Time tracking is just the first step - how to use it to boost profitability
I’m not sure what was going on with me, but in the 3rd year of my accounting degree, I started tracking my time. Like, every 6 minutes of it.
I had a simple chart where I listed my classes plus “general admin” (??) on the Y-axis and then I had the 5 days of the “work” week across the X-axis.
Every day, I’d write down how much I worked on each class plus my non-class work time (what was this??).
Anywho, suffice it to say, I felt it was very important to start tracking my time before I entered the world of public practice where I’d be required to record what I did for each minute of my 8hr work day. Sigh….. I find this so weird in hindsight - mostly because I don't know what on earth I used this info for.
As in, I literally have years of time tracked from this phase in my life… maybe I used it to see if I should study more/less depending on my marks? I kinda doubt it because I rarely got a mark below 85 in university. Who knows.
Anywho, the point of this (somewhat rambly) email is to tell you two things that I think you already kinda know:
I am a nerd - through and through. Ever since I took a Research Methods class for my sociology degree, I’ve known that I love how numbers can be used to record human behaviour.
Tracking time is great but it’s kinda useless unless you actually do something with the data.
Tracking time is good. Using it to boost profitability is even better.
So today I want to talk about how you can take your team member’s time sheets and how to use them to increase profitability in your biz because - trust me - this info is a data gold mine.
We’re looking at two super simple, super important calculations that will help you see how effectively your team is spending their time - and what you’re actually earning from it.
Let’s go.
METRIC #1 - Utilization rate
What it tells you: How much of your team member's time is spent on billable (or client-facing) work versus non-billable work (or admin tasks)
Example:
You have an employee who works 40hrs / week.
Last month, this individual worked 105hrs billable hours and 67hrs non-billable hours for a total of 172hrs.
This employee’s utilization rate is 61% (105hrs billable time / 172hrs total hours)
Why it matters: You may be overstaffed, under-utilized, or burying key people in admin tasks instead of client work.
METRIC #2 - Realization rate:
What it tells you: The percentage of an employee’s time that you can bill to the client
Example:
You have an employee with a chargeout rate of $250/hr (wage is approx $80/hr) who worked for 40 hours on a file.
That means you have accumulated time or “WIP” of $10,000.
Now, let’s say you promised the client you'd bill this work out for $7,500
This employee’s realization rate is 75% ($7,500 amount billed to client / $10,000 accumulated WIP).
Why it matters: A low realization rate means you’re writing off time or discounting bills too often - even though you’re still paying team members for this time.
Why these metrics matter for ALL businesses
Hourly-Billing Businesses
If you run a business that provides services that are charged and billed out hourly, I’m guessing you can see exactly how these two calcs would be valuable (looking at you law firms, accounting firms, bookkeeping firms, etc) - they tell you if your team is working on the right stuff (utilization) and how profitable each team member is (realization).
Commission or Fixed-fee Businesses
But even if you don’t bill by the hour, tracking these two metrics is key - especially if you earn commission income or bill a fixed fee for your work (eg. investment advisors, real estate brokers, insurance brokers, car detailers, mortgage brokers, etc). How? Let’s look at it.
Utilization rate - you can still see how much of your team’s time is spent on revenue-generating (client-facing) tasks versus admin stuff. This helps you help team members to prioritize specific tasks and (hopefully) decrease inefficiencies when you have a high-performing team member buried in admin tasks like planning the summer office party.
Realization rate - instead of looking at time billed (which doesn’t make sense for commission businesses), look at how much activity/time (calls, meetings, proposals, other correspondences) was needed to earn each commission. Over time, you’ll start to see the cost of acquiring a new client or earning a commission (i.e. time spent x assumed charge-out rate based on salary) and how that varies by team member.
Your natural next question might be: what’s a good utilization rate? What’s a good realization rate?
And the answer to that is very much “it depends”.
You can find some prelim/useless guidance on Google/ChatGPT, but the answer is nuanced by business, location and also by seniority of the team member (which can be further complicated when multiple team members work on a file or project). I’ll be totally frank - this is why management consultants like me will always have a job lol.
So if you’re reading this newsletter and haven’t been tracking the utilization or realization rate of your team (or yourself), I see you.
Tbh, even if you are tracking these metrics, I’m going to go out on a limb and guess you’re still kinda fumbling around in the dark because you don’t really know what the numbers mean without relevant industry benchmark / competitor info.
Worse still, you don’t know how to improve either rate.
And flying blind like this when your business is earning 7-figures just doesn’t work anymore, friend. It might've worked with a team of 3, but it is not okay when your payroll includes 15+ people.
Because you know what’s sexier than team growth, revenue growth or expanding to a fourth location? Profitability growth.
Doing a deep dive on how your team is spending their time and then figuring out how to improve it so you have more $$ in your pocket each month is exactly the mix of finance and operations support Elanne and I love to provide inside of The Monthly Reset.
How to use these metrics to increase profitability: The Monthly Reset
It’s a monthly strategy session where you bring what’s swirling in your head (metrics, team issues, new service ideas, whatever’s keeping you stuck) - and we help you sort it out, focus in, and take action.
You get:
One 75-min session/month with me and Elanne - your very own fractional leadership team that helps you think strategically and make better decisions
A written summary + clear action steps so you have the most direct path towards doing whatever it is you want to in your business - third location, better ROI on payroll expense, etc.
We’re offering an intro rate of $600/month + GST for the first two clients (3-month minimum). After that, it’s $750/month.
If this feels like the kind of support you’ve been missing, just hit reply to claim your spot.
Because numbers are only helpful if they lead to better decisions - and much better financial results.
You already have the data.. let's help you make it make sense,
Tanya