65% of What? The Question Behind Every Utilization Benchmark

Utilization is one of the most quoted numbers in A/E management and one of the least consistently defined. Guides and surveys publish averages in the low 80s and top-performer figures in the 90s. A firm that measures itself at 65% reads those numbers and assumes it has a productivity problem.

Sometimes it does. Often it has a definition problem.

Utilization is a ratio, and a ratio changes when you change either side of it. Which hours count as the numerator? Which hours count as available time in the denominator? Are principals in or out? Is the office manager in or out? Does paid leave come out of the denominator? Is the result one aggregate figure, or an average of individual percentages? Each of those choices moves the result by several points, and published benchmarks rarely state them.

This article defines the two common versions of utilization, shows with a worked example how the denominator alone can turn 65% into 86%, and explains why utilization is the wrong lens for fixed-fee work in the first place. For the basic metric and how to track it by person and by week, start with the companion article.

→ Read: Utilization Rate for A/E Firms

Two Versions of Utilization — and How the Denominator Moves the Number

Two different measurements both get called utilization.

Project utilization asks how much of the time charged to projects is classified as billable. The numerator is billable project hours and the denominator is all project hours.

Firm-wide utilization asks how much of everything the firm pays for goes to project work instead of overhead. The numerator is project labor hours and the denominator is total available labor hours.

Firm-wide utilization = Project labor hours ÷ Total available labor hours

The denominator is where the arguments start. Consider a ten-person firm with the following annual hours:

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Measured against all paid hours, firm-wide utilization is 13,000 ÷ 20,000 = 65%. Of the paid hours, 65% went to projects, 20% to running the firm, and 15% to paid leave. For a firm with principals, an office manager, business development responsibilities, and normal vacations, that is a plausible and healthy picture. Nobody is slacking.

Now change only the definition. Assume one of the ten is a full-time office manager who logs 1,800 administrative hours and 200 of the leave hours.

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The firm did not work one additional project hour between the first row and the last. The number moved 21 points because the denominator shrank. Plenty of published figures sit in the second or third row. Some firms report the first. Both are legitimate. They simply aren’t comparable.

Averaging method matters too

There is a second trap. Suppose one person has 200 available hours at 60% utilization (a part-timer or a mid-year hire) and another has 1,800 available hours at 90%. Dividing aggregate project hours by aggregate available hours gives 87%. Taking the simple average of the two individual percentages gives 75%. Same data, a 12-point difference.

Who is in the population

Principals typically run well below associates and job captains because they carry business development, management, and review time. Operations and administrative staff run lower still. A figure that covers only employees who record project time will read higher than one covering everyone on the payroll. None of these choices is wrong. The problem comes when a number is lifted out of its context and compared to a number from a different one.

Another way to measure Utilization is by Labor Costs rather than Hours. This will produce slightly different numbers.

Why Utilization Is the Wrong Lens for Fixed-Fee Work

Even with a clean definition, project, not firm wide, utilization has a built-in limitation in A/E practice: it depends on classifying hours as billable, and on fixed-fee work that classification is largely arbitrary.

Billable is a label, not a cost

Suppose an engineer spends six hours researching a structural connection that the project requires. If those hours are tagged non-billable, project utilization drops. The six hours were still necessary to finish the job. They are a cost of that project whether or not anyone designated them billable, and leaving them out of project cost overstates the project’s profitability.

On a fixed-fee project billed by percent complete, the problem gets sharper. The invoice is determined by the project manager’s judgment of progress, not by adding up billable hours. No one can say which hours contributed to which percentage, and no one needs to. What matters is whether total labor cost is tracking to budget.

Utilization is not realization

The two metrics are often confused. Utilization measures how much of an employee’s available time goes to billable work. Realization measures how much of the potential value of that work becomes billed revenue.

An engineer works 40 hours. 32 are charged to projects. At a $175 billing rate, the potential billable value is $5,600. The firm recognizes $4,760 after fee limitations and write-downs. Utilization is 80%. Realization is 85%.

That engineer is highly utilized, and the firm is still losing $840 of potential revenue on the week. On fixed-fee projects, realization can exceed 100% when the team finishes the work in fewer hours than the fee assumed. High utilization says the staff is busy. It says nothing about whether the busy-ness is paying.

What to measure on fixed-fee projects instead

• Actual labor cost versus budgeted labor cost by phase
• Earned fee versus cost incurred to date
• Estimated cost to complete the remaining work
• Forecast profit at completion

One distinction is worth keeping: a project can legitimately incur time that is necessary but not contractually recoverable, such as extra review cycles or revisions driven by client changes. That time belongs in project cost, and flagging it separately is what turns it into a scope conversation or an additional services request. The cost question and the recovery question are different, and utilization collapses them into one.

→ Read: Realization Rate for A/E Firms

How to Use Utilization Without Fooling Yourself

Utilization is still worth tracking. It just needs ground rules.

Write down your definition and keep it fixed. Decide which hours count as available, who is in the population, and whether you aggregate or average. Then do not change it. A utilization figure that is calculated the same way every quarter gives a trustworthy trend. A figure whose definition drifts is noise.

Compare yourself only to numbers with a stated definition. When you see a benchmark, ask five questions: Is the denominator total paid hours or net of leave? Are principals included? Are administrative employees included? Does it cover only people who record project time? Is it an aggregate or an average of individual percentages? If the source cannot answer, treat the figure as directional only.

Look by role, not just firm-wide. A firm average hides the principal at 55% and the job captain at 95%. Targets differ by role, and so should expectations.

Pair it with realization and project profit. Utilization alone rewards effort. Realization and forecast profit reward results. A firm moving utilization up while realization slides has found a way to be busier and poorer.

Treat 80% and above as a question, not a goal. If your firm-wide figure against total paid hours is in the 60s, that is common for small firms carrying real overhead, business development, and paid leave. Chasing a number that was defined differently by someone else’s survey can push a firm to cut the unbilled time that keeps it healthy: training, review, business development, and the research that makes fixed-fee work possible.

The useful goal is the one that never changes with the definition: labor cost tracking to budget, scope conversations happening early, and a realization rate that confirms the work is paying.

For Fixed-Fee Projects, Measure Progress - Not Just Hours

On a fixed-fee project, the hours worked tell you what the project has cost, not necessarily how much of the contracted work has been completed.

BaseBuilders keeps these measurements separate. Project managers update the percentage complete for each fixed-fee phase, and the system immediately recalculates earned value. Comparing earned value against fees already invoiced produces work in progress (WIP).

Positive WIP identifies earned fees that have not yet been billed. Negative WIP identifies amounts billed in excess of earned value, which BaseBuilders highlights in red.

When project managers keep their progress assessments current, BaseBuilders can automatically prepare draft invoices from positive WIP. That reduces billing effort while keeping actual project progress—not hours consumed—at the center of fixed-fee financial management.

→ Read: Time Tracking for Architecture and Engineering Firms

→ Read: Proposals & Fees for A/E Firms

→ Read: Project Management for A/E Firms