What Are Billable Hours: Tracking Guide + Free Calculator

Billable hours are the hours you spend working on tasks or projects that you can charge to a client. These typically include activities like consulting, design, development, legal work, or any service directly tied to delivering value for the client.

These working hours will be paid for by the client at the end of the billing cycle (hence they’re called billable). In most service-based businesses, billable hours form the basis for generating revenue, so this billed time is bread and butter.

They do not include internal meetings, admin tasks, or company training (non-billable time) —unless your agreement with the client specifically includes those. Tracking billable hours accurately is key to invoicing fairly, measuring profitability, and managing time effectively.

Agencies in other industries will more likely target other metrics of success, such as the utilization rate (or billability), which shows the percentage between non-billable and billable hours. To put it plainly, it’s an indicator of your overall productivity.

If you still have some questions, you should our article on billable vs non-billable hours differences. However, we’ll get back to this later with a brief overview, and tell you how to best track your billable hours (and maximize them).

The benefits of tracking billable hours are increased client trust and overall satisfaction, maximized profitability and efficiency, improved employee work-life balance, and key insights for strategic business growth.

Billable hours management is closely connected to revenue generation and business sustainability. If you have a poor grasp on how much time your team is spending on tasks that move projects forward, versus fixing avoidable mistakes or searching for relevant information, you’ll likely end up under or over-billing a project.

To get a hold of these benefits, companies use specialized time tracking and management tools for their agency ops. These tools help allocate resources smarter, maintain transparency, and simplify administrative work.

Some especially useful examples are all-in-one agency management solutions, that support your project, financial, and resource management software in one.

Also, being able to check your company’s pulse at any time will help you forecast profitability and keep variable costs from inflating beyond reasonable levels.

We talk more about this in our how to calculate overhead costs for an agency article. Keep in mind that the best agency tools on the market, such as Productive, can also streamline hiring efforts with forecasting capabilities, so you keep those overhead costs in check.

The difference between billable and non-billable hours is that billable hours are money-making work that you get paid for, whereas non-billable hours are necessary internal tasks that keep your company running smoothly.

Examples of non-billable work are employee education, investing in outreach, and client prospecting, are all critical activities for your company’s continued success. 

Non-billable also counts as overhead expense, it’s inevitable. But keep in mind that non-billable hours can be profitable. More than looking for ways to save on overhead costs, it’s crucial to identify how certain expenses play a role in your company’s future. 

For consulting agencies, it would be actively advising the client and developing strategies. For creative agencies, managing creative projects would include brainstorming concepts, creating and implementing designs, and more.

The challenges of tracking and managing billable hours are inefficient resource management (inconsistent time tracking and lack of precision in billable hours), profitability visibility (what projects are making or loosing money), and complex billing structures or invoicing complications.

By managing your billable hours, you’re directly impacting your company’s bottom line. If you can deliver more billable hours to your client in shorter periods of time, you’ll be able to take on more client projects and scale your business faster.

However, this is not always simple to pull off, especially if you’re managing multiple projects simultaneously.

If you don’t have timely data that shows your resource capacity across multiple projects, you might end up assigning more work to teammates who are already overutilized. The data entries are usually inconsistent due to not tracking time when working.

Manual data entry in spreadsheets (or with disconnected tools) is the root cause of these resource management errors. It can only lead to more errors and more non-billable hours spend on fixing them.

Inconsistent time tracking can easily be solved with automatic time tracking or with a software that has an integrated time tracking system.

An example tool that resolves this challenge is Productive’s color-coded heatmaps and ability to log time directly against specific tasks. After booking your employee’s time, with just a glance, you can easily check whether hours need to be reallocated and where.

This approach makes sure that your team’s well-being isn’t being affected.

Not all projects are profitable and not all client expectations are realistic. Both are normal, however it’s not normal that you don’t have the data to show you where you’re loosing money.

Productive has everything you need to solve these problems:

If you want the client to understand the value you provide, you first need to have a strong grip on it yourself.

For this to be possible, you need to be aware of what your team is capable of, both in terms of their current capacity (whether they’re tied up working on specific tasks or not), their composition (skill levels, seniority, particular affinity), and their actual efficiency (by comparing estimates with actuals).

An example of how you can streamline the negotiations phase is Productive’s Forecasted billable utilization report.

You can also use Productive’s agency report templates to create a report that showcases this key metric for a set period of time. With custom fields, you can split your resources up by any metrics you prefer (e.g., team, skill, seniority, etc.)

This provides valuable insights into how your firm will be performing in the future, helping you create thorough plans when taking on new client projects. In case you lack profitability visibility, you should definitely check out Productive’s project reporting capabilities and billable hours templates.

A CEO of a software development agency, described what their processes looked like before switching to Productive:

Read the entire story of how Clear Launch gained more predictability with Productive.

A lot of agencies or professional service firms struggle with tracking multiple billing models like fixed price projects, time and materials contracts, retainer-based billing or varying rates for different roles/team members.

They also have complications with manual invoicing because they have a hard time with tracking tracking billable hours, or spend extra time on creating accurate invoices based on the time spent.

Again, comprehensive project management software that has automatic invoice generation based on tracked working hours solves this challenge completely. Tools like Productive automate your invoicing process and add precision.

To accurately track billable hours, start by determining your cost rate (not just salaries, but also non-billable hours and overhead). Next, set up clear billing cycles and payment terms when signing client contracts.

Then, focus on time tracking: whether you use manual entries or automated tools, make sure your team logs their hours against the right tasks and budgets. Finally, streamline invoicing by linking tracked hours directly to invoice generation (you can use one of the tools from our top budgeting software list).

Below, we’ll show you how to track billable hours in four steps:

The first thing you need to do is set up the cost rate for your resources. The number will vary depending on the industry, and the skillset and seniority level of each specific employee.

Undercharging your clients will significantly lower your chance of scaling up your company, which means less hiring, a lack of competitive talent, and down the line, a lack of customers.

A rule of thumb is to make sure that you’re including non-billable hours or what your company is spending, or else you won’t be able to make a profit. 

While signing a contract with the client, make sure to set clear terms for both the billing and payment periods, meaning the timeframe within which the clients should finalize their part of the project billing process.

Billing cycles are usually set up on a monthly basis, with invoices going out on the last day of each month. When it comes to payment periods, make sure to set physical dates instead of using ambiguous terminology (e.g., “upon receipt” or “in X days”).
 
The aim here is for your company to get paid as soon as possible, so setting payment terms with your clients upfront will save you the hassle of chasing unpaid invoices and ensure your clients know what they can expect.

For more tips on this check out our guide on financial forecasting and capacity management for agencies. You should know by now that you can also automate this process is by using billable-hour financial tracking software that provide automated invoice payment reminders, such as Productive (it actually does way more than track finances). 

With Productive, you can set up templates that include full reminder journeys. An example is setting up a template that sends reminders 7 days before the due date, on the invoice’s due date, and 10 days after the due date.

You can also set up the subject title, content, and which email it’ll be sent from, along with payment reminders.

Track your valuable time either with manual or automatic timers. You can additionally type in your time logs, but we really recommend using timers (more on that later). The good news is that this is a basic feature that comes with most of the project management tools on the market.

For example, in Productive your team can track their hours directly against client-related budgets and associate their time entries with specific tasks. Since the time entries are tied with task and billing, this takes us to the final step.

Finally, once you’ve reached the end of the billing cycle it’s time to send invoices. Productive does this for you in just a few clicks.

Productive’s Billing, saves your time and energy by:

Productive also offers integrations with popular invoicing and project budgeting tools such as Xero and Quickbooks, so you don’t have to drop all your established workflows and preferred tools.

Simply build your invoice in Productive, and then copy it into your preferred solution. And bam, you’re done and waiting for payment.

You can increase your billable hours by implementing automated time tracking with locking missed time entries, tracking key project metrics and increasing your productivity.

These tips for increasing billable utilization might seem obvious on paper, but sticking with them is quite harder in real life. Lucky for you, below we’ll give you all the know-how you need.

Don’t waste time on tracking time, instead use simple one click timers to track billable hours in real time or generate time entries in advance.  

In Productive, you can start the built-in timer directly from a task or retroactively inputting your hours. Thanks to the Resource Planning feature, project managers can even schedule employee time in advance, thus automatically generating time entries.

Cost rates from the platform will also be directly applied to your invoices, ensuring full accuracy. All of this can help you speed up the most repetitive of your non-billable tasks. As an added bonus, you’ll be increasing team and client satisfaction as you go.

The process is super simple, the only thing it requires is consistency. In case you’d like to know more, read our guide for planning resources.

The top tree crucial project metrics for managing your company’s success are your revenue, profit, and utilization rate.

According to the The Global Agency Landscape report, only 43% of agencies track their forecasted revenue, 33% know their project gross margin, and under 20% track their forecast-to-actual utilization.

However, having real-time insights into the three is essential to making timely business decisions. If you’re able to accurately forecast these numbers for future periods, you can keep an eye on your billable hour requirements to hit those targets.

Specialized financial tools, billable hours tracker apps or certain all-in-one software solutions such as Productive, can help you achieve all of the above.

All you have to do is build your budget, add cost rates, and schedule your resources with Productive’s Resource Planning. Once you’ve built your plan (including vacation time and other types of leave), you can use the budget view to check your budget burn or and compare it to your billable hour goals over your project timeline.

By checking the profitability view, you can then see your overall profit, as well as your profit margin.

When it comes to forecasting, getting future insights into your billable utilization rate is not simply a financial matter. In fact, by viewing the percentage of availability of your resources across certain periods of time, including by skills or seniority, you can also fuel sales efforts.

For example, you might want to focus on prospecting clients for underutilized services.

We talk more about this in our webinar about utilization and forecasting in crisis times:

Less non-billable activities (like repetitive admin work) = more productive and billable time you’ll get payed for.

Non-billable work can also be searching for information, switching between apps, communicating, looking for project status updates, or other inefficient processes.

These inefficient micro processes chip away productivity of your overall project progress. Consider doing your team a favor and replace it with project management automation.

Automation means creating clear workflows for your team, with easy access to relevant documentation and project visibility. It also includes setting up a clear process for client communication and revisions.

A lot of companies use patched workflows of different tools for project management, time tracking, billing, accounting, etc. In our experience, this is one of the biggest causes of inefficiency and errors.

You’ll save billable time, money, productivity and data quality if you replace your scattered workflows with an all-in-one solution. The same apples for automation.

Consider the perks as outlined by one of Productive’s users:

In case your projects are about construction or architecture firm, you should read our list of architecture management software.

To conclude our billable hours guide, managing your billable and non-billable time is crucial across multiple facets of your professional service or agency business.

This includes optimizing how you track time in the first place, using tools with budgeting, invoicing and forecasting capabilities. Additionally, it means taking a look at your current processes and working on strategies to get the most out of your resources.

Our key takeaways from the guide would be: to make sure that you’re keeping an eye on your financial health by tracking your most valuable key metrics. Also, try to automate your most repetitive, administrative tasks to clear up time for more valuable non-billable work, as well as strategic billable tasks. Use automatic time trackers.

To achieve both of these, consider utilizing an all-in-one project management tool that provides support to all your day-to-day processes and the way your billable time gets tracked. If you’re interested in learning more, book a demo with Productive and start your 14-day free trial today.

The billable hours definition includes time spent on activities that directly progress client project status. In most professional services agencies, this includes all business-related tasks, as well as strategizing and implementation. Consultant management software can help streamline these tasks, improving efficiency and client service.

The billable hours meaning include hours that are paid for by the client for work on tasks that directly progress a project. Regular hours would include the full employee work day, which combines billable with non-billable work. Non-billable work includes activities that impact an company’s processes, rather than a client project.  

They are the primary means of generating revenue by charging clients for specific work done. Without tracking billable hours, companies would be unable to get fair compensation for project progress. It would also lead to a lack of transparency between the company and the client, resulting in deteriorating client relationships. Tracking billable hours also helps measure employee productivity and efficiency by supporting resource allocation and project planning.

Whether you are paid for non-billable hours will depend on your employee status and company policy. Salaried employees usually receive their wages depending on the total number of hours worked in a day, including both billable and non-billable work. However, for freelancers, contractors, or employees in certain industries, non-billable work might not be included in your salary.