CEO's Notebook

What could be more counterintuitive to a CEO than refusing to do business with potential customers? Maybe you ponder saying no on those rare occasions when your staff is overextended. First, though, you probably try to subcontract out the work. But how do you know if your employees are really stretched too thin?

Mark Troy has one answer. He runs Flywire, an Internet company based in Portsmouth, N.H. Like many businesses that charge customers by the hour, Flywire monitors the total time billed by employees. But it goes further by tracking what's known as a "utilization" ratio: billable hours as a percentage of total hours worked. Troy turns to freelancers only if the collective billable hours of Flywire's high-tech employees exceed 80% of their total hours worked weekly.

Why 80%? In hitting on that number, Troy borrowed from conventional consulting-industry wisdom. (In general, 75% to 83% utilization is considered ideal.) He also arrived empirically at the figure in late 1999, his fourth year in the business. At lower utilization, too many employees were idle. At a higher one, too many were overworked.

But as with any measure, a lot depends on how you calculate it. Flywire, for example, doesn't count toward its total all the hours worked by nonbilling staff, like project managers and executives. Businesses that factor nonbilling staff into their totals, however, are likely to have lower utilization figures. At Turner Consulting Group, a $2.4-million Web designer in Washington, D.C., the number is about 60%. At Web-sites.com, a $3-million Flywire competitor in Londonderry, N.H., it's about 50%.

It's common for companies to measure utilization differently, according to Leroy Davis, a vice-president at DecisionPoint International, an investment-banking firm in Charlotte, N.C. "That's why it's tough to compare," he says. "Some try to inflate the ratio by excluding employees who are still in training. Others deflate it to show they won't work for just anyone." To make the process less subjective, companies like DecisionPoint use a standard number for total hours.

More important than how you measure are the positive results of measuring. At Flywire, employee burnout has been nonexistent, which, combined with the company's pleasant Portsmouth location, has helped give the business "no turnover to speak of." According to Troy, only 3 out of a staff of more than 40 people have left during the past two years. And in an era in which loyal tech workers are rarer than CEOs who turn down customers, that's a sweet comfort.


CEO'S NOTEBOOK

The Fraud Bogeyman
Hot Tips
When to Say When
Selling Abroad without the Pain
Hire Your Own Temp Managers
Are You Ready for the Major Leagues?
In a Former Life: Alan Schultz

Please e-mail your comments to editors@inc.com.