What Are Billable Hours and Why they are important for Your Revenue
Knowing everything about billable hours can be the key for you and your team to save time and improve billing accuracy.
Even though it’s a highly misunderstood aspect of working in professional services and often tricky for businesses, learning more about it can help ensure that you precisely track all the hours you worked and create invoices appropriately.
This article will explain more in-depth what billable and non-billable hours are, how you can track them, and why they are so crucial for your business.
We will also show you what tools you need to optimize outputs to get the expected results as soon as possible.
What are billable hours?
Billable hours are the hours you worked that require compensation. In other words, they are the hours that you bill clients for, and they pay directly.
What is the difference between billable and non-billable hours?
As we just explained, billable hours are spent working directly on client projects.
Non-billable hours are spent on administrative or overhead projects not directly related to client service: administrative tasks, professional development, etc.
Billable hours examples
Here are a few examples to make it clearer:
- Lawyer: the number one example that everyone talks about is lawyers. For a lawyer, a billable hour may be time spent on tasks such as legal research for a client, drafting legal documents, attending meetings with both clients or other lawyers, appearing in court, and others;
- Consultant: if you’re a consultant, you may bill your clients for time spent on tasks such as conducting specific research, preparing reports, analyzing data, developing strategies, and providing advice on business operations or management, for example;
- Freelancer: you may bill clients for time spent on tasks such as researching and writing articles or blog posts if you’re a copywriter, for example, editing and proofreading, and communicating with clients;
- Web developer: web developers that may work for marketing or development agencies may bill their clients for time spent on tasks such as designing and building websites, testing and debugging code, and providing overall technical support.
Example of non-billable hours
Now, let’s see some examples of the most common non-billable hours.
- Internal meetings: meetings that are held internally with your team members to discuss business operations, strategy, or internal processes of the company you work for;
- Administrative tasks: such as answering phone calls, replying to emails, filing overall paperwork, and other administrative work;
- Professional development: training, attending conferences, or other professional development activities that can be considered an investment in your professional skills and expertise;
- Marketing and business development: efforts made by a professional or business to promote their services and attract new clients, such as attending networking events or developing marketing materials, to generate leads and establish new business relationships.
Hours spent on activities like those we just mentioned are not billed to the client as they’re not directly related to the work you do for them.
How do you calculate billable hours?
Calculating billable hours is easy. You need to take how much you’ve worked and multiply it by your hourly rate.
Billable hours = hourly rate x billable working hours
How to calculate billable hours example:
- Hourly rate: 40$
- Billable working hours: 20
Billable hours = 40$ (hourly rate) x 20 (billable working hours)
Billable hours = 800$
Why is it essential to track billable hours?
Knowing the difference between billable and non-billable hours is crucial for good management.
When you know the difference, you’ll track both of them, which helps to ensure accurate pricing, profitability, and effective time management.
Benefits of tracking billable and non-billable hours
By tracking the billable and non-billable hours, you can:
- Analyze your profitability, as you can better identify where costs should be reduced and make smarter decisions when it comes to pricing and resource allocation;
- Identify if you need to adjust the price to ensure profitability;
- Get much more accurate invoicing, as your clients are paying you for your services fairly;
- Effective time management, as it allows you to prioritize your work and allocate time more efficiently;
- Create a more robust client relationship, as being 100% honest and transparent helps build trust and establish a long and strong working relationship with clients.
How to track billable hours?
You can track your time in many ways, such as using timesheets, calendars, email, pen and paper, or a time tracking app.
A time tracking app is the most accurate and intuitive way to track billable hours.
Timeular is the most effortless time tracking app for teams and professionals who care about their productivity and want to track billable hours correctly. Timeular allows you to start and stop a timer for each task, generating insights and reports showing the time spent on each task and the money you can bill. You can filter, customize and export the reports with a few clicks. How easy and convenient is that?
Learn how Timeular helps you to maximize billable hours!
How can you increase billable hours?
There are many ways for you to increase your billable hours smartly. Here are a few strategies.
- Improve time management with a time tracker: use a time tracking software, such as Timeular, to accurately analyze how you spend your time and find ways to be more productive;
- Review your work process and optimize your habits: review your current work habits and try simplifying your workflow to be more efficient and reduce the amount of non-billable hours;
- Take on additional tasks: it may sound super obvious, but logically, if you can take on more work, it’ll be much easier to reach your billable hour goals. Check with your client if there are additional tasks that can be incorporated into your day. Just make sure you do it rationally and don’t take more than you can handle;
- Raise your rates: this is another thing that sounds obvious, and it is! Increasing your rates can lead to higher billable hours. Just bear in mind that if your goal is to raise rates, you should do so fairly not to affect your relationship with clients;
- Automate predictable tasks: there are tasks that we do every day that can easily be automated. Automating repetitive tasks frees up time to work on billable projects.
Just keep this in mind: it’s not all about increasing billable hours. It’s also about providing high-quality service to your clients and building long-term relationships so you can keep working with them in the long run.
Timeular: The best alternative to Clockify
A detailed comparison between Timeualr and Clockify
How can time tracking help you with billable hours?
As we just mentioned, there are many strategies you can start implementing to increase your billable hours; however, tracking your time is one of the most powerful tools to do it efficiently.
By tracking your time and looking at the insights, you better understand how you spend your time, identify your daily inefficiencies, and optimize your workflows.
Here are a few ways in which time tracking is key to increasing billable hours:
- You catch every billable hour: a survey found that missing or inaccurate billable hours cost businesses $63807 per employee per year, which means $7.49 billion daily for US professional services sector providers. With time tracking, you won’t lose any precious billable minutes.
- Identify billable hours clearly: Time tracking helps you count billable and non-billable hours more clearly. You might realize that your non-billable hours are more than the billable ones. With this awareness, you will prioritize billable work instead of non-billable and allocate your time more successfully.
- Assess project profitability: by comparing the amount of time spent on a project to the actual money you get from it, you can assess its profitability and make more appropriate decisions regarding similar projects in the future.
- Set achievable deadlines: by tracking the time and knowing how much time you spend on similar tasks, you can set more realistic deadlines for future projects and avoid overcommitting and exhaustion.
- Enhance workflow: when you check the reports you get from tracking time, you quickly identify areas of inefficiency in your workflow, allowing you to make changes to increase productivity. For example, if you realize you spend a lot of time on administrative tasks that cannot be billed, you can delegate or automate them.
- Bill your clients accurately: the detailed info generated when you track your time can assist you in billing clients correctly and avoiding undercharging.
How many billable hours are there in a day?
Generally, there are 8 hours billable hours. But it all depends on the type of work you do, in what industry you work for, and the specific tasks you need to get done on your workday.
Nevertheless, the total of billable hours you have in a day is the sum of hours worked that can be charged to a client or customer.
How can you calculate billable hours per employee?
Calculating billable hours per employee involves tracking the time an employee spends working on billable tasks. For instance, it can be done with a time-tracking software such as Timeular.
In conclusion, understanding billable and non-billable hours is crucial for businesses to track all hours worked and create accurate invoices precisely.
These concepts are applicable across various industries, including law, consulting, freelancers, marketing agencies, IT companies, etc.
By accurately tracking your billable hours, you can ensure that you’re billing your clients ideally, managing your resources effectively, and maximizing your revenue.
Additionally, time tracking is critical to track billable hours and one of the best ways to increase them.
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