Billable vs Non-Billable: Balancing Employee Hours in Professional Services
Learning how to balance billable vs non-billable hours is the key to unlocking your agency’s growth.
Join us as we explore the best strategies to utilize your resources and manage your billable hours successfully.
Key Takeaways
- Billable hours have a direct impact in key business metrics, such as utilization, revenue, and profit margins.
- Non-billable hours, such as internal meetings and employee skill-building, are necessary for your agency’s continuous operations.
- Billable hours trackers can help you manage your billable hours more easily, by providing accurate monitoring, streamlined timesheet creation, transparent communications and real-time reporting.
- Strategies such as setting competitive hourly rates, effective project planning, regular communication, and automation initiatives can help increase billable hours without sacrificing quality.
Billable vs Non-Billable: What Is the Difference?
Billable hours are the time spent on tasks that can be directly billed to clients. Billable tasks contribute to the completion of projects and are typically associated with revenue generation for a professional service agency.
Non-billable hours don’t directly progress a project and aren’t billed to the client. Non-billable tasks ensure smooth agency operations, including employee skill-building, administration, and other crucial activities.
A balance between billable and non-billable hours is necessary for the sustainable functioning of your business. If you’re booking a lot of non-billable time, this can mean that your workflows are inefficient, but it can also mean that you’re putting resources back into your agency. Not doing the latter can be as detrimental as booking too few billable hours.
What Are Examples of Billable and Non-Billable Hours?
Billable and non-billable hours can differ depending on your specific industry and the type of client engagement — it can also vary from project to project with a single client.
For example, for consulting agencies, billable hours usually include research since in-depth client knowledge is key to delivering consulting services. Meanwhile, research and learning technology in software development might be considered non-billable work, as it’s more of an investment into the agency’s capabilities and would be part of the prospecting phase.
In general, billable work in professional agencies includes:
- Work that progresses client projects, including design, development, writing, analysis, etc
- Time spent in client meetings to address project progress and feedback
- Revisions and changes made to project deliverables based on client feedback
- Traveling that’s related to the client project or on-site work
While non-billable activities include:
- Internal meetings that are not connected to client project progress
- Attending workshops, courses, or any other form of professional development
- Activities related to acquiring new clients, such as networking events or proposal writing
- Time spent managing administrative tasks, such as creating timesheets
- Changes and revisions made on project deliverables due to avoidable errors.
Which Hours Are Billable and Non-Billable?
According to data, 92% of projects fail due to a lack of scope creep management, and scope creep is identified as the reason for 62% of budget overruns (IEEE). Distinguishing between billable and actual hours isn’t always a straightforward process — this is why it’s important to discuss these crucial business terms with the client beforehand.
To return to software development projects, consider how much post-project support is expected. If something requires additional design work, what’s considered part of the project’s scope, and what extra work needs to be billed accordingly?
Addressing these concerns can sometimes seem inconsequential, but it can save you hours and money down the line.
How Do I Track My Billable and Non-Billable Hours
To effectively track billable and non-billable hours, consider implementing a reliable billable hours tracker solution. Some of the advantages include:
- Accurate and efficient tracking of work hours
- Streamlined administrative tasks, such as timesheet creation and client invoicing
- Real-time client and business-related reporting
- Improved team collaboration and client transparency
One of the best billable hours management solutions currently available is Productive. Productive is an all-in-one agency management software designed by industry veterans for agencies of all shapes and sizes. Try out our free billable hours calculator and find out your billable hours, team utilization rate, and ideal billable hourly rate.
WITH PRODUCTIVE, YOU CAN BENEFIT FROM ADVANCED FINANCIAL MANAGEMENT AND FORECASTING
With Productive, you can benefit from a unified solution that supports your projects from start to finish — from tracking leads down the sales pipeline to setting up projects and tasks to time tracking, billing, and post-completion insights. Productive helps you cut down on the amount of tools you’re using and simplifies your daily workflows.
We really struggled to find a system that not only provided all the features we required but was also fast and user-friendly enough that our team could do what’s required without having to read a 30-page manual.
Read the full story: Using Productive, DotDev Has Grown 50% YoY For the Past Three Years
Balance Your Billable & Non-Billable Hours
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Tips for Better Billable Hours Tracking
If you’re just implementing tracking billable hours into your workflows, or you’re looking for a way to optimize your current process, here are some of our top strategies:
- Foster a healthy mindset: Time tracking isn’t always a team favorite. High billable hours targets can lead to employees falsifying their time entries, impacting the accuracy of your estimates. Not only that, but it more often than not leads to burnout and turnover. Therefore, approach hours management with a sustainable strategy to get team buy-in.
- Define best practices: Most tools will offer multiple options for managing employee hours. With Productive, for example, you can track your hours with the integrated timer, enter hours retroactively, or utilize resource scheduling to generate automatic time entries. To get uniform data, make sure to clarify and communicate best practices to your teams. One important thing is to ensure that detailed notes are provided for each entry.
- Leverage real-time reporting: One of the biggest advantages of using software for hours management is that you can benefit from comprehensive project reporting. With Productive, you can easily check your utilization and forecast future availability for informed decision-making. You can also create specific reporting dashboards and share them with relevant stakeholders or even schedule them to be sent to email.
Optimizing Profitability: Understanding Billable Utilization Rates
Your billable utilization, or the ratio between billable hours worked and total working hours available, is key to assessing your efficiency and productivity.
Though the average utilization rate varies depending on industry and agency roles, the industry standard is between 70 and 90% utilization for production staff. Higher rates might mean that you’re on track to burnout, while significantly lower rates might indicate a misuse of resources.
PRODUCTIVE FORECASTS YOUR UTILIZATION ACROSS VARIOUS KEY METRICS — PERSON, TEAM, SENIORITY, ETC.
The utilization rate also has an impact on project profitability. For example, assigning a senior employee to a task that might be executed by a junior or mid-level employee can drive up your costs. Additionally, unexpected changes to scope can also require significant resource reallocation, which equally impacts your budgets and profit margins.
Most of all, balanced billable utilization means that you’re getting the most out of your people — in order words, all team members have the exact amount of work they can complete, and no one is left sitting on the bench. Forecasting utilization can also help you assess if you can take on new projects, directly impacting revenue generation.
Forecasting Charts have assisted our organization significantly. The way you can see in a glance that your team is allocated (Scheduled), to how much of the budget you have remaining or to see whether the budget has been invoiced, is obviously extremely insightful.
How to Increase Billables Without Sacrificing Quality
Zeroing in too much on billable hours can negatively affect the quality of your project deliverables. By setting stringent deadlines on when tasks need to be completed, you’re increasing the chance for human error or sloppy execution. Thankfully, there are other ways to maintain your project quality, while still optimizing your employee time.
Here are four strategies that can help reduce non-billable hours without impacting your quality:
- Setting a fair hourly rate: Lowering your rate to get more clients can result in poor delivery, which can cause additional non-billable work for fixes and iterations, not to mention the impact it can have on your brand image. By setting a balanced rate that covers the overhead costs, you can make sure that you can dedicate your employees to quality and timely project delivery.
- Clear project planning: Make sure to define your project requirements and scope at the outset. It might not prevent scope creep, but it can help manage it. Additionally, implement measures for successful change management — for example, setting up your resourcing with Productive lets you easily view how changes to allocation impact budget burn and profit.
- Regular communication: According to a McKinsey report, employees spent up to 9 hours per week searching for information. Setting up clear lines of communication can help you minimize this time and resolve misunderstandings before they occur. For example, consider handling all task updates via task comment sections on your project management platform, so that all information is gathered in one place.
- Automating processes: The best way to clear up more time for billable time is to automate repetitive tasks. According to a survey by Salesforce, most IT and engineering leaders believe that automation helps their workforce save at least 11-30% of their time. Consider tools such as Productive, which offers task automation, client invoicing, and extensive reporting, to help you get the most out of your resources.
Takeaway: Non-Billable vs Billable Hours
Managing your billable hours and non-billable hours is essential for your agency’s success. It helps you keep a handle on your resources and ensure that you’re delivering quality services at a fair cost.
However, a balance between billable and non-billable hours is equally important. Both are key for effective long-term business operations. Some main strategies for ensuring quality while maintaining efficiency are effective project planning and regular communication with stakeholders.
Our final tip to optimize your billable hours is to invest in a time tracking solution — these types of tools can help ensure your data accuracy, as well as streamline other crucial administrative tasks. You’ll be one step closer to operational excellence by following these practices.
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