Kit 03: people and capacity
Revenue per Billable Person and Capacity Kit
One number to run a people business on, the four places the money leaks, and a capacity plan that releases hiring only when the work is committed.
This kit is about the one number I would run a people business on: revenue per billable person, set beside the cost of each billable person, so the gap between them is a margin you can see and manage. It is for the COO, head of delivery or finance director of a consultancy, managed service provider or professional services firm with somewhere between 15 and 150 billable people, where utilisation reports say everyone is busy and the margin says something else.
It starts with the definition, which is deliberately plain: revenue divided by the people who bill, for the company, a team or a single deal, so every level can be checked against the one above it. Beside it sits the full cost of a billable person, so every team can see what it has to earn. Then come the four leaks that open the gap in a services firm: work that was not for a client, deals priced off the rate card, poor planning, and people moving between teams. Each one is traced from your own ledger and staff list, so you know which to fix first.
The second half is capacity. Utilisation targets are set by role and by employment type, because a senior consultant, a service desk engineer and a contractor should not carry the same target. The contractor crossover shows the point at which an employee becomes cheaper than a contractor in the same seat. A capacity and bench planner shows who is free, when, and what the wait costs. And hiring is released on committed work, so a new starter arrives to a job rather than to the bench.
A grade ladder ties it together, linking each grade to its rate and its expected billable hours. It is built on the UK government's Digital, Data and Technology framework, published under the Open Government Licence and credited in the kit, so the grades mean the same thing to you, your people and your clients.
It is written from how I ran DevOpsGroup, from my notes and my recollection. Every target and default in the model is invented, labelled as such and yours to change.
What you will get
Who it is for
Questions
- What is revenue per billable person?
- Revenue divided by the number of people who bill, over a period. It is deliberately plain, so the same sum works for the company, a team and a single deal, and each level can be checked against the one above. The kit sets it beside the full cost of a billable person, so the gap between the two is the margin each team has to protect.
- Why is utilisation not enough?
- Utilisation measures how busy people are, not what the business earned from them. A team can be fully booked on discounted work, on a fixed price that overran or on internal work, and still report well. Revenue per billable person shows what busy was worth, and the four leaks show where the difference went.
- What is the contractor crossover?
- The point at which employing someone becomes cheaper than keeping a contractor in the same seat, once utilisation, bench time and the full cost of employment are counted. The model works it out from your own rates, so the decision to hire or convert is made on numbers rather than habit.
- Should utilisation targets be the same for everyone?
- No. The kit sets targets by role and by employment type, because a senior consultant with sales and leadership work, a service desk engineer and a contractor are paid for different things. One company-wide target punishes some roles and flatters others.