Quick answer
Utilization is the number that turns income, costs, billable time and risk into a price. Utilization = billable hours / total working hours; use a conservative value when pricing.
Why it matters
Pricing only by what others charge often fails to cover costs and gaps.
High utilization isn't automatically high profit.
Step by step
- Set a target annual income (keep pre/post-tax consistent).
- Add business costs/tax/insurance/gaps/margin.
- Calculate real billable hours per year, then divide to get the floor hourly rate.
- Calibrate with market/peer/closed-deal data; don't reverse-engineer a low price.
- State scope/payment/revision limits/rush fees in the quote.
Common mistakes
- Assuming 40 hours x 52 weeks are billable.
- Omitting tax/software/insurance/gaps/bad debt.
- Copying a competitor's low price without covering costs.
- Letting scope creep go unpaid.
Checklist
- Target income/costs/tax/margin confirmed.
- Billable hours reduced for gaps/admin/sales.
- Hourly/day/project rates use consistent assumptions.
- Market rate cross-checked.
- Quote includes scope/payment/revisions/rush terms.
Key facts
- High utilization isn't automatically high profit.
- Sales/admin time still counts.
FAQ
What is Utilization?
Utilization is the number that turns income, costs, billable time and risk into a price. Utilization = billable hours / total working hours; use a conservative value when pricing.
How long does it take?
Usually 1-3 minutes; for intermittent issues, run 30 seconds and retest elsewhere.
Is data uploaded?
Runs locally and does not upload video/audio; extensions may still read the page.
Source: SPI