Realization rate definition
/What is the Realization Rate?
The realization rate is the proportion of billable hours at standard billing rates to the amount that is actually billed to clients. A low realization rate directly and negatively impacts the profitability of a firm, since its revenues are reduced. Realization rates can be reported by individual, partner, office, or practice group.
Example of the Realization Rate
An attorney's standard rate is $300/hour, and she works 140 billable hours in a month. Thus, her monthly billing at her standard rate is $42,000. However, the partner only bills $40,000, which is a realization rate of 95.2% (calculated as $40,000 billed divided by $42,000 at standard rates).
Factors Impacting the Realization Rate
A low realization rate can occur because junior employees tend to be less efficient, so fewer of their hours are billed. Another cause of a low rate is that clients impose pressure to keep total billings low. A third reason is a misunderstanding regarding the scope of the work to be performed.