What is the correct formula to calculate utilization rate for a professional who has a mix of direct billable hours and marketing time?

• A. Total hours divided by direct hours
• B. Marketing hours divided by total hours
• C. Direct hours divided by marketing hours
• D. Direct hours divided by total hours

Answer: (D)

Utilization rate measures how much of a professional’s time is spent on billable work relative to all hours worked. Direct or billable hours are the time you can charge to a client, while total hours include all time worked, such as non-billable marketing or admin tasks. Since marketing time adds to the total but not to the billable portion, the utilization rate is found by dividing direct (billable) hours by total hours.

For example, if someone works 40 hours in a period and 28 of those are direct billable hours, utilization rate = 28 divided by 40 = 0.70, or 70%. This shows that 70% of the time is spent on billable work.

Other formulas would misrepresent the concept: dividing total hours by direct hours would invert the metric, inflating or mischaracterizing utilization; or dividing marketing hours by total hours would measure non-billable time, not how efficiently time is used for billable work. Direct hours divided by marketing hours would not reflect overall utilization either.