How to set a realistic utilization target for a small agency

Utilization is the share of your team's available time that goes to client work. It is where your calendar meets your fees. Set the target too low and you pay for hours no client uses. Set it too high and work waits, quality slips, and nobody has time to find the next client.

This guide shows how to count the hours people actually have, what counts as client time, how utilization differs from realization, why 100% is the wrong target, and how to set targets by role. Then it turns those targets into capacity for retainers, and ends with a check you can run each month.

Start from available hours

A full-time year is 2,080 contracted hours: 52 weeks of 40 hours. Nobody works all of them. Take out public holidays, vacation and sick leave, and what is left is available hours, the time a person is actually at work.

The holidays depend on where your team works and on your own policy. In the US, federal law sets 11 public holidays for federal employees. Private employers generally set their own. The Department of Labor notes that the Fair Labor Standards Act doesn't require pay for time not worked, such as vacations or holidays; those are generally a matter of agreement between you and your employees. Use the days your team actually gets.

Here is one year for a fictional designer:

Line	Hours
Contracted hours (52 × 40)	2,080
Public holidays (10 days)	−80
Vacation (15 days)	−120
Sick leave allowance (5 days)	−40
Available hours	1,840
Admin and email	−120
Internal meetings and reviews	−140
Training	−80
Pitches and sales support	−60
The studio's own projects	−60
Client hours	1,380

The designer's 1,380 client hours are 75% of 1,840 available hours. Measured against all 2,080 contracted hours, the same year is 66.3%. Both are correct, but they can't be compared with each other. Pick one base and keep it. This guide uses available hours, as does the internal hourly cost rate guide.

Available hours = contracted hours - holidays - vacation - sick leave
Utilization     = client hours / available hours

Decide what counts as client time

Count an hour as client time when it is spent on a client's work, whether you bill it by the hour or it sits inside a fixed fee or retainer. That includes account management, status calls, internal reviews of client work and revision rounds. Leave them out and utilization looks low, while retainers look healthier than they are. How to tell when a retainer is underwater explains why.

Internal time is the rest: admin, internal meetings, training, hiring, pitches and work on your own studio. It keeps the business running and brings in the next client. A target is there to plan that time, not to squeeze it out.

Utilization is not realization

Utilization counts hours. Realization counts what those hours were paid.

AccountingTools defines the realization rate by comparing what is actually billed with the value of the billable hours at standard rates. For an agency:

Realization = fees billed / (client hours * standard hourly rate)

On fixed fees and retainers, this is where overservicing shows. Take the fictional retainer in the retainer burn guide: US$6,000 a month for up to 40 hours, which prices each hour at US$150. If a month takes 54 hours, those hours are worth 54 × US$150 = US$8,100 at the standard rate. Realization is US$6,000 ÷ US$8,100 = 74%.

All 54 hours count toward the team's utilization. The fee paid for about three-quarters of them.

Read the two measures together:

• High utilization, high realization. Busy and paid for it. Check for unlogged overtime and for time to sell.
• High utilization, low realization. Busy but underpaid. Look for scope creep, extra revision rounds or a fee set too low.
• Low utilization, high realization. The work is priced well, but there isn't enough of it.
• Low on both. Pricing and pipeline both need attention.

Why 100% is the wrong target

A person booked at 100% of available hours has no room for anything unplanned. Estimates run over. A client sends an urgent request. Someone is sick for three days. A pitch comes in. The work still happens, so it becomes unlogged overtime or it pushes another client's work later. One cost is hidden; the other lands on a client.

There is also a queueing effect. Kingman's formula, a standard approximation from the math of waiting lines, says the average wait before work can start grows with utilization ÷ (1 − utilization). Compared with a team that is half booked:

Utilization	Relative wait before new work starts
50%	1
70%	2.3
80%	4
90%	9
95%	19

A studio is not a textbook queue. The point is the shape. Going from 80% to 90% more than doubles how long new requests wait, and going from 90% to 95% more than doubles it again. The last few points of utilization cost the most.

Benchmark research points the same way. SPI Research treats 75% billable utilization as optimal. In its 2026 benchmark of more than 500 professional services firms, the average for 2025 was 66.4%, according to a summary by Deltek. Those firms have more than 245,000 employees between them, several hundred per firm on average, and they may measure utilization differently from you. Use the figure as context, not as your target.

Set targets by role

One target for everyone doesn't work, because roles carry different amounts of internal work. The ranges below are planning assumptions, not survey data. Use them for a first plan. After three months, compare them with what each person actually logged, and adjust.

Role	Planning range, share of available hours	Why
Designers, developers, writers	70–85%	Most of the week is client work
Senior and lead delivery roles	60–75%	Reviews, estimates and mentoring
Account and project managers	40–65%	Resourcing, reporting and new-business support
Owner or managing director	20–50%	Sales, finance, hiring and running the studio
Operations, finance and admin	0–10%	Internal by design

Three adjustments:

• New hires need a lower target for their first months, while they learn your clients and tools.
• Part-time staff use the same percentages on fewer available hours.
• Owners should log their hours and have a target, even a low one. Otherwise their client work never shows up in the plan.

Targets also feed your cost rate. The internal hourly cost rate divides annual cost by delivery hours, which are available hours times the share spent on client work. If the team runs below target, each client hour costs more than your rate assumes.

Turn targets into capacity for retainers

Capacity is what your targets allow, in hours:

Client capacity = available hours * utilization target
Headroom        = client capacity - committed hours

Count committed hours honestly. For each retainer, use its recent actual hours, not the hours in the contract. If a retainer has run at 130% of its included hours for three months, plan it at 130% until something changes.

Then check headroom by role, not only for the team. A team total can hide a role that is full.

A worked example (fictional)

Fictional example. Rowan Hill Studio is not a real business. The people and figures are illustrative and are not a customer result.

Rowan Hill is a six-person studio planning next month. The month has 21 weekdays and one public holiday: 168 contracted hours, or 160 available hours for anyone not on leave. The designer has two days of vacation booked, which leaves 144.

Person	Available hours	Target	Client capacity	Booked	Headroom
Owner and creative director	160	30%	48	40	8
Account manager	160	55%	88	80	8
Senior designer	160	75%	120	116	4
Designer	144	75%	108	104	4
Junior designer	160	70%	112	99	13
Developer	160	80%	128	70	58
Team	944	64%	604	509	95

The team's 64% is client capacity divided by available hours. The 509 booked hours come from three retainers and three projects. The retainers are planned at their three-month average of 139 hours, not the 130 in the contracts; one of them has averaged 52 hours against 40 included. The projects add 370 hours.

Look at the team line. The delivery staff are planned at 70–80%, but the studio as a whole is at 64%, because the owner and the account manager carry most of the internal work. That is expected. A team-wide target of 80% would pull them into delivery and away from selling and running the studio.

A prospect then asks for a design retainer: 40 hours a month, about 32 of design and 8 of account management.

Team headroom says yes: 95 hours free, 40 needed. Role headroom says no. Design headroom is 4 + 4 + 13 = 21 hours, 11 short of 32. Account management has exactly 8 hours, with nothing spare for a new client's first month. The developer's 58 free hours can't do design work.

The studio had three options:

1. Start later. One of the three projects, a brand identity, finishes that month and frees design time. Offer a start date after it.
2. Add capacity. Bring in a freelance designer for part of the work, and price the freelance cost into the retainer.
3. Take it now. Accept that the design team will run well above target and something else will slip.

It chose the first and offered a start date after the brand project.

A monthly check

Run this in the first week of each month, from your timesheets and bookings. Pick your own thresholds; the ones below are starting points.

1. Available hours. For each person, last month's contracted hours minus holidays and leave taken.
2. Client hours. Everything logged against clients, including calls and account management.
3. Utilization. Client hours ÷ available hours. Put it next to the target and the previous two months.
4. Flags. Mark anyone 10 or more points above target, or 15 or more points below it, for two months running. If logged hours fall well short of available hours, check for missing timesheets before you draw conclusions.
5. Realization. For each retainer and fixed-fee project, fees billed ÷ (client hours × standard rate). Mark any below your threshold, such as 85%.
6. Next month's headroom. Available hours × target, minus committed hours, by person and by role. Plan retainers at their recent actual hours.
7. One decision. Write down one action: a start date to move, a retainer to reprice, a freelancer to book, or a target to change.

Tracking this in a spreadsheet

The Retainer Burn & Capacity Planner is in progress. It will track included and used hours, pace, headroom and each person's load in one workbook. There is no release date yet; its page describes what it will do. Until then, the formulas above work in any spreadsheet: one row per person per month for utilization and headroom, and one row per retainer for realization.

To see what each client's hours left after delivery costs, the Client Profitability Tracker shows contribution before overhead and contribution per delivery hour by client and month. A free lite edition of the tracker, for businesses working in one currency, is planned, with no release date yet.

Sources

• U.S. Office of Personnel Management, "Federal Holidays," https://www.opm.gov/policy-data-oversight/pay-leave/federal-holidays/ (accessed Sep 30, 2026)
• U.S. Department of Labor, "Holiday Pay," https://www.dol.gov/general/topic/workhours/holidays (accessed Sep 30, 2026)
• AccountingTools, "Realization rate definition," https://www.accountingtools.com/articles/realization-rate (accessed Sep 30, 2026)
• Wikipedia, "Kingman's formula," https://en.wikipedia.org/wiki/Kingman%27s_formula (accessed Sep 30, 2026)
• Deltek, "2026 PSO Benchmarks: What We Learned and What's Next from the SPI Maturity Benchmark Report," https://www.deltek.com/resources/articles/professional-services-benchmarks/ (accessed Sep 30, 2026)