What are billable hours and whats the best way to track them?

But eliminating an hour an employee could spend developing their skills or that you could spend developing your brand will hurt your company in the long run. Although you only charge them for billable tasks, spending time on non-billable activities is actually how you provide value to your clients. To help illustrate how important tracking all your hours is, we reached out to industry experts for their advice. Below are nine ways you can increase your profit margins when you track billable and non-billable time. Ultimately, tracking all your employees’ time helps you see the full picture of how time is spent within your organization. Without knowing where all of your team’s time goes, you miss out on critical data that can help you make improvements and changes to your processes.

Tracking and automating billable hours also enhances project profit because billing clients would be more accurate. But the good news is that it’s possible to automate some of those tasks that consume your time. To capture the hours spent on a project, you’d better use time tracking software to make the process easier and more convenient. Time tracking software or tools help register time where it actually belongs while saving time. It makes it easier to know how many billable and non-billable hours are invested in a project. You may even realize you need to hire an extra employee, a virtual assistant, or turn to specific software to automate some of these non-billable tasks.

What Are Billable and Non-Billable Hours?

You’ll also be able to identify which clients or projects use more of your time than others and adjust your rates accordingly. Non-billable hours (sometimes called “overheads”) refer to any work done that doesn’t get invoiced to clients. Businesses have to have non-billable hours to ensure their internal processes run smoothly, and they can have a positive effect on company culture if they are managed correctly. Billable hours are the total amount of time you spend working on a particular project. These hours are charged to a client according to an agreed hourly rate.

And for employees, it means they can focus on tasks at which they’re either highly skilled or very efficient. It’s one thing to track and out-of-state delivery sales understand billable and non-billable time. It’s another to know how much billable time each employee on your team should be working.

You’ll Be Able To Maximize Each Employee’s Contributions

A billable hours model will help you benchmark employees’ performance, cut down on non-billable hours, and help forecast your team’s capacity and revenue. Billable hours for a particular client or project may also be pooled. That can enable more effective use of human resources and less expense to the client. For example, a project manager might have a rate of $1,000 a day but employees assigned lower rates may do much of the work for a given project. The client may be charged a combined rate based on the billable hours of all employees involved in the project.

• While acquiring more clients is important, keeping track of how many hours you spend working on each project is equally important.
• A professional services firm could have multiple arrangements running with a particular client at any time.
• It will ensure faster management of projects by your team and drastically reduce the time spent on non-billable work.

Billing based on time is more efficient for lawyers, and therefore, most lawyers in the industry practice this method of charging clients. Even though you might only be directly paid for your billable time, it’s essential to track all working hours. Tracking billable and non-billable hours will help you clarify how your time is spent throughout the work week so that you can identify where improvements can be made. Without knowing how every hour is being used, you can easily overlook where time is being wasted and how to optimize some of your business processes. Luckily, there are many tips and tools to make tracking your billable and non-billable hours easy so you can spend more of your time on the critical parts of your job.

How can you calculate billable hours per employee?

You shouldn’t think of non-billable time as time that wasn’t valuable. In fact, time spent on non-billable activities is probably the most valuable to your company in the long run. But you won’t know the value of your non-billable hours if you don’t track them at all. As your utilization rates go up — and your total billable hours increase — there should be a corresponding increase in profitability. Maintaining a template to track your billable hours accurately is also a useful idea. In other words, it gets wasted and that means hours or days of productivity lost.

Billable hours are the amounts of an employee’s work time that can be charged to a client. Employers charge clients at sometimes varying rates for different employees. More benefits that come with tracking all the billable hours include time management, reinventing your practices for resource management, discovering internal trends, and forecasting demand. Automated tracking of non-billable hours also streamlines billing and invoicing. It also improves employees’ morale, saves time, and makes the clients happy.

Best practices for billable hours

If you run a team, tracking your non-billable hours will help you figure out where your team members are the most productive. For example, let’s say client X has asked for a multitude of changes to a project where you spent 15 extra non-billable hours for the month. Tracking your non-billable hours may seem counter-productive, but it’s essential to running an effective business.

• She works on billable projects 150 hours a month and is paid $ 25 per hour.
• Automating your invoices will let your clients see all the details on billable work without you having to create them manually.
• On your accounting software, you only need to select the project and create a new invoice from within the project.
• When you don’t understand your employees’ full workloads, you run the risk of employing very dissatisfied people who do subpar work, frustrating your clients and, ultimately, losing business.

Once you type ‘in’, the software will begin to track your time for that specific project. They include performing administrative work, writing reports, and creating invoices. For example, for a time-sensitive project, you can delegate the tasks to the most productive team members.