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Operations · business glossary

What is Capacity utilisation?

By Shivam Bhandari · Reviewed 31 October 2026 · How we write

definition

The percentage of a business's total possible output that's actually being used or produced.

Capacity utilisation explained

Capacity utilisation is how much of your maximum possible output you are actually using.

formula

Capacity utilisation % = Actual output ÷ Maximum possible output × 100

example

A factory able to make 10,000 units a month that makes 7,000 is at 70% utilisation.

why it matters

Low utilisation means fixed costs are spread over fewer units; very high utilisation leaves no room for surges.

common mistake

Running at near 100% constantly, which increases breakdowns and delays.

Frequently asked questions

What is Capacity utilisation?

The percentage of a business's total possible output that's actually being used or produced. Capacity utilisation is how much of your maximum possible output you are actually using.

How do you calculate Capacity utilisation?

Capacity utilisation % = Actual output ÷ Maximum possible output × 100. A factory able to make 10,000 units a month that makes 7,000 is at 70% utilisation.

Why does Capacity utilisation matter?

Low utilisation means fixed costs are spread over fewer units; very high utilisation leaves no room for surges.

What is a common mistake with Capacity utilisation?

Running at near 100% constantly, which increases breakdowns and delays.

Related terms

More operations terms