Capacity utilization is determined by dividing the average output by the maximum possible output. For example, if a manufacturing plant produces 8,000 units per month but has the capacity to produce 10,000 units, its utilization rate is 80%. This metric can be applied across various industries, from airlines assessing passenger load to hotels evaluating occupancy rates. A clear understanding of this calculation requires defining both the average output and the maximum capacity within a specific timeframe.
Maintaining a high utilization rate often translates to greater efficiency and profitability by maximizing the return on investment in resources and infrastructure. Historically, understanding and optimizing this rate has been a key driver of industrial efficiency improvements, influencing production planning and resource allocation strategies. A well-managed rate allows businesses to optimize pricing, staffing, and inventory levels, leading to improved financial performance.