You’re optimizing for utilization rates while your business model burns.

I get it. Utilization is the metric that makes sense. It’s clean. It’s measurable. When your consultants are billing 85% of their available hours, everything feels right. The spreadsheets look good. The partners are happy. The machine is humming.

But here’s the thing about utilization: it’s a lagging indicator. It tells you how efficiently you’re running. It doesn’t tell you if you’re running toward a cliff.

The Three Levers

When I was an executive at Magenic, we always talked about the three levers of consulting: Utilization, Rate, and Headcount. That’s it. That’s the whole game. You grow revenue by moving one or more of those levers in the right direction.

Most firms obsess over utilization because it feels like the lever you can control. You can’t always raise rates. You can’t always add headcount fast enough. But you can squeeze more billable hours out of the people you have. So that’s where the attention goes.

The problem is that utilization optimization can blind you to what’s happening with the other levers. Are your rates holding or compressing? Is your headcount growing because demand is strong, or are you carrying people you can’t place? And most importantly: is the type of work you’re doing sustainable, or are you riding a model that’s about to hit a wall?

The Cliff We Saw Coming

In 2012, when I became General Manager at Magenic, we could see the cliffs forming on our staff augmentation partnerships. The model was still working. Utilization was fine. But we could see where it was heading.

Staff aug engagements have a pattern. You land a client, you place people, the engagement grows for a while, and then it ends. Sometimes abruptly. The client hires your people away, or they decide to bring the work in-house, or the project just winds down. You’re always one budget cycle away from a cliff.

We looked at our book of business and realized we were about 75% staff augmentation. That felt dangerous. Not because staff aug is bad, but because the cliffs were unpredictable and the client relationships were transactional. We were selling capacity, not capability. And capacity is a commodity.

So we made a deliberate decision: over the next couple of years, we needed to shift to at least 50% Agile team engagements. Not just placing developers who happened to know Scrum, but delivering integrated teams with Product Owners, Scrum Masters, and a delivery cadence that clients couldn’t replicate internally.

That shift changed everything. The Agile team engagements were stickier. The relationships were deeper. We weren’t just filling seats. We were helping clients build Agile discipline. And when one project ended, the next one often followed naturally because we’d become a trusted partner, not just a vendor.

The business grew exponentially. Not because utilization improved, but because we repositioned what we were selling while we still had the runway to do it.

The Comfort of Being Busy

I’ve been in enough leadership meetings to know how this works. When utilization is high, nobody asks hard questions. Revenue is tracking. Margins are healthy. Why rock the boat?

The problem is that utilization can stay high right up until it doesn’t. You’re fully booked on existing engagements while your pipeline quietly softens. By the time the utilization numbers drop, you’re already six months behind on repositioning.

I watched firms during that Agile transformation who were “busy” delivering waterfall projects while the market shifted underneath them. Their utilization looked great. Their relevance was evaporating. By the time the numbers caught up to reality, the firms that had adapted early had already captured the new demand.

Right or wrong, the firms that survived weren’t the ones with the best utilization. They were the ones who saw the shift coming and made uncomfortable decisions while they still had runway.

What Utilization Actually Measures

Let’s be honest about what utilization is really tracking: your ability to sell and deliver what you’ve always sold and delivered. When that metric is high, it means the market still wants yesterday’s product.

That’s not nothing. Cash flow matters. Keeping your people employed matters. But utilization doesn’t tell you whether clients will want that same product in eighteen months. It doesn’t tell you whether your proposals are getting smaller. It doesn’t tell you whether the work you’re winning is getting commoditized.

IMHO, the most dangerous place for a professional services firm right now is high utilization combined with a softening pipeline. It creates a false sense of security. “We’re doing fine. Look at the numbers.” Meanwhile, the leading indicators are flashing yellow and nobody wants to see it.

The Metrics That Actually Matter

So what should you be watching instead? Here’s where I’d be spending my time if I were running a PS firm right now:

Average deal size over time. Are your proposals getting smaller? Are clients asking for fewer people? That trend tells you more about market demand than your current utilization ever will.

Engagement mix. What percentage of your revenue comes from staff aug versus outcome-based or team-based engagements? If you’re still 75% staff aug in 2025, you’re sitting on the same cliffs we identified back in 2012, except now AI is making them steeper.

Time to close. Are deals taking longer? The “let’s wait and see” objection isn’t just about budgets. It often means clients are figuring out whether they need you at all.

Repeat engagement rates. Are your best clients coming back for more, or are they doing more internally and reaching out less? This one hurts, but it’s critical to understand.

Skills demand by role. Which roles are clients requesting more? Which are they requesting less? If architect requests are up but developer requests are down, that’s telling you something about where value is shifting.

None of these metrics are as clean as utilization. They require more interpretation. They force harder conversations. But they’re the ones that will tell you whether your business model has a future or whether you’re efficiently executing yourself into irrelevance.

The Retraining Question

Here’s a practical question every PS firm leader should be asking: what percentage of your billable consultants are actively developing AI skills? Not “interested in AI.” Not “attended a lunch and learn.” Actually building proficiency in AI-augmented development, prompt engineering, or AI platform work.

If that number is under 25%, you have a problem. Your utilization might be high today, but you’re building capability for yesterday’s market.

The training investment feels painful when everyone is busy. “We can’t pull people off engagements for training. Utilization will drop.” I’ve heard it a hundred times. And I’ve watched firms make that calculation and then wonder, two years later, why their people don’t have the skills clients are asking for.

Bam. That’s the trap. You optimize for today’s utilization at the expense of tomorrow’s relevance.

The Hardest Conversation

The bottom line is this: someone in your leadership team needs to be asking uncomfortable questions. Not because the sky is falling today, but because waiting until it falls is a losing strategy.

What’s your engagement mix, and where does it need to be in two years? What happens if average deal sizes drop 20%? What happens if your largest client decides to bring AI development in-house? What happens if that “staffing request” you’ve been counting on turns into an “advisory engagement” that needs half the people?

These aren’t hypothetical questions. They’re happening right now across the industry. The firms that are preparing for them while utilization is still high will have options. The firms that wait until the numbers force their hand will be scrambling.

We saw the cliffs coming in 2012 and repositioned while we still had momentum. The window for that kind of repositioning is open again right now. But it won’t stay open forever.

Utilization tells you how efficiently you’re running. It doesn’t tell you if you’re running toward a cliff. Make sure someone in your organization is watching the road ahead, not just the speedometer.

John Doucette is the founder of The Disruption Brief, where he writes about the AI transformation reshaping IT professional services. With 34 years in the industry, from developer to CTO, he’s focused on helping PS firms navigate disruption before it’s too late. Connect with him on LinkedIn.