Billability: What Is It and How to Measure It

Billability is a key metric that provides clarity on your team’s productivity, project performance, and finances.

It depicts the amount of time that your employees are spending on tasks related to client projects, or in short, the ratio of billable time tracked vs total hours worked.

In this article, we’ll provide answers to four main questions:

Billability is a metric used in professional services to gauge productivity and efficiency. It’s the percentage of time your employees spend on client-facing tasks vs their total hours tracked.

Billable hours include a wide range of activities spent on billable projects, such as client meetings and time directly spent working on deliverables. Non-billable hours include administrative tasks non-related to projects, internal meetings, skill-building initiatives, pitching for new clients, etc.

During your career or while browsing resources, you’ve probably come across the term billable utilization, utilization, or utilization rate. So, what’s the difference between billability and billable utilization rates?

The way these two terms are understood can vary from business to business. They’re either used synonymously or seen as connected but different terms.

Under the second interpretation, we would define the two in the following way:

In this article, we’ll use both terms synonymously, but it can be useful to know this distinction.

 To calculate your utilization, you’ll need to implement regular time tracking. You’ll also need to set a system for differentiating billable work from non-billable activities; while project managers can do this manually in a spreadsheet or similar tools, professional services time tracking software solutions help automate this process.

Which activities count under billable or non-billable time can vary depending from project to project. For example, a development company might need to invest in learning technology fundamentals as non-billable time, but researching a niche or specific solution to resolve a project task can count as part of a billable project. All of this depends on the agreement you have with your client.

Billability can be tracked per employee or per department, but it can also be examined according to seniority or specific skills. These insights can help you get a comprehensive understanding of your workforce planning activities and aspects you need to improve upon.

You can track your employee utilization rate on a weekly, monthly, quarterly, or annual basis to get both granular and long-term insights.

Here are the four main reasons why you need to track utilization for successful business operations:

It helps you keep track of how much time you’re putting into revenue-generating activities. Since this is the main driver of your company’s profitability, balancing hours spent on client work and administrative tasks is crucial to your financial health and sustainable operations.

Check out our guide to revenue operations strategy to learn more.

It’s also a useful capacity management KPI for your team’s productivity and efficiency. If more time than expected is being put into non-project-related tasks, this can signal workflow breakdowns, such as miscommunication or resource conflicts. You can more easily pinpoint specific issues to improve project performance and overall client satisfaction.

Understanding your utilization rates (and being able to forecast them for future periods) can guide your strategic planning. For example, if you know that your design team will be overutilized for a specific period, you can consider taking on external staff to meet resource demand. Or, you can target underutilized services and guide your sales team toward prospecting for them.

Learn how Productive helps business leaders get real-time insights into agency performance.

Finally, but no less importantly, managing your utilization rates isn’t only relevant to your finances. It also helps you monitor your human resource planning process, so that you can ensure that no employee is overutilized or underutilized. This is important for ensuring a satisfied workforce, decreasing the risk of burnout, and reducing attrition and turnover.

The industry standard for billability ranges from 70% to 90%, though this can vary significantly depending on your industry, business specifics, and employee roles.

If you’re looking to boost your company’s billable rates, here are some things you can focus on:

Looking for software to help you manage billable and non-billable hours, track your profit margin, and visualize and forecast resource utilization rates?

Consider Productive, the all-in-one management software designed specifically for service businesses and their workflows. With Productive, you can:

Book a demo with Productive today to learn how you can optimize your team utilization rates.