Since achieving target utilization is so crucial to a professional services firm’s performance, it is important to understand its drivers. In order to deliver consistently strong utilization, two factors must exist. First, the firm must have a healthy revenue backlog at all times. Second, the firm must have a robust delivery team optimization function that allocates work appropriately to each delivery person in the firm. If management of the backlog or resource pool falters, utilization and revenue will underperform.

The firm’s revenue backlog includes all sold work that has yet to be delivered. So, if you sell a $100,000 project (meaning, the contract is signed), that $100,000 leaves the sales pipeline and is transferred into the revenue backlog. Let’s assume that after the first month of the project delivery, the team has completed 20% of the work. $20,000 will have exited the backlog and will be recorded in the accounting system (in the revenue portion of the profit and loss statement). At that point, the backlog for the project is $80,000. This flow of money, from the sales pipeline to the revenue backlog and finally to the profit and loss statement, is fundamental to professional services firms.

The firm must carefully analyze backlog relative to the size of the delivery workforce. Since the backlog is a leading indicator of future revenue, the backlog dollars per resource should be regularly evaluated by firm leadership. If the backlog per resource becomes meaningfully lower than average, this indicates a likelihood of lower future utilization and revenue. But if the backlog per delivery resource becomes abnormally high, this will result in projects taking longer to deliver (which usually has a negative impact on client satisfaction). In times when the backlog per resource is larger than normal, the company should likely be recruiting delivery personnel.

It is important for firm leaders to analyze not just the size of the backlog but also the types of work in the backlog. Many professional services firms are comprised of specialists who deliver a subset of the firm’s overall service portfolio. In a web development consultancy, for example, there are project managers, creative designers, software engineers, and other distinct roles. The consultants are usually only capable of delivering work that falls within the bounds of their particular discipline. Thus, it is possible that a firm could have a large backlog but still not have enough work for certain people on the team. It is important to evaluate the backlog per resource in each of the disciplines (or “utilization silos”) within the firm.

There are two types of work that can exist in the revenue backlog: allocated and unallocated. When a project is sold, the associated revenue goes into the backlog but it probably isn’t yet allocated to specific people. As the unallocated work gets planned out, it typically gets assigned to specific individuals within the firm. While allocating the backlog to specific workers isn’t required, doing so tends to yield higher utilization and better operational performance.

Essentially all high-performance professional services teams have a strong handle on their revenue backlog and a clear understanding of the resource types needed to deliver the backlog.