Revenue per billable person is the revenue a consultancy, agency or managed service provider earned in a period, divided by the average number of people in that period whose time was sold to clients, whatever their utilisation (utilization, in the US spelling). It is the services-business version of revenue per employee, which divides by everybody, and the difference in denominator is the whole point. Revenue per employee tells you how productive the company is as a whole; revenue per billable person tells you whether the people you sell are earning what they should, in the team where the problem lives. A good figure is not a number from a table. It is the one that covers your own cost base and leaves the profit you need, and this page shows how to set it.
The formula at four levels
Revenue per billable person (RBP) = revenue in the period / average billable headcount in the period
The same line runs unchanged at four levels, and that is what makes it useful.
| Level | Numerator | Denominator | What it answers |
|---|---|---|---|
| Company | All fee revenue for the period | Everyone whose time is sold, averaged over the period | Is the whole firm earning what its capacity should? |
| Division or service line | Revenue booked to that line | Billable people assigned to it | Which line is carrying the others? |
| Team | Revenue from the team’s engagements | The team, in full-time equivalents | Where is the gap between capacity and revenue? |
| Deal or engagement | Fees on the engagement | People on it, over its duration | Did this piece of work earn its keep? |
Because the arithmetic is identical, the team figures weighted by headcount sum to the division, and the divisions to the company. A board pack number that cannot be reconciled to the teams that produced it is one nobody can act on; this one can, all the way down. Use full-time equivalents, average the headcount across the period rather than taking the closing figure, and count subcontractors in the denominator whenever their revenue is in the numerator.
Why headcount is the wrong denominator
Revenue per employee (RPE) is the figure the outside world uses: it appears in company accounts, industry surveys and every benchmark table. Keep it, because a buyer or a bank will ask for it. But do not manage the business on it, for three reasons. It moves for the wrong reasons: hire a salesperson or a finance lead and RPE falls, though both may be about to raise revenue. It cannot be run below company level, because overhead does not belong to a team. And it hides the mix: two firms with identical RPE can have very different ratios of billable to non-billable staff, and the one with leaner overhead and weaker billable earnings has the harder problem.
RBP isolates the question a founder can do something about this month: what did each person we sell bring in, and what should they have? At DevOpsGroup, a services company helping other businesses build and run software, I planned growth for years in a spreadsheet row labelled billable heads, and that row did more to decide what kind of company we became than any strategy document. It kept us a consultancy that sold time. It also, once I divided revenue by it, showed me which teams were carrying the rest.
How to set a target from your own cost base
A target borrowed from a benchmark tells you how someone else’s firm is doing. A target from your own cost base tells you what your firm needs, and it takes four lines.
- Fully loaded cost of a billable person: salary, employer taxes, pension, equipment, training and the bench time you carry between engagements.
- Overhead per billable person: the whole non-billable cost of the firm (sales, finance, management, premises, software) divided by the billable headcount.
- Profit per billable person: the profit the firm needs for the year, over the same denominator.
- Target RBP = the sum of the three.
A worked example, with invented figures: a firm with twelve billable people, each costing £70,000 fully loaded, carrying £480,000 of overhead and needing £240,000 of profit for the year, has a target of £70,000 + £40,000 + £20,000 = £130,000 per billable person. If the actual figure is £115,000, the gap is £15,000 a head, or £180,000 across the firm, and the next job is to find where it leaked. Unbilled capacity, discounted rates, grade mismatch and write-offs are the usual places. Restate the target whenever the cost base changes; a pay review moves it, and so does a new office.
Margin on salary cost is not gross margin
This mistake is easy to make in both directions. A founder who sees a person costing £70,000 and billing £130,000 (the invented figures above) will call that a margin of nearly fifty per cent. It is not the firm’s gross margin. Gross margin is revenue less the full cost of delivering it: every billable salary including the people on the bench, subcontractors, delivery management, tooling, and the non-billable time of billable people. Measured that way the same firm’s gross margin is lower, and that lower number is the one the accounts show and the one a buyer will test. The opposite error is as common: loading every cost in the business into cost of sales and concluding that the delivery model does not work, when the real problem is overhead. Keep the two numbers apart, name them differently, and know which one you are quoting in the room.
Benchmarks, and how to read them
Published benchmarks exist and are useful only when read with their definitions. SPI Research’s annual Professional Services Maturity Benchmark reports revenue per billable consultant for professional services firms by size, and in the UK the BenchPress survey from The Wow Company publishes agency figures each year. I have not reproduced their numbers here, because a figure stripped of its denominator, period and firm size misleads more than it informs. Set your own target first, then see where you sit against a source whose definitions you have read.
Going further
The playbook Revenue per billable person: where a consultancy’s money leaks sets the target, reconciles it from board pack to team, and sizes the four leaks. The revenue per billable person model runs the arithmetic at all four levels on your own numbers and puts a revenue column beside utilisation. Both are in development.