Tuesday, September 18, 2012

Employee Utilization Rate

(Disclaimer: Although the main focus of MSP Builder is marketing, if we come across a question or topic in the MSP community that we feel we can give a helpful response to, we will do just that.)

I have a few variables that I consider when calculating our techs’ utilization rate. You can include some, or none, but you try examining these in the context of your business to see how much they might change your employee utilization numbers.

The basic 20 days x 8 hours is a good ballpark number by which you can multiply an employee's utilization percentage, but keep in mind that you have to calculate other days off:

  1. Vacation
  2. Holidays
  3. Personal/sick time
  4. Overtime (Ex: weekend projects)
  5. The wild card - extra days off beyond the allotted paid time off with numbers 1-3 (Ex: weddings, extra family trips, maternity/paternity leave, or other obligations)

Also, depending on seniority and agreements, you may have people with different numbers of total paid days off. It may take some extra time and effort, but it’s probably worth tracking total real days off per tech.

To extend the conversation, you can now take your real utilization and see how that stacks up against how much each tech costs you in direct labor. The rule of thumb is for the amount of service billed by a tech to be 2 - 2.5X their W-2.

One more suggestion is checking your state and federal laws to see which techs qualify as salary or hourly employees. Not paying overtime can get you in trouble. The government has been auditing a lot of small businesses, so make sure you understand the overtime rules.

How do you calculate your tech utilization? Do you use PSA software, Excel, a combination of both? What do you take into consideration that wasn't mentioned above?

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