Beyond Billable Hours: Understanding Utilization & Overburn

In our previous article, I introduced the concept of realization – the hidden driver of agency profitability that measures how much of your team's total available time actually gets paid for by clients. Before we can improve realization, we need to understand the two operational metrics that drive it: utilization and overburn.

UTILIZATION: TURNING TIME INTO VALUE

Utilization is simply the percentage of your team's available time that's spent on billable client work. Think of it this way: in a standard work year, every full-time employee has roughly 2,080 available hours (52 weeks × 40 hours). Depending on your company's policies, after vacations, holidays, and sick time, you're looking at about 1,800 workable hours per person.

The utilization rate tells you how much of that workable time is spent on billable projects versus everything else. In our example agency:

• Total workable hours per person: 1,800

• Hours spent on billable work: 1,098 hours (61%)

• Hours spent on non-billable activities: 702 hours (39%)

Those non-billable hours include internal meetings, administrative work, new business pitches, pro bono projects, and general "keeping the lights on" activities. Some of this is necessary, of course, but much of it can be managed more tightly.

While many agencies obsess over utilization, it's only part of the story. You could have your teams working on billable projects 80% of the time, but if those hours aren't making it to the invoice, your profitability will still suffer.

OVERBURN: A PROJECT MANAGER’S NIGHTMARE FUEL

Project overburn is a critical metric that measures how much extra time teams spend on projects beyond what was budgeted. In our example agency, the average project overburn is 14.8%. This means that for every 100 hours budgeted in a project, teams actually spend 114.8 hours doing the work.

This overburn happens for various reasons:

• Scope creep without corresponding change orders

• Multiple rounds of revisions beyond what was planned

• Inefficient workflows and unnecessary meetings

• Poor estimation during the budgeting phase

• Lack of real-time budget tracking and controls

Think of overburn as another giant leak in your profitability pipeline. It sits between utilization (how much time you spend on billable work) and realization (how much of that time you get paid for). Even if you improve utilization, chronic overburn will eat away at your potential gains before they can reach your bottom line.

HOW UTILIZATION AND OVERBURN CREATE A VICIOUS CYCLE

These two metrics don't just operate independently – they often create either a downward spiral or an upward trajectory for your agency's profitability.

The Downward Spiral

• Too much non-billable activity (lowering utilization) forces rushed delivery of projects

• Rushed work leads to mistakes and revisions

• Revisions cause overburn

• Overburn kills realization

• Poor realization means the business needs more projects

• More projects increase non-billable time

• And utilization drops further

This cycle explains why many agencies feel like they're constantly running faster just to stay in place. The team is busy, maybe even overworked, but profitability remains elusive.

The Upward Spiral

When managed correctly, these same metrics can create positive momentum:

• Higher utilization means more capacity for billable work

• More billable capacity allows proper time for quality work

• Quality work reduces revisions

• Fewer revisions minimize overburn

• Lower overburn boosts realization

• Better realization needs fewer projects

• Fewer projects cut administrative time

• And utilization rises naturally

This is why improving these metrics isn't just about financial engineering – it actually creates a better working environment for your team while improving client outcomes.

THE RELATION TO REALIZATION

Let's return to our example agency, where:

• Utilization is 61%

• Overburn is 14.8%

• Realization is 53.1%

The mathematical relationship tells the story:

Utilization /  (1 + Overburn) = Realization.

What this tells us is that unutilized time hurts your finances and then project overburn eats away at them even further.

Improving utilization or reducing overburn (or fixing both) will directly impact your realization – the ultimate measure of your operational efficiency.

In our next article, we'll take a deeper dive into realization itself, showing exactly how improvements in these operational metrics translate to dramatic bottom-line results.