What Are Billable Hours? Their Importance for Your Revenue
Billable hours are the work hours spent on a task or a project that can be charged to a customer. The concept is simple: The more billable time tracked, the more you charge clients. This is why a complete understanding of what billable hours are and how billable time tracking works, is crucial to increase profitability of your business.
In this article, you will learn:
- What are billable hours and non-billable hours (with examples)
- Why you should track billable hours and non-billable hours
- How to track billable time and non-billable time to improve your billing process
- How many billable hours you should work
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Maximize your revenue by tracking every billable minute
“Was I really undercharging that much? It was an eye opener to actually see how much these hours of – it’s only a quick job – added up.” – Debi H., Digital Marketer
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Billable hours are the actual hours worked on a task or client project that can be charged to a customer. They are usually billed to the client at an agreed-upon hourly rate and are crucial in calculating the total cost of the service. Billable tasks cover all types of client work, including client phone calls and meetings.
Billable hours examples
Here are a few examples of billable time to make things clear:
- Legal professionals: In legal services, a billable hour is time spent on tasks such as legal research for a client, drafting legal documents, attending meetings with clients or other lawyers, appearing in court, etc. Explore more in the article: How lawyers track billable hours.
- 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.
- Freelancer: If you are a copywriter, you may bill clients for time spent on writing articles, editing and proofreading; if you are an SEO freelancer, billable time activities will include keyword research or competitive analysis.
- Web developer: Web developers who 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.
What are non-billable hours?
Non-billable hours stand for time spent on tasks that cannot be directly billed to a client’s projects, and hence do not increase business revenue. Non-billable work is usually related to business operations and employee development.
Examples of non-billable tasks
Now, let’s see some examples of the most common non-billable work:
- Team meetings. Meetings that are held internally with your team members to discuss business operations, strategy, or internal processes of the company you work for are typically non-billable activities.
- Administrative tasks. Tasks such as answering phone calls, replying to emails, filing overall paperwork, and other administrative work count as non-billable work.
- Professional development. Training, attending conferences, or other professional development activities that can be considered an investment in your professional skills and expertise are non-billable activities.
- 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, are considered non-billable time.
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. Can you see the difference between billable vs. non-billable hours now?
“I have been using Timeular for almost 2 years now. It helped me keep track of my time, the billable hours to customers and gain business” – Fabian G., CTO
Why you should track billable hours
By tracking billable and non-billable hours, you can:
- Analyze your profitability. By tracking billable hours you can better identify where costs should be reduced and make smarter decisions regarding pricing and resource allocation.
- Improve client invoicing. Get much more accurate client billing and make sure that each client’s invoice is accurate as customers are paying for the actual hours worked by you or your team.
- Ensure effective time management. Keeping track of total billable hours helps you to prioritize tasks and work on proper time allocation.
- Create robust client relationship. Being 100% honest and transparent helps build trust and establish a long and strong working relationship with clients.
- Track your utilization rate. Billable hours help you keep track of the utilization rate, which is the percentage of an employee’s available working hours that are spent on tasks billable to clients, reflecting their productivity.
- Keep track of billable hours overrun. Tracking billable hours helps monitor overrun rates by comparing actual time spent on a project to the estimated time, allowing for early detection and management of potential budget overruns.
TIP: Read our article and learn how time management is a good example of artificial intelligence in business.
Why you should track non billable hours
By tracking non-billable time, you can:
- Identify areas where administrative tasks and internal processes can be streamlined. Non billable time should not take up most of your team’s capacity.
- Improve workload management and ensure that employees are not overwhelmed with non-revenue-generating tasks.
- Improve cost management by getting a clearer picture of the true cost of doing business by accounting for all working hours.
- Track time spent on employee training and professional development to ensure continuous growth and skill enhancement.
- Make informed decisions about staffing, project planning, and business development initiatives.
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How to track billable hours
Keeping track of each billable moment should be a standard practice in all businesses that provide services invoiced hourly (agencies, law firms, consulting companies, and freelancers). You can track billable hours in many ways, using timesheet templates, calendars, email, pen and paper, or… a time tracking software.
Tracking billable hours is much simpler than you think. Although it seems mundane, it’s pretty straightforward when you use Timeular. This time tracking software automatically collects all billable hours spent on specific projects.
Timeular is the most effortless billable time tracking software 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?
- Read a full guide how to calculate billable hours
Simple steps to start tracking billable hours:
- Create a free trial account.
- Add work tasks and assign a relevant client name.
- Label each activity as billable or non-billable time.
- Add billing rate to each activity.
- Track time and automatically collect insights about billable time (presented in a clear billable hours chart).
When you track time with Timeular, you get immediate answers to questions like:
- Are we spending time only on profitable projects and clients?
- How much time do we spend on billable tasks?
- Do we have enough billable hours to keep our business running?
- What should be our hourly rates for specific tasks?
How to 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
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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$
Tip: When using Timeular, add your hourly rate to each activity, and it will automatically calculate the total number of billable hours to be added in a client’s invoice.
What’s the most effective billable hours model?
Many professionals are wondering what are the perfect billable hours targets. Each case would be different, and the general rule is that the more, the better.
However, it’s already a great result if your total billable hours make up 60% or more of your work hours. To make it perfect, dedicate 80% of your time to billable activities and 20% to non-billable tasks. Setting and meeting billable hours targets is crucial for maximizing revenue generation, as it helps ensure that employees are focused on productive, revenue-generating activities.
If you are currently spotting more non-billable hours than 20-40% and fail to meet billable hours targets, try to identify each non-billable task, group them, and handle them in a specific time slot, leaving the rest of the week for billable activities.
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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 billable hours 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 hourly 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.
Read: How to calculate hours worked
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How can time tracking help you with billable hours?
As I just mentioned, there are many strategies 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, suppose you realize you spend a lot of time on administrative tasks that cannot be billed. In that case, 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.
Check out funny timesheet memes.
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Konklusjon
In conclusion, understanding billable and non-billable hours is crucial for businesses to track work hours 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 to maximize revenue and increase business profitability.
Additionally, time tracking is critical to track billable hours and one of the best ways to increase their number.
VANLIGE SPØRSMÅL
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.
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.
What is an attorney billable hours chart?
An attorney billable hours chart can help law firms calculate and track attorney work hours efficiently by using increments and identifying any inefficiencies in how associates spend their time. Check our attorney billable hours template to access a free billable hours chart.
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