Billable Hours vs Actual Hours: Strategies for Balancing Billable Hours

Do you have a complete understanding of your agency’s billable hours vs actual hours?

Research shows that very few agency professionals track key metrics for gauging business health: 43% know their forecasted revenue, 33% track their project gross margin, and only 17% manage their project budget burn rate (SoDa & Productive).

Despite this, tracking your agency’s KPIs is key to supporting sustainability and growth. This article will explore how you can get the most out of your billable hours and utilize your data to make informed business decisions.

Key Takeaways

Tracking and managing billable and non-billable hours is crucial for professional service agencies, such as consulting, creative, or software development companies.

Tracking your billable and actual hours can tell you a lot about your agency’s performance, profitability, and operational efficiency.

A higher billable-to-actual hours ratio can indicate greater revenue generation, as it means that you can fit in more client work and take on more projects. Additionally, many hours spent on non-billable work can point to inefficiencies in your workflows, such as excessive time spent on administrative tasks. However, a balance between the two is necessary for managing employee workload and preventing burnout.

Traditionally, billable and non-billable hours are tracked in spreadsheets. Employees enter the start and end dates of their tasks into a billable hours chart, and their totals are calculated with formulas and used during the billing cycle.

Nowadays, a more effective method is using a billable hours tracker, which automates this process for you.

Productive, the all-in-one agency management tool, is an example of such a solution. It provides the following billable hours management features:

When it comes to the utilization rate, industry standards suggest a range between 70 to 90% utilization for production-level staff and 60-80% for account management (Promethean Research). In reality, this percentage averages at about 65% agency-wide utilization, with rates ranging from 33% for director roles, 63% for senior roles, and 75% for junior roles, according to a benchmark from The Wow Company.

Another interesting statistic from the same survey is that agencies that use spreadsheets to manage their projects have an average utilization rate of 66%. This rate can go up to 75% once a software solution is implemented.

Here are some key strategies for maintaining or improving your agency utilization rate:

To increase billable hours, consider implementing strategies for effective time management to maximize the work you’ve currently taken on. Then, make sure to identify and leverage opportunities for billable work.

One of the most important things about efficient time management is good prioritization. This is especially key for larger agencies managing multiple projects at once. For project managers to be able to identify key tasks, it’s important to maintain a project space that provides full visibility into current project progress and resource allocation.

This also lets employees monitor their progress, enhancing personal accountability, which can directly impact the quality and efficiency of project deliverables. Additionally, with Productive, you can invite clients onto project boards at no extra charge. They can create and comment on tasks, which helps streamline the feedback process and keeps all project stakeholders updated.

When it comes to finding new opportunities, consider forecasting your utilization rate across specific periods of time. If you’re offering multiple separate services, you can gauge which departments will be underutilized, and prospect specific service buyers. Another important thing is to maintain good relationships with current clients — this can help you land future projects or retainers.

Learn more about utilization and forecasting in crisis times:

Determining which activities are billable and what is part of non-billable time needs to be clearly defined during the project initiation process.

Don’t make the mistake of thinking that something is obvious without discussing it first. Taking into example agencies that provide software solutions, a frequent stumbling block is the maintenance phase. Clients might have different (and often unrealistic) expectations of what maintenance and support include — for example, they might request new features that take up unexpected resources to address.

Ultimately, overservicing clients can be just as detrimental as doing less than expected. It can significantly impact your profitability and set unrealistic future expectations. It can also cause dissatisfaction among your team, negatively impacting their other work.

This is why it’s important to:

To set fair and sustainable hourly rates, it’s first essential to understand your agency’s processes, including expected performance, capabilities, and the value provided to the client.

To achieve this, having historical data on similar projects is crucial:

Read the full story: Rietta Leads Its Distributed Team With Productive

By comparing estimated project performance with actuals, you can make more accurate assumptions and set reliable contract terms with the client. Having these types of insights also increases transparency in the client-agency relationship.

Remember that your cost rates need to be high enough to cover the costs of running your agency, i.e., your overhead. Reference industry benchmarks, be clear about your billing practices, present detailed estimates based on previous project data, and emphasize the value of your services and the expertise you bring to the project.

When it comes to the hourly price model, advantages include:

Some notable cons of the billable hours model:

According to a survey by Databox, 75% of agencies use the fixed price model as their primary pricing model, with only around 17% using primarily hourly pricing. No matter how you’re billing your clients, consider tracking your hours. It can help you get a deeper understanding of your agency’s operations, as well as improve your client relationships by delivering transparent project progress data.

Managing your billable and non-billable time is key to driving your agency’s profitability.
Keeping a close track of how your resources are utilized helps you drive productivity and efficiency, leading to optimized project delivery and improved client relationships.

However, maintaining a balance between client and agency work is equally important; this prevents employee burnout and drives operational improvement.

Billable hours are the time spent on tasks you can charge clients for, while actual hours include all the work done, billable or not.

A 100% billable rate implies that every hour an employee has worked is chargeable to the client, with no non-billable activities included.

Billable hours refer to time spent on client work, while utilization is the percentage of billable hours divided by all available actual hours.

The disadvantages of focusing too much on billable hours are: employee burnout, undervaluing non-billable tasks, and creating pressure to inflate hours to deliver value to the client.

Non-billable hours refer to time spent on activities that cannot be directly charged to clients, such as administrative tasks, internal meetings, and employee training.

To increase billable hours, prioritize project tasks, improve time management, and automate administrative duties by investing in reliable billable hours management software.

An example of a billable hour could be time spent drafting a document for a client, conducting specific client-requested research, or any direct client work.