Realization Rate — Definition

Definition

Realization Rate is a metric that compares the actual revenue billed and collected for a project against the revenue that should have been billed according to the firm's standard [Rate Card](/glossary/rate-card).

Explanation

If [Utilization Rate](/glossary/utilization-rate) measures how busy your firm is, Realization Rate measures how much your firm's time is actually worth in the market.

For example, if a consultant works 10 hours on a project, and their standard rate is $200/hr, the expected revenue is $2,000.

• If the salesperson discounted the rate to $150/hr to win the deal, the realization rate is 75%.
• If the consultant took 15 hours to do the 10 hours of work on a [Fixed Price Contract](/glossary/fixed-price-contract), and the firm could only bill for $2,000 total, the realization rate is roughly 66%.

The Invisible Margin Killer

A firm might boast that its consultants are 90% utilized. But if the realization rate is 60% due to chronic discounting and out-of-scope work, the firm is bleeding cash.

Realization is the ultimate indicator of [Margin Leakage](/glossary/margin-leakage).

Commercial Checklist for Realization

1. Track Write-Downs: Does your firm require PMs to formally log "write-downs" (hours worked but not billed to the client)?
2. Sales vs. Delivery: Is the realization rate drop caused by Sales (discounting the rate card) or Delivery (taking too long to finish tasks)?
3. Change Order Discipline: Are PMs issuing [Change Orders](/glossary/change-order) for out-of-scope work, or doing it for free (which immediately destroys realization)?

Related Concepts

• [Utilization Rate](/glossary/utilization-rate)
• [Rate Card](/glossary/rate-card)
• [Margin Leakage](/glossary/margin-leakage)