How to Use Employee Capacity Rate to Find Out

For service-based businesses, labor is often your biggest cost — and also your biggest opportunity. If your employees' time isn’t bringing in revenue, your business might be losing money. So how do you know?

Start by tracking your Employee Capacity Rate.

This metric tells you how much of your team's available time is billable. If the number is low, it means a large portion of your payroll is going to work that doesn’t directly generate income.

What Is Employee Capacity Rate?

Employee Capacity Rate is the percentage of an employee’s available work hours that are billable.

Formula:
Employee Capacity Rate = (Billable Hours Worked ÷ Total Available Work Hours) × 100

Example:

Total available hours in a month: 160
Billable hours: 120
Employee Capacity Rate: 75%

Why It Matters

If your rate is low, you're paying for time that isn’t tied to revenue. This often happens when employees spend too much time on admin tasks, face scheduling delays, or are waiting on materials to arrive.

Even a small increase in Employee Capacity Rate can lead to higher revenue without increasing labor costs.

A Real-World Example

Dan owns Watts On Electric, a residential electrical business with five electricians. Despite steady work, cash flow was tight.

When Dan calculated his team’s Employee Capacity Rate, he found that each electrician was billing only 25 out of 40 available hours per week. That’s a 62.5% rate.

To turn things around, he:

Scheduled jobs closer together
Prepped materials in advance
Moved admin tasks off the field crew’s plate

These changes boosted the rate to 80%. The result was a 22% increase in revenue with no additional hires.

Start Tracking Today

If you’re not already monitoring Employee Capacity Rate, this is a great place to start. The math is simple, and the insights can lead to immediate improvements.

Pick one team or role. Compare the total hours worked with the number of billable hours. If the percentage is lower than expected, look for ways to reduce time spent on non-revenue activities.

Want to learn more?

We explored this topic further in our blog “Am I Ready to Hire My Next Employee?” where we break down how to use metrics like Employee Capacity Rate to make confident hiring decisions. Read the blog here