Billable vs. Non-Billable

At least twice a month I get into a discussion related to billable vs. non-billable headcount. PS organizations are always concerned that the number of non-billable staff is too high. This is a valid concern–too much overhead and profitability suffers. But how much is too much? What percentage of your PS headcount can you afford to be non-billable?

Two years ago I spoke at an AFSMI conference on the topic of PS business models. After the session, an audience member approached me on this topic of billable vs. non-billable headcount. The gentleman said “90% of our PS headcount has to be billable–otherwise I just don’t think we can make money in this business.” Is that true? Should PS organizations drive to a 90/10 model where 90% of all headcount is in a billable role?

If PS organizations create business organizations where almost everyone must be billable, there are critical activities that suffer. For example, if everyone is out delivering engagements, who is responsible for the following activities:

  • Services Marketing: Developing service positioning and executing demand generation campaigns
  • Services Engineering: Capturing lessons learned and improving delivery methodologies
  • Service Operations: Process development and process improvement to optimize resources productivity

The argument can be made that all of the above activities are the responsibility of every consultant and practice manager in the professional service organization. But without specific resources dedicated to the above non-billable activities, they quickly become low priority to the business of delivering customer engagements. To counter this, PS organizations do indeed create non-billable positions focused on the health and improvement of the organization. But back to the original question: What ratio makes sense for billable to non-billable resources? That leads us to the image for this entry.

In November of 2007, TPSA hosted its fall summit. The theme was Human Capital Management. In the opening keynote session, we discussed this topic of billable and non-billable resources.  We polled the audience of over 150 PS leaders with the following question:

What percentage of your total PS headcount is billable?

  1.  60%
  2. 70%
  3. 80%
  4. 90%   

The results of the pole are below.


This simple data point demonstrates that 90/10 is not a rule in the industry. A majority of PS organizations that reach a critical mass do not have 90% of their headcount dedicated to billable resources. In fact, 42% of the audience responded that 30% of their headcount was non-billable. The data point also demonstrates there is quite the spectrum out there. What ratio does make sense for your PS organization? The size of the PS business, the nature of service offerings, and the charter of PS organization will all influence this answer. But that is the point—there is no one pat answer to this question of billable vs. non-billable headcount.


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3 Responses to “Billable vs. Non-Billable”

  1. Carl Isenburg Says:

    I agree that this is a multi-variable equation. A simple billable headcount ratio is far too simple to accurately measure most TPSA businesses. It might work for a pure staffing house or body-shop, but a true PS team has more facets.

    Some variables in addition do the ones you mentioned are:
    – captured PS team. If we’re held by a product organization, we frequently have duties in sales support that detract from our billable utilization.
    – compliance policies. Demonstrating VSOE compliance can be a HUGE burden. If this applies to the PS team, it could directly affect the number of people in a non-billable role
    – utilization goal. If 90% of the team is 40% billable because every consultant also has marketing and development duties as well, how does that compare to a team where 40% of the team is 90% billable, and marketing and development are distinct functions?

  2. Thomas Lah Says:


    I agree the charter, or role, of PS within the product company has a significant impact on the billable vs. non-billable mix a PS organization should expect. In fact, TPSA performs benchmarking comparisons by PS charter to create more meanignful comparisons.

    To your second question: that is simply robbing Peter to pay Paul. If you have no fulltime marketing or sales staff in PS, you don’t get dinged with non-billable headcount there. However, if the result is every billable consultant loses 10 points of billable time, I think you need to add that time up and see how many FTEs it represents. There is no free lunch there.

  3. judi bola kaskus Says:

    An impressive share! I have just forwarded this onto a coworker who was
    doing a little homework on this. And he actually bought me breakfast
    due to the fact that I stumbled upon it for him…

    lol. So let me reword this…. Thank YOU for the meal!!
    But yeah, thanx for spending the time to talk about this issue here on your web site.

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