For the pricing of professional services, a portion of the unit price (i.e.: £/day) needs to allow for utilisation. In other words, the price has to have a proportion that covers when an individual is not charged for.
For example, if an individual costs a professional services company £150 per day to employ full-time on a 5 day working week basis (being £150 x 5 days per week = £750 per week) but they can only be charged to clients for 4 days per week then an adjustment needs to be made within a daily price to mitigate the 1 day loss of cost-recovery. Rather than covering £150 per day in the daily price to the customer, the daily price would need to cover an extra 25% and be set to £187.5 per day. This way 4 days billed at £187.5 per day would total the weekly £750 cost recovery needed.
Problems can arise, however, when utilisation is so low that the uplift within a daily price becomes too high. For example if the billable days are only two days the cost recovery per day (£375 per day in the example above) becomes unrealistic and uncompetitive.
In this event there are two options:
- Reclassify individuals with low utilisation as overheads and apply their costs as a blanket %-uplift across all direct costs spanning all clients, portfolios and projects; or
- Evaluate the business case for such individuals and either retrain or move them within the organisation (so as to be more billed), or seek to rationalise and save such full-time costs directly.