How to achieve the perfect balance between billable and non-billable hours

In contrast, non-billable hours are spent on vital internal activities such as bookkeeping, marketing, and business development. These tasks, while essential for the business's overall success, do not directly generate income.

Understanding how to reduce non-billable hours and why tracking them is important can greatly improve business efficiency. Furthermore, knowing the average number of billable hours in your industry helps set realistic benchmarks. Using tools like Thriday can streamline invoicing and billing, allowing businesses to focus more on growth and client satisfaction.

What are billable and non-billable hours?

Billable hours are the amount of time spent working on tasks that relate directly to a client's project. These hours are included in an invoice, which is a formal document that serves as an agreement between the provider and the client. Billable work typically includes:

• Project planning
• Client communication and meetings
• Research
• Revisions and edits

On the other hand, non-billable hours are also crucial for business operations, even though they do not directly contribute to client work. Think of non-billable work as the foundation that supports billable tasks. These activities ensure that a business runs smoothly and includes tasks like:

• Internal marketing
• Recruiting
• Invoicing
• Employee training
• Additional or unexpected changes during a project
• Development

Several industries rely on tracking both billable and non-billable hours to manage their finances and client charges effectively. These industries include accounting firms, law practices, advertising agencies, freelancers, web developers, and public relations firms. Proper tracking ensures that the majority of working hours are billable, thus covering the costs incurred from non-billable hours.

For example, let’s consider two accounting firms:

• AB Accounting has five employees and logs that 30% of their working hours are non-billable.
• CD Accounting also has five employees but records only 15% of their working hours as non-billable.

Despite both firms having an equal number of employees, CD Accounting is more profitable because it has fewer non-billable hours, illustrating the importance of maximising billable hours.

To effectively manage working hours, it's beneficial to maintain a balance where billable hours exceed non-billable hours. This balance fosters profitability and operational efficiency.

How to decrease non-billable hours

Create an end-of-day task list

Running a business often means dealing with urgent problems that need immediate attention. Employees may need approvals or help solving issues, which can lead to many non-billable hours due to back-and-forth emails or phone calls. One way to manage this is to have employees compile a list of updates at the end of each day.

This list should include all pending requests, updates, and any necessary data for ongoing projects. By doing this, the business owner can plan for the next day more efficiently. Employees will have all the necessary information to continue their work, leading to more billable hours and fewer interruptions. This approach also helps in managing internal meetings, ensuring they are focused and productive.

Automate repetitive tasks

Administrative tasks and other repetitive non-billable work can take up a lot of time. Automating these tasks can be an effective solution. By implementing automation, teams can focus more on project-related tasks that are billable. Here are some advantages of automation:

• Increased efficiency: Automation allows employees to concentrate on core tasks rather than getting bogged down with non-billable activities.
• Improved accuracy: Automation minimises human errors, especially in tasks like invoicing and reporting.
• Time management: Software tools can take care of scheduling and tracking time, freeing up employees to work on more critical tasks.

Automation can broadly cover areas like internal meetings, project management, and administrative tasks, ultimately enhancing overall employee productivity. For instance, employees can use project management software to streamline their daily tasks and make real-time updates, reducing the need for constant revisions and edits.

Practical tips for automation

Task management software: Utilise tools that can schedule, track, and manage tasks.

Automated Invoicing: Generate and send invoices automatically to clients, which includes detailed information about billable hours and tasks.

Email Automation: Set up automated email responses to handle routine queries and updates.

These strategies not only make processes more efficient but also help reduce the hours spent on non-billable tasks. By automating routine tasks, employees can focus more on productive, billable work. This shift can lead to improvements in both time management and overall work quality, benefiting the entire business.

Why you should track non-billable hours

To understand which clients and projects require more non-billable hours

Tracking non-billable hours helps identify which clients or projects are consuming more of these hours. This insight allows you to evaluate the profitability of your projects. For example, if certain clients demand frequent updates or changes, this may lead to increased non-billable hours. By comparing the time spent on different projects, you can determine which clients cost more due to the extra non-billable hours. This helps in managing resources more efficiently and maintaining a balance between billable and non-billable hours.

To find ways to make non-billable hours more valuable

Non-billable hours can still provide value to your business and employees. One effective way is through regular meetings to discuss the company’s branding strategy and performance. These meetings can be used to plan future moves, address potential problems, and exchange ideas for better results. 

Another important aspect is employee development. Allowing employees to spend some time each week gaining new skills and extending their knowledge is crucial for their professional growth. Tracking non-billable hours helps in allocating the right amount of time for these activities, making them beneficial for both the company and the employees.

To gain insights into employee availability and productivity

Monitoring non-billable hours can reveal a lot about employee availability and productivity. By comparing the ratio of billable to non-billable hours, you can assess an employee’s efficiency. If an employee has too many non-billable hours, it could be due to client requests or other factors. This information helps in identifying who is available for additional projects and who might be overloaded. It also aids in evaluating individual productivity, making it easier to plan future projects based on the employees’ performance and availability.

To improve project planning and forecasting

Effective project planning requires an understanding of both billable and non-billable hours. By evaluating non-billable hours on a macro and micro level, you can make more accurate project estimates. For instance, excessive internal meetings can lead to more non-billable hours, while training and education periods should be limited to ensure more focus on project activities. 

Reducing unnecessary non-billable hours allows employees to concentrate better on project tasks. This leads to more accurate project plans and better client communication, helping to set clear expectations and build trust. Proper tracking and analysis of non-billable hours ensure that projects are planned more effectively, resources are allocated efficiently, and budgets are met.

By focusing on these key aspects, businesses can use non-billable hours strategically to enhance productivity, improve project planning, and foster employee development. Tracking both billable and non-billable hours provides a clearer picture of how time is spent, enabling better decisions and fostering a more efficient and balanced work environment.

How many billable hours is average?

The utilisation rate for consultants

In the consulting field, a consultant's average billable hours can vary significantly. The utilisation rate is crucial for understanding this. To calculate this, divide the total billable hours by the total hours available and multiply by 100.

For instance, if a consultant bills 60 hours in a week and the workweek is 40 hours, the calculation would be:

• 60 ÷ 40 = 1.5
• 1.5 × 100 = 150%

This means the consultant has a utilisation rate of 150% for that week.

Now, looking at a full year, let’s say a consultant logs 2,500 billable hours out of a possible 2,000 working hours:

• 2,500 ÷ 2,000 = 1.25
• 1.25 × 100 = 125%

So, the yearly utilisation rate is 125%. In consulting, a rate of 150% or more signifies top performance. However, junior staff often handle non-billable administrative tasks, leading to lower utilisation rates and potentially undervaluing their contributions.

The utilisation rate for law firms and legal professionals

For legal professionals, achieving a 100% utilisation rate is ideal. For example, if a lawyer logs 2,340 billable hours in a year out of a total of 3,120 available hours, the calculation is:

• 2,340 ÷ 3,120 = 0.75
• 0.75 × 100 = 75%

This gives a utilisation rate of 75%.

Another important metric is the realisation rate, which measures the proportion of hours billed that are actually paid. If a lawyer bills 2,340 hours but only paid for 1,755, the realisation rate is:

• 1,755 ÷ 2,340 = 0.75
• 0.75 × 100 = 75%

Regular tracking of both the utilisation and realisation rates is vital. Administrators should generate monthly reports to compare billed hours and collected fees, identifying any potential issues such as pricing errors or duplicate work.

Use Thriday to invoice and bill your clients faster

One common question we get here in Thriday: is there any way to spend less time on financial admin tasks, more time on growth?

Yes, there is. Running a business is challenging enough without the added burden of complex accounting, taxes, and invoicing.

Thriday simplifies your life. Its instant invoicing feature helps you create polished, custom-branded invoices in minutes with Thriday's intuitive templates. Add your logo, choose your colors, and send invoices directly via SMS or email for faster payments.

Say goodbye to chasing payments! Thriday's automated reminders and optional late fees encourage timely settlements, improving your cash flow.

This invoicing software not only facilitates accurate billing but also improves budgeting and increases client trust. Furthermore, it helps in reducing non-billable hours, freeing up time for more revenue-generating activities. Efficient work time tracking through Thriday enables businesses to avoid overruns and maintain profitability.

Frequently asked questions

How do billable hours differ from non-billable hours?

Billable hours are the hours an employee spends working directly on tasks for a client. These hours are charged to the client. Non-billable hours, on the other hand, refer to time spent on tasks that do not directly generate revenue. Examples include training, administrative work, and internal meetings.

Are non-billable hours compensated for employees?

Non-billable hours are typically not charged to the client, but employees are often still paid for this time. Companies recognise that non-billable work, such as team meetings and skill development, is essential for overall productivity.

How are billable hours tracked and recorded?

Billable hours are usually tracked using timesheets, project management software, or specialised time tracking tools. Employees log the time spent on each client-related task. These records are then reviewed and billed accordingly.

What tasks are usually counted as non-billable?

Non-billable activities include a variety of tasks. Common examples include trainings, internal meetings, administrative duties, and any other work that does not directly contribute to client projects. Marketing efforts and company events also fall under this category.

Do non-billable hours influence performance reviews?

Non-billable hours can impact performance evaluations. While they do not generate revenue, they are often considered in reviews to assess an employee’s contribution to the company, commitment to professional development, and involvement in internal activities.

How do billable and non-billable costs differ?

Billable costs are expenses that can be directly attributed to client work and are passed on to the client. These include materials used, travel expenses, and specialised services. Non-billable costs are those incurred for internal purposes, like software subscriptions, office supplies, and team-building activities.

‍