The Illusion of Busyness
Your team looks busy. Trucks are rolling. People are on job sites. Everyone's working hard.
But when you look at the P&L, the profit isn't there. You're bringing in revenue, but it's not translating to money in your pocket. What gives?
The answer is usually utilization—the percentage of paid hours that actually make it onto a client invoice.
The Simple Formula
It looks simple. But this single number explains why businesses with identical revenue can have wildly different profits.
How Low Utilization Destroys Margins
Remember from Module 1: you pay for 2,080 hours per employee, but realistically only 1,800 are available to bill (after PTO, holidays, etc.). Let's see what happens at different utilization rates:
| Utilization | Hours Billed | Revenue @ $75/hr | Cost (Fixed) | Profit/Loss |
|---|---|---|---|---|
| 100% | 1,800 | $135,000 | $67,778 | $67,222 |
| 80% | 1,440 | $108,000 | $67,778 | $40,222 |
| 60% | 1,080 | $81,000 | $67,778 | $13,222 |
| 50% | 900 | $67,500 | $67,778 | −$278 |
| 40% | 720 | $54,000 | $67,778 | −$13,778 |
Notice: the cost doesn't change. Salaries clear every two weeks whether hours are billable or not. At 50% utilization, you're losing money on every employee.
The Effective Rate Collapse
Here's another way to see it. Your floor rate is $37.65/hour (from Module 1). But that assumes 100% of available hours get billed. When utilization drops, your effective cost per billed hour skyrockets:
| Utilization | Hours Billed | Effective Cost/Hr | vs. Floor Rate |
|---|---|---|---|
| 100% | 1,800 | $37.65 | — |
| 80% | 1,440 | $47.07 | +25% |
| 60% | 1,080 | $62.76 | +67% |
| 50% | 900 | $75.31 | +100% |
| 40% | 720 | $94.14 | +150% |
Where Does the Time Go?
Non-billable time hides in plain sight. It doesn't feel like waste in the moment—it feels like "running the business." But it adds up:
- Travel between jobs — not on a client invoice
- Waiting on parts/materials — not on a client invoice
- Fixing mistakes/callbacks — definitely not on a client invoice
- Internal meetings — not on a client invoice
- Admin, paperwork, email — not on a client invoice
- Training new hires — not on a client invoice
- Lag between jobs — sitting idle, not on a client invoice
Every one of those hours still costs you $37.65 (or more). The client doesn't pay for them. You do.
The Culture Excuses
"Our people are salaried—they work harder than subs."
Maybe. But a sub only costs you when they bill. A salaried employee costs you whether they bill or not. If utilization is low, the salaried model makes them more expensive, not less.
"We're a get-it-done shop. We don't clock hours like that."
The ledger doesn't care about culture. Every non-billable hour is cash out the door. Without tracking, all that "get it done" energy just turns into silent subsidies for clients.
"Some revenue is better than none."
Not if your effective cost per hour exceeds your bill rate. At that point, you'd be better off doing nothing.
The Fix: Measure It
You can't improve utilization if you don't measure it. Most owners are shocked when they actually start tracking—utilization is almost always lower than they thought.
Step 1: Track Time (Even Roughly)
- Billable hours per person per week
- Which client/job for each entry
- Non-billable categories (travel, admin, waiting, etc.)
Step 2: Calculate Weekly/Monthly Utilization
- Total billable hours ÷ Total paid hours = Utilization %
- Do this per person AND for the whole team
Step 3: Find the Leaks
- Which non-billable category is eating the most time?
- Is it one person or everyone?
- Is it a scheduling problem or a process problem?
The Resource Utilization Calculator is included in the PDF bundle. It does the math for you.
Bottom Line
- Utilization = Billable Hours ÷ Paid Hours
- Low utilization doubles (or triples) your effective labor cost
- Busy ≠ billable. Culture can't erase math.
- You can't fix it if you don't measure it
What's Next
Utilization tells you how much of your capacity is being billed. But even at high utilization, you can still lose money if you're not collecting what you think you're charging. In Module 4: Realized Rate, we'll look at the gap between your target rate and what you actually collect—and why scope creep and fixed-fee traps are margin killers.