- Utilization Metrics
- Revenue & Billing Metrics
- Project Revenue Components
- Cost & Profitability Metrics
- Key Concepts & Relationships
Utilization Metrics
Billable Utilization
The percentage of available time spent on billable client work.
Formula:
Billable Utilization % = (Billable Hours / Available Hours) × 100
Why it matters:
Billable utilization is one of the strongest predictors of services revenue performance and delivery efficiency.
Client Utilization
The percentage of available time spent on client-related work, including billable and non-billable client activity.
Formula:
Client Utilization % = (Client Hours / Available Hours) × 100
Why it matters:
Client utilization helps explain how much time is spent supporting client work, even when not directly billable.
Total Utilization
The percentage of available time spent working across all activities, including internal and client work.
Formula:
Total Utilization % = (Total Hours Worked / Available Hours) × 100
Why it matters:
Total utilization highlights overall workload and potential bench time.
Utilization Rate
A general term that may refer to billable utilization, client utilization, or total utilization, depending on context.
Why it matters:
Utilization rate is a core measure of capacity efficiency and directly impacts profitability.
Revenue & Billing Metrics
Revenue
Income recognized as work is delivered.
Time & Materials:
Revenue = Billable Hours × Bill Rate
Fixed Fee / Milestone:
Revenue = % Complete × Contract Value
Why it matters:
Revenue is the output of delivery work and pricing performance.
Effective Bill Rate
The actual revenue earned per hour worked.
Formula:
Effective Bill Rate = Revenue / Total Hours Worked
Why it matters:
Effective bill rate reflects the combined effect of utilization, pricing, and realization.
Realization Rate
The percentage of recorded billable time that converts into billed revenue.
Formula:
Realization % = (Billed Hours / Recorded Billable Hours) × 100
Why it matters:
Realization measures how much delivery work is being written off due to scope creep, discounting, or billing adjustments.
Project Revenue Components
Services Revenue
Revenue generated from delivering professional services.
Time & Materials:
Services Revenue = Billable Hours × Bill Rate
Fixed Fee:
Services Revenue = % Complete × Contract Services Value
Why it matters:
Services revenue is typically the primary revenue stream for a professional services firm.
Expense Revenue
Revenue generated from billable project expenses passed through to a client.
Examples include:
- Travel and lodging
- Meals
- Client-specific software
- Third-party vendor costs
Formula:
Expense Revenue = Sum of Billable Expenses
Why it matters:
Expense revenue increases project revenue totals but often has little or no margin unless marked up.
Other Items to Bill Revenue
Revenue from project-related charges that are not tied to labor (services) or reimbursable expenses.
Examples include:
- Administrative or setup fees
- Service-level agreement (SLA) fees
- IP licensing fees
- Platform access fees
Definition:
Any project income that is not derived from services delivery or expense reimbursement.
Formula:
Other Items to Bill Revenue = Sum of Non-Service, Non-Expense Billable Charges
Why it matters:
These items are often high-margin because they are not directly tied to delivery labor or other costs.
Total Project Revenue
The full revenue value of a project across all billable categories.
Formula:
Total Project Revenue =
Services Revenue
+ Expense Revenue
+ Other Items to Bill Revenue
Expanded view:
Total Project Revenue =
(Billable Hours × Bill Rate)
+ Billable Expenses
+ Other Billable Charges
Why it matters:
Total project revenue is the correct top-line number for evaluating project-level profitability.
Cost & Profitability Metrics
Services Cost
The direct cost required to deliver services revenue.
Typically includes:
- Billable staff wages
- Payroll taxes and benefits
- Contractors and subcontractors
Excludes:
- Sales and marketing costs
- General & administrative overhead
- Product development costs
Formula:
Services Cost = Direct Delivery Compensation + Direct Delivery Expenses
Why it matters:
Services cost is the largest cost driver in most services businesses.
Services Gross Profit
The profit generated from services delivery.
Formula:
Services Gross Profit = Services Revenue – Services Cost
Services Gross Margin
The percentage of services revenue remaining after delivery costs.
Formula:
Services Gross Margin % =
((Services Revenue – Services Cost) / Services Revenue) × 100
Why it matters:
Services gross margin is the cleanest measure of delivery profitability.
Project Gross Profit
The total profit from a project after subtracting direct project costs.
Common simplified formula:
Project Gross Profit = Total Project Revenue – Services Cost
More complete version (if expense costs are tracked):
Project Gross Profit = Total Project Revenue – Total Project Direct Costs
Project Gross Margin
The percentage of total project revenue remaining after direct project costs.
Formula:
Project Gross Margin % =
(Project Gross Profit / Total Project Revenue) × 100
Why it matters:
Project gross margin is the best indicator of engagement-level profitability.
Gross Margin
A general profitability measure of revenue remaining after direct costs.
Formula:
Gross Margin % = ((Revenue – Direct Costs) / Revenue) × 100
Key Concepts & Relationships
Services Gross Margin vs Project Gross Margin
Services Gross Margin
- Measures profitability of labor delivery only
- Best for evaluating utilization and staffing efficiency
Project Gross Margin
- Includes all revenue categories (services + expenses + other items)
- Best for evaluating the full financial performance of an engagement
Important note:
Project margin may appear higher than services margin if high-margin “other billable items” are included.
Expense Markup & Margin Impact
If expenses are billed at cost:
Expense Revenue ≈ Expense Cost
Expense revenue increases total project revenue but has minimal impact on profit.
If expenses are marked up:
Expense Profit = Expense Revenue – Expense Cost
This increases:
- Project Gross Profit
- Project Gross Margin
But does not impact services gross margin.
Revenue-to-Profit Flow
Billable Utilization
↓
Services Revenue
↓
+ Expense Revenue
+ Other Items to Bill Revenue
--------------------------------
= Total Project Revenue
↓
– Services Cost
--------------------------------
= Project Gross Profit
↓
Project Gross Profit / Total Project Revenue
= Project Gross Margin %