Billable hours: What they are and how to calculate them

It makes it easier to know how many billable and non-billable hours are invested in a project. It’s only natural to prefer to be spending your time on work which you will actually charge for. So how do we try to minimize the number of non-billable hours we accumulate, without sacrificing the benefits that those hours can provide? One good trick is to try to use as much automation in your non-billable processes as you can. Reducing the administrative workload, for example by making payment reminders automated, can be a huge time saver.

But the line between billable and non-billable hours can sometimes get very blurry. Many of those services will be project-based and include kick-off meetings, project scoping, industry research, writing pitches, and other activities. An attorney’s approach to billable hours will differ from a PR agency. When you end tasks, the time spent on each task is automatically calculated on the timesheet. Invoicing helps businesses keep track of financial transactions and ensure steady cash flow for goods or services.

Increase billable hours

Provided that we are calculating his capacity for September 2022 only, the calculation is very simple – we just need to divide the number of all the hours in the month by 2. Let’s start simple – first, any project manager should understand what’s really hidden behind these terms. Additionally, you will know how long each person would take to complete a task or a project.

• It will ensure faster management of projects by your team and drastically reduce the time spent on non-billable work.
• However, the non-billable tasks are important for your business, and you can’t eliminate them.
• Billing based on time is more efficient for lawyers, and therefore, most lawyers in the industry practice this method of charging clients.
• Five minutes for an email here, half an hour for an unplanned call there — this is how billable hours go unnoticed if you don’t track them.
• Whether you’re working as part of a team or have employees working for you, there are going to be times when many people, including your customers, are asking you for things.
• It becomes easier to understand how long a client’s project meeting should take, the length of time to be committed to training, if your team works well together, and more.
• By making an effort for billable hours tracking, you can get the real picture of just how much time your team invests into projects.

Sometimes, you’ll have more than one issue to figure out, which can be incredibly stressful. Billable hours seem like they should be black and white, but they aren’t always. Generally, if you can tie your work back to the client, your time is billable. As a business, you’re responsible for your staff, and that means covering days off (vacation or sick leave) and their salary, regardless if their time was marked as billable or not. But client communication can quickly add up and failing to recognize some of it as valid project work could severely impact the profitability of your projects.

The importance of tracking billable hours

Once you’ve identified your hourly rate, you’ll need to determine how to manage your invoicing process. But, besides the utilization rate, there is another metric in the law industry. It’s called the realization rate – how many hours an attorney tracks compared to the fees that are collected. Speaking of lawyers and legal professionals, their ideal utilization rate is 100 percent. So, their goal should be striving to achieve as high utilization rate as possible.

The 8 hours spent on public holidays will need to be deducted from their billable hours, too. In short, non-billable hours are all the hours that customers cannot be charged for, because the employees are not working on his project at the time. You may even realize you need to hire an extra employee, a virtual assistant, or turn to specific software to automate some of these non-billable tasks.

Timesheets & Time Tracking

This type of arrangement can be helpful if you need to guarantee that someone will be available to work on your project for a certain number of hours every week. For example, if you’re a mechanic, you get paid for each car you fix. Here are some general examples of billable and non-billable activities during a team member’s workday.

Before a business, agency, or freelancer starts working with a client, they must first come to an agreement on the rate charged per hour. Work of higher quality or precision, and done by prestigious or well-established businesses, tend to be more expensive. Below we’ll uncover how billable and non-billable hours work for businesses and how you can make those working hours even more valuable. Before working for Toggl, Sean ran SEO at a digital marketing agency—so he’s all too familiar with time tracking and project management. The percentage of billable hours is one of the target metrics for many service companies. This gives you quick access to it without a need for additional calculations.

What percentage of hours should be billable?

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. For example, for a time-sensitive project, you can delegate the tasks to the most productive team members. Meanwhile, it might be challenging to work with client X as they would require a lot of time and attention — limiting the number of clients you can take up. This professional document should include the services you’ve rendered and other particulars to the business and payment. For example, the total number of hours in an eight-hour work week approximately adds up to 40 hours.

• You will also be able to keep tabs on the project and improve profitability.
• Doing this will ensure you stay organized and help you understand exactly how much to charge your client.
• It’s essential to have an effective method of tracking your billable work.
• Administrators of law firms should track both realization rates and utilization rate of employees.
• This professional document should include the services you’ve rendered and other particulars to the business and payment.

However, you have to have a record of your time worked to bill that time to the client. And that’s just one step to recording and being paid for billable hours. In the reports dashboard, you can easily view each project and client’s total and billable/non-billable hours. Still, many organizations and firms today utilize billable hours in measuring revenue that comes directly from clients. With more details on your bills or invoice, you’ll cut down on client disputes. This means you’ll save time, which translates into enhanced billable hours.

How many billable hours are in a month?

Another key factor to consider is whether or not your workers are comfortable with the billable hours system. There are a few key factors you should consider before using billable hours to compensate your workers. https://www.bookstime.com/ The second most important thing is to be consistent in your Tracking. This means using the same tracking method every day, so that you can easily compare days and weeks, and see how much progress you’re making.

This is affordable for the law firm when the per hour rate of the legal professionals is significantly high. They must balance non-billable time to make a reasonable profit margin. Hubstaff’s time tracking software, payroll, invoicing, and time reporting can help you track billable and non-billable work. With Hubstaff, you can set your hourly rate and pricing, track billable hours precisely, and send invoices to clients automatically. If you’re going to be tracking billable hours, it helps to have a task management software or app that can organize your client to-do list.

You can easily set billable rates per project right inside of Toggl Track. Separating billable and non-billable tasks inside Toggl Track is straightforward if your projects and tasks are already set up. It takes a few seconds to switch your timer to a different task and drastically improve the accuracy of your billable hours. Manual timesheets are among the most common methods of tracking billable and non-billable time.

Whether you are a freelance legal adviser, copywriter, or graphic designer, it’s vital to understand accurate invoicing for your services to maintain a cash-positive business. As a freelancer or small business owner, calculating billable hours can be a daunting task. It requires careful attention to detail and precision to avoid costly errors that could impact your income. You might think a few minutes are too little to affect the total billable hours. For example, if you spend too much time taking care of administrative tasks, it would be prudent to hire another person to do them. This will give you sufficient time to focus on the core issues of your current project.

Calculating your billable hour’s percentage

Using a spreadsheet or pen and paper can be such a painstaking experience. Going in this direction can result in differences in pay rates, and https://www.bookstime.com/articles/billable-hours there’s a high chance of a human error occurring. Working with existing customers and signing in new ones is the desire of every business.

• These are critical because they determine the income of a worker based on how much time they spend working.
• However, bear in mind that the value may vary depending on the local public holidays and working days for your company.
• Discover how to improve workload management in our recent guide.
• Prior to that, Arkadiusz was at the helm of his own software development company where he oversaw operations.
• Almost all the work we do involves completing tasks for the benefit of a specific client or project.