How is agency capacity calculated?
Start with delivery headcount: the people who log hours to clients, excluding sales, finance and leadership unless they carry a real client load. Multiply by 173.3 hours per month, which is 2,080 annual hours divided by 12. Then multiply by the target billable utilization, typically 70 to 80% for delivery staff, to get available client hours.
Subtract known absences for the month: vacation, public holidays, training and parental leave. The result is the honest number of client hours the team can deliver. Comparing it to committed hours, which is the sum of retainer scopes plus active project estimates, gives the capacity gap.
- Gross hours: headcount × 173.3
- Available hours: gross hours × target utilization, less planned absences
- Committed hours: retainer scoped hours + project hours scheduled this month
- Capacity gap: available hours less committed hours
What utilization target should capacity planning assume?
Plan at 75% for delivery staff and 50% or lower for team leads who also manage people. Planning at 100% guarantees missed deadlines, because meetings, admin, training and sick days consume 20 to 30% of any month. Planning at 60% leaves paid-for capacity idle and pushes gross margin below 50%.
The target should be checked against actuals. If the team consistently logs 82% billable, the plan can move up. If it logs 68%, the plan should move down or the non-billable time needs investigating. Verbial shows planned versus logged hours by person and department so the plan can be tuned monthly.
How do agencies plan capacity by department?
Agency-wide capacity hides the real constraint, which is almost always one team. An agency with 370 spare hours might have 400 spare hours in content and be 30 hours short in paid media. Capacity has to be planned per department, and retainers have to be scoped by department hours, not by a single total.
The practical method is a monthly grid: departments down the side, available hours, committed hours and gap across. A retainer that needs 40 design hours, 40 strategy hours and 20 development hours is checked against each row. If any row is negative, the agency either hires, uses a contractor, moves the start date or declines.
When should an agency hire based on capacity?
Hire when committed hours in a department exceed 85% of available hours for two consecutive months and the pipeline supports a third. A new hire adds about 130 billable hours a month at 75% utilization and takes one to three months to reach that, so the trigger has to come before the team is at 100%.
The cost side matters too. A new hire at $135,000 loaded cost adds roughly $11,250 a month of overhead until their hours are sold. At a $150 blended billing rate, 130 hours produces $19,500 of revenue, so a fully utilized hire earns its keep in the first full month. A hire made on hope instead of committed hours does not.
Worked example
A 12-person agency has 9 delivery staff, 2 founders who sell and 1 operations lead. Gross delivery hours = 9 × 173.3 = 1,559.7 per month. At a 75% target utilization, available client hours = 1,169.8, call it 1,170. The agency holds 8 retainers at $15,000 each, each scoped at 100 hours at the $150 blended rate, so committed hours = 800. The capacity gap is 370 hours, enough for 3 more $15,000 retainers with 70 hours to spare, but not 4. Broken down by department, design has 90 spare hours and paid media has 160, so a fourth retainer that is design-heavy would need a contractor or a hire before it starts.
Questions
Why use 173.3 hours per month for capacity planning?
It is the standard salaried month: 40 hours × 52 weeks = 2,080 hours ÷ 12 = 173.3. Using it keeps cost per hour and capacity consistent across months of different lengths. Vacation and holidays are subtracted separately as planned absences.
What is the difference between capacity planning and utilization?
Utilization looks backward at the share of hours that were billable. Capacity planning looks forward at whether the hours the agency has sold fit in the hours it has. The utilization target is an input to the capacity plan, and actual utilization is how the plan is checked.
How far ahead should an agency plan capacity?
Three months in detail and twelve months in outline. Retainers make the next quarter reasonably certain, which is enough lead time to recruit. Beyond that, plan against pipeline weighted by close probability rather than against signed contracts.