IT Service Industry Labor Utilization Rates Critical to Profitability
John Breakey is former President and CEO of Unis Lumin, a Cisco Gold Partner and President of Promys, professional services automation software for technology integrators developed by a technology integrator.
Labor utilization rates are critical in maximizing IT Solution provider profitability. IT Solution provider industry average labor utilization rates and their profitability results are: 65% is a break even rate, 70%-75% means that the services team is making money and over 80% is an excellent labor utilization rate which will translate to strong profitability across your projects.
How to Track Labor Utilization Rates for the IT Service Industry?
As they say, if you can’t measure it, you can’t manage it. Managing and improving labor utilization rates are at the heart of what most services organizations struggle with. If an organization really wants to get on top of this, it needs to treat engineering hours like “inventory”.
If you had five expensive servers in stock and sold four but couldn’t account for the fifth one, I’m guessing a fair bit of time and effort would be devoted to finding out what happened to the fifth unit. If you can’t account for that fifth server, then that missing unit significantly decreases the profitability on your server sales as a whole. Unfortunately, engineering hours are often not treated with the same respect.
Tracking engineering hours is a lot more difficult than the server stock example above because tracking “inventory” of hours across multiple engineers doing multiple things can get pretty complicated. The added irony is that if you are tracking your engineering hours manually, someone has spend time tracking those hours. So, now you have the additional labor cost for time spent tracking where all the engineering hours went.
However, if you cannot account for all of the hours like inventory, then there is no way to identify and address any hours leakage. You also can’t make strategic decisions like, “If my two best installers are spending 40% of their time in pre-sales meetings, maybe I could cost justify hiring a full time pre-sales engineer because it would be more profitable for my business.”
Automation of Labor Utilization Allows Forecasting and Improved Strategic Decision Making
As the number of engineers and complexity of tracking the different types of engineering or field tech hours calculations goes up, automation of time tracking is typically the only way to truly address this. Once you introduce automation, you can also do forecasting and trending for resource planning purposes, as well as identify any hours “leaks” to maximize services profitability.