Bench Cost: The Hidden Price of Keeping Your Team Ready

For service-based businesses, especially in sectors like IT consulting, marketing agencies, and professional services, tracking utilization rates is crucial. Ideally, companies aim for their team’s utilization to approach 100%—maximizing billable hours and ensuring that employees are engaged on revenue-generating work. However, achieving a perfect utilization rate is nearly impossible in reality.

In practice, businesses often find themselves in one of two states (or sometimes both simultaneously): a shortage of resources or a surplus. During resource shortages, businesses may need to bring in contractors to cover gaps in staffing, which can be costly and challenging to manage. On the other hand, when there’s a surplus of resources, part of the team ends up “on the bench”—waiting for the next project. Striking a balance between these two states is the key to sustainable growth and profitability.

So, how can companies find this balance and decide the ideal staffing level to maintain? One essential metric to monitor is Bench Cost.

What is Bench Cost?

Bench cost represents the expenses associated with keeping employees on standby—ready to be deployed but currently not working on a billable project. This cost includes salaries, benefits, overhead, and any other expenses that accrue when employees aren’t actively contributing to client work.

In essence, bench cost reflects the price of keeping a team “at the ready” for upcoming projects. For companies, understanding bench cost helps in making strategic decisions about resource management, hiring, and project scheduling.

Why Bench Cost Matters

Managing bench cost is about finding a sustainable balance that allows companies to maintain a high utilization rate without overburdening employees or missing opportunities due to lack of resources. Here’s why keeping an eye on bench cost is critical:

Direct Impact on Profitability

Bench cost eats into profit margins, as employees still incur expenses even when they aren’t working on revenue-generating activities. By tracking this cost, companies can better understand the financial impact of their staffing levels and project management practices.

Resource Optimization

High bench costs often indicate inefficiencies in resource allocation, sales forecasting, or project planning. Identifying and addressing these inefficiencies can improve both project turnaround times and resource allocation, ultimately reducing non-billable time.

Employee Morale and Engagement

Employees who spend prolonged periods on the bench may feel uncertain about their roles, which can affect morale and job satisfaction. Balancing workload to avoid long bench times can improve employee engagement and retention.

Managing Bench Cost

Effectively managing bench cost involves proactive strategies to align staffing levels with project demands while minimizing downtime. Here are some strategies that can help:

  • Forecasting Demand: Using predictive analytics or historical data can provide insight into future project demands, helping companies align their hiring and staffing practices accordingly. Better forecasting reduces the risk of having too many or too few resources at any given time.

  • Flexible Staffing Models: Employing a mix of full-time staff and contractors can help companies adapt to fluctuations in project demand without incurring high bench costs. Full-time staff handle core needs, while contractors can step in for temporary surges.

  • Continuous Training and Cross-Training: Training employees across multiple skills or project types makes it easier to allocate them to available work. This reduces the time they spend on the bench and adds value to the company by developing a versatile workforce.

  • Internal Projects and Initiatives: Assigning benched employees to internal initiatives, such as R&D, process improvements, or skill development projects, not only reduces bench cost but also strengthens the business in other ways.

Measuring Bench Cost

To monitor bench cost effectively, many companies incorporate it into performance metrics. This might include:

  • Employee Utilization Rate: The percentage of an employee’s time that is billable.
  • Bench Cost Ratio: A measure of bench cost as a proportion of total operational costs, helping companies see how non-billable time is impacting profitability.
  • Average Bench Time: Tracking the average time employees spend on the bench to identify potential bottlenecks or staffing imbalances.

Final Thoughts

Bench cost, though often unavoidable, doesn’t have to be a major drain on resources. By finding the right balance between utilization and staffing, service-based companies can minimize bench time, control costs, and ensure a healthier bottom line. With careful planning, strategic hiring, and proactive management, companies can keep bench costs in check while maintaining a productive, engaged workforce ready to take on the next project.

For companies looking to calculate and manage bench cost effectively, Metric AI offers powerful tools to monitor utilization rates, track non-billable hours, and gain insights into bench time expenses. With Metric AI, you can keep a close eye on bench cost and make informed decisions to optimize resource allocation and profitability. Read our guide on measuring bench cost with Metric AI to get started.