why are capacity utilization rate numbers important?
So, a rate of 85% is consistently considered to be an optimal rate for most businesses. When a startup business does not operate at a productive capacity of hundred percent, it is considered to have âspare capacityâ. Why is capacity utilization important? Capacity utilization is considered to be a highly important and relevant concept as; It is often used as a determinant of the productive efficiency of a company. With the rise in output, the average cost of production is likely to fall. This means, more capacity utilization can drastically reduce unit costs thereby helping the business to stand an edge ahead of its competitors.