One of the factors that enable growth in an organization is its clientele. To be able to work with old clients and close the deals with new ones is something that businesses actively seek. After all, clients bring in projects which in turn increases a company’s top line.
However, as important it is to acquire clients, it is equally important to keep track of the hours spent on each project. This is because it will give a fairly good idea to employers and managers about how to improve work efficiency.
In that case, it is important for managers to keep track of billable hours. But first, what are they?
What Are Billable Hours?
Billable hours are the time spent working on a project associated with a particular client. The client is charged according to a predetermined hourly rate. Many industries, agencies, and freelancers use billable hours as a regular practice to keep track of the time spent on pushing a certain project through the finish line.
Every project has a different structure and execution strategy. It is safe to say that some projects have slightly more complex tasks as opposed to others. However, certain tasks that are common to all projects are billable and are listed below:
- Carrying out research
- Creating project timelines
- Communication and meetings with clients
- Responding to project-related emails
- Revising or redoing certain tasks as per the client’s request
- Other project-related activities
What Do Non-billable Hours Mean?
While billable hours are important for a number of reasons discussed later in this article, non-billable hours are equally important. Non-billable hours are time spent on doing activities that benefit the organization as a whole and not just one specific client and cannot be charged to a client.
Tasks That Do Not Account For Billable Hours
A mentioned non-billable hours are time spent on activities not related to a certain client or project. Here is a list of all the activities that do not come under billable hours.
- Pitching your work and services to clients
- Attending meetings before the contract is signed
- Training that benefits your company and not just the client
- Brainstorming meetings
- Company’s an advertising and marketing projects
- Employee development
- Work that is beyond the scope of the project
- Administrative tasks such as creating invoices and processing payments
- Networking and other team-building events
Industries That Keep a Track of Billable and Non-billable Hours
It is a common practice for some firms to bill their clients at an hourly rate. Some of them are as follows:
- Accounting firms
- Law firms and legal professionals
- Advertising agencies
- Web developers
- Public relations firms
- Customer service
In these industries, in particular, the aim should be to increase billable hours and reduce non-billable ones. This is because the higher your billable hours, the more money you make thereby increasing the top line of your business. However, this does not mean that activities that do not serve as billable are included too. The next section will give you some tips on how to increase billable hours.
How To Increase Billable Hours?
Bunch Queries Together
When working on a certain project, employees can face a lot of challenges. They can bombard their managers with queries and back-to-back emails. Although having queries is not discouraged, it does waste a lot of time. Also, managers may not be able to respond to the queries and emails immediately as a result of which employees face roadblocks delaying the project further.
In order to avoid this, it is recommended that employees submit their project-related queries, problems, and updates a day before or at the start of the day. This will not only save time but speed up the pace with which employees will work on a project. The more time is spent on working on the actual project, the better the efficiency and billable time.
Track Billable Time in Real-time
It is always a good idea to track billable hours in real-time. This is because if by the end of the day you go back to think about what you did for a certain project, you might not come up with accurate results. So record your time as and when you clock in and out of a project.
Keep a Track of Non-billable Hours
Why is it important to record non-billable time? Because by the end of the day, you can revisit your tasks and analyze where and how you can be more efficient. For instance, if a big chunk of your day went by in carrying out administrative duties, then you may want to hire someone else to take care of that.
Procrastination is something that all employees do give innumerable workplace distractions. Employees often tend to take a lot of coffee breaks in between, visit random websites and mindlessly browse social media. If one can control these distractions, they will be directing their time more towards getting more work done.
Software to Keep Track of Billable Hours
To keep track of billable hours without any hassle, you may want to try out AttendanceBot. It is a time tracking software that comes with an additional feature of tracking time spent on projects.
You simply type ‘in’ and the software will start tracking your time for the project. You have to select the project and client that you start working on and hit the confirm button as shown below.
By the end of the day, you type ‘out’ and Attendancebot will give you details such as how much time you spent working on a certain project. Your manager will also be able to pull out a report that will be a detailed analysis of how many hours were spent on completing a particular project. With individual employee breakups too.
Isn’t this all so simple?
How to Calculate Billable Hours?
Set an Hourly Rate
Before beginning to track billable hours, employers have to jointly decide the hourly rate with clients.
Hourly rates differ from one industry to another as in the case of a law firm. When most firms decide on their billable hours, they have to be mindful of both the profitability and practicality of taking on a certain client. Therefore, all firms have to take into account several factors such as downtime, vacation time, sustainability, and other factors when deciding on billable time.
Choose an Invoicing Schedule
Once the hourly rate is set, you would want to determine an invoicing schedule. Most small businesses and freelancers follow a monthly billing cycle with payments coming in at the end of each month.
Develop a Time Log
Next, you have to create a time log to track billable hours. You can do it manually in the form of a spreadsheet where you make separate columns for each client and their respective work description. However, filling in spreadsheets can be tiresome and inefficient. The other option is to track billable time digitally through time tracking software.
Track Hours by Project
It is common to work on more than one project in a day. However, this may cause confusion if you don’t track billable hours for each project. Therefore, track your time for each project to ensure clarity.
Calculate Total Billable Hours
The time log that you create will help you calculate the total hours spent on a certain project. Make sure to do that at the end of each month before you send an invoice.
Create a Detailed Invoice
Once you calculate total billable hours, it is time to formulate a detailed invoice with all the relevant details. Some of them could be:
- Your business contact details such as phone number, email, and address
- Contact information of your client
- List of services you provided to the client
- Billable hours for each service
- Total payment due clearly mentioning the hourly rate
- Terms of payment
- Payment schedule
Average Billable Hours
Just like billable hours, the hourly rate varies from one industry to another.
Businesses that charge their clients by the hour have to consider the utilization rate of their employees. But first, what is the utilization rate?
Utilization rate is the metric that depicts how much time an employee has spent, out of the total working hours, on billable tasks. The formula is as follows:
Utilization rate= Billable hours / total working hours x 100
Questions That Will Help Manage Billable Hours
Sometimes it becomes difficult for managers to determine whether to bill a certain task or activity to the client. Below are a few questions you can ask yourself to decide whether a certain work needs to be billed or not:
- Does the time spent on a task move the project closer to completion?
- Is a certain task helping the employee or the client?
- Are the tasks included in the scope of the project mentioned in the contract?
- Is the extra time spent on a task due to negligence on the employee’s part?
Benefits for Tracking Non-billable Hours
Tracking billable hours benefits both the business and its employees. Businesses tend to increase their profit margins while employees get a chase to improve their productivity and efficiency. But you don’t achieve this in one go. All benefits combined will yield the desired result.
Identify Less Profitable Clients
Clients that demand more attention or revisions for which you cannot charge them have to be taken seriously. It is without a doubt important to maintain healthy relationships with clients but if a certain client requires more non-billable hours then you must take action.
You can either revise the rate, terms of the contract or reduce hours. In case a certain client continues to be less profitable, it is probably time to think about the future of the relationship.
Reduce Inefficiency in the Process
Tracking non-billable hours is a great way of improving process efficiency. For instance, if non-billable meetings are taking too much time, then you may want to reduce the frequency with which you hold them or go for stand-up meetings altogether.
Similarly, if you find employees spending more time in administrative duties then you may consider hiring someone else or automating certain tasks.
Analyze Each Employee’s Contribution
Tracking non-billable hours gives you the opportunity to find out each employee’s contribution to a certain task and maximize or minimize it accordingly. Basically, it is a way of finding out an employee’s strengths and the speed with which they work. If an employee is quick and efficient at creating debriefs, then those tasks should be delegated to them in the future.
Improve Employee Engagement
Tracking non-billable hours is one of the ways of boosting employee engagement. Wondering how?
Well, when you track non-billable time, you get an idea about an employee’s typical workday and workload. As a result, you may want to outsource certain tasks in order to prevent employee burnout. For instance, if an HR personnel is spending most of the time tracking attendance, then you may want to consider using attendance and time tracking software like AttendanceBot that will take the unnecessary load off them.
Enhance Project Planning Process
When planning for the next project, you will have to identify many things such as the number of employees needed, total hours to be spent, hourly rate, etc. if you want to develop an accurate project plan, then you should consider evaluating two non-billables:
- Micro-level: Training and development sessions which should be restricted to only a few hours in a week or month
- Macro-level: keep track of internal meetings. If they happen frequently and consume a good amount of time, it is better to reduce them to only one or two in a week depending on their urgency.
Manage billable hours With AttendanceBot
You are now familiar with the benefits of tracking both billable and non-billable hours. If you are a business that is looking forward to increasing profitability, productivity and efficiency then you may want to consider using AttendanceBot. This will take care of your time tracking needs without you having to do collate reports manually. This software will increase your bandwidth to focus on more pressing tasks.