditing where non-billable hours actually go. Track time for two weeks with detailed categorization, then identify the biggest time sinks. Read more about time audits.
• Reduce non-billable hours by streamlining internal processes. Automate administrative tasks, cut unnecessary meetings, and create templates for common deliverables.
• Measure project profitability. Track profitability over a certain period to get a complete picture of which projects are truly cost effective. This helps you focus on work that actually increases profitability. Read more about measuring project profitability.
• Set clear project scopes and stick to them. Scope creep kills billable utilization because teams end up doing extra work they can’t bill for. When clients request additions, discuss whether it requires a change order.
• Improve capacity planning and resource management to ensure balanced workload. This way you’re not overstaffed during slow periods or understaffed during busy ones. Use historical data to predict busy seasons and maintain a pipeline of billable projects ready to start when capacity opens up. Read more about resource allocation.
• Create a culture where billing time is normalized. Many teams underreport billable hours because they’re uncertain what counts as billable and non-billable. Be explicit about what’s billable, train your team on how to track time, and start to measure team’s productivity.
• Consider your pricing model. If you’re constantly hitting capacity but struggling with billability, value-based pricing or retainer agreements might make more sense than hourly billing.
• Use billable utilization and general utilization metrics to run better conversations with your team members. When someone’s billable utilization is consistently low, work with them to understand why and find solutions.

Check out a full guide on how to increase billable hours.

Wrap-up

In short, billability tells you which tasks earn revenue, utilization shows how much of your team’s time is actually used, and billable utilization combines both to reveal how much of that time truly drives profit. When you distinguish these metrics and track them accurately you can see whether your team is busy in the right way, quickly spot whether you have a revenue, capacity, or pipeline problem, and make smarter decisions about pricing, staffing, and project scope.

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