How do you calculate realisation?
The short answer
Billing realisation = fees billed ÷ the value of the time recorded on that work at standard rates × 100. If the team recorded £100,000 of time at standard rates and the client was billed £88,000, realisation is 88%: the other 12% was written off.
Collection realisation goes one step further, comparing cash collected with fees billed. In the US the measure is called the realization rate.
Every figure shown here is invented for illustration. Nothing on this page is computed from anyone’s accounts.
Value leaks at three points between the work and the bank
| Stage | Formula | A loss here means |
|---|---|---|
| Billing realisation | Fees billed ÷ time value at standard rates | Write-offs before invoicing: over-servicing, fixed fees overrun, discounts |
| Collection realisation | Cash collected ÷ fees billed | Bad debts, credit notes, disputes |
| Overall realisation | Cash collected ÷ time value at standard rates | The total leakage |
An accountancy practice keeps 86 pence of every pound of time it records
An invented practice, the quarter to September:
- Time recorded at standard rates: £520,000
- Fees billed for that work: £463,000
- Cash collected on those bills: £449,000
Billing realisation = 463,000 ÷ 520,000 = 89.0%; collection realisation = 449,000 ÷ 463,000 = 97.0%; overall = 449,000 ÷ 520,000 = 86.3%.
Most of the leakage is before billing: £57,000 of time never invoiced. That is the conversation for the partners' meeting.
Realisation needs one figure the trial balance doesn't hold
The value of time at standard rates lives in the time-recording or practice management system. The ledger side is easier: fees billed come from the fee income ledgers, write-offs show where the firm posts them to a ledger of their own, and bad debts and credit notes have theirs.
So realisation is a joint calculation: time value from the time system, billing and write-offs from the ledgers. Where WIP write-offs are posted consistently, write-offs ÷ (fees billed + write-offs) gives a ledger-only view of billing leakage.
What moves realisation
- Fixed fees priced too low for the work actually done.
- Junior time on work the client won't pay standard rates for.
- Discounts given by partners at billing, often unrecorded.
- Scope creep without change requests.
Track it by partner, service line and client: a firm-wide average hides the one client at 60%. Report it beside WIP days and lock-up, because writing off old WIP lowers lock-up and lowers realisation in the same stroke.
Three ways realisation is got wrong
- Actual charge-out rates used for time value, which hides discounts given up front.
- Write-offs netted into fee income, so they never appear. Post them to their own ledger.
- Measured firm-wide only. The problem is almost always in a few clients or partners.
Magic MIS gives the ledger side; time value comes from your time system
Realisation isn't one of the figures Magic MIS computes, because the time value isn't in a trial balance. It computes fee income and staff cost as a share of it every month, and the write-off and credit note ledgers are one click away behind the figures they feed.
What people ask about realisation
Is the realization rate the same thing?
Yes. That is the US spelling and term.
What is a good realisation rate?
Many firms aim for ninety percent or more on billing realisation, but it varies with the pricing model and the practice area. Compare by service line over time.
Does utilisation affect realisation?
They are separate. Utilisation is how much time is chargeable; realisation is how much of that chargeable time turns into fees.
Read next
- How do you calculate WIP days?WIP days = unbilled work in progress ÷ the last three months' fee income × their days. The formula, a worked example, and why it is half of lock-up.Read
- How do you calculate lock-up days?Lock-up days = WIP days + debtor days: how long money is tied up between doing the work and being paid. The formula, a worked example, and how firms bring it down.Read
- How do you calculate staff cost as a percentage of fee income?Staff cost ratio = staff costs ÷ fee income × 100. What counts as a staff cost, a worked example, typical ranges for people businesses, and the traps in the ledgers.Read
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