“Your time isn’t money; it’s worth more than money.”
This quote is more important than ever right now, where there is virtually no cap on the money you can earn with the right set of skills.
But here’s the truth no one talks about: increasing billable hours isn’t about cramming your day with more work, it’s about transforming how you work.
In this article, you will learn about billable hours, their importance, how to track them, and tips to increase your billable time.
What are billable hours?
Billable hours or billable time is the time that you spend on client work and will charge the client for. It is an important aspect of any client-service relationship. These hours are charged to the client for all the work you do that directly relates to their project.
Learning how much time your firm spends on billable hours helps you understand team productivity and profitability. Billable hours are typically tracked across professional servicing industries like PR, consulting, law, digital marketing, and architecture.
Difference between billable and non-billable hours
Billable hours is the time spent directly working on tasks or projects for clients that can be charged to them. This includes tasks such as designing, coding, preparing for a trial, keeping accounts, or consulting.
Non-billable hours, on the other hand, are spent on internal activities like administrative work, team meetings, training, or marketing efforts that support the business but cannot be directly billed to a client.
While billable hours generate revenue, managing non-billable time effectively supports overall operational efficiency of a company and promotes business growth.
Importance of tracking billable time
All your projects are tied to your clients’ requirements when you work in a professional service industry. This means your client will make a payment based on the time and effort you spend on their project.
Let’s look at an example to understand why billable hours tracking is important:
You are a marketing company, and you’ve got a huge project to write a copy for your client’s website. The approximate time it’s going to take you to research, draft, review, and publish is 90 hours.
For this, you have an hourly rate set with your clients and have signed an agreement. Now by the end of the project, you end up taking 102 hours to complete the work. Tracking those billable hours will help you provide proof of work to the client for where your time went, how you executed the work, and why it took additional time.
This helps in building client trust, provides transparency, and helps you accurately bill your client.
Besides this, the other benefits of tracking billable hours are:
- It helps you understand what types of projects bring more revenue to the firm and what is the effort to return ratio
- You can assess your team’s workload to see who is overworked, who needs to increase billable time, and who are the top performers
- Tracking billable time will help you understand the amount of time and resources a project takes, and if it justifies the cost to your company
How to track billable hours?
As we discussed above, accurately calculating billable hours is important, especially in agencies where time = money.
Here’s how you can track your billable hours accurately.
Set up your billable rate
The very first thing you need to do is to decide how much you will charge the client per hour for the project. To do this, start by adding up all your costs, including direct expenses (tools, software, materials), indirect expenses (rent, utilities), and your team’s salary.
Then, decide on a profit margin to account for unforeseen costs (like one-time freelancers, redoing a task due to employee error etc.) This will give you your annual cost.
After that, consider your teams’ availability and subtract the time spent on non-client work from this. Divide your total costs by the total hours to determine how much you should charge per hour.
Example:
Your total costs are:
- Direct expenses: $8,000/year (tools, software, materials)
- Indirect expenses: $10,000/year (rent, utilities, insurance)
- Team salary: $60,000/year
- Total cost = $78,000/year
Profit Margin:
- Desired profit margin: 25% of $78,000 = $19,500
- Annual cost with profit = $97,500
Calculate Billable Hours:
- Team works 2,000 hours/year but spends 750 hours on admin and other non-client tasks
- Billable hours = 2,000 – 750 = 1,250 hours
Determine Billable Rate:
- Billable rate = $97,500 ÷ 1,250 = $78/hour
Track the billable hours
There are multiple ways out there to track your hours including filling entries manually or using a time tracking tool. Many businesses also often use a simple Excel sheet to track how much time their employees spend on tasks.
But when working on client projects, accuracy and transparency should be your top priority. This is where a tool like 5day.io can help you.
In 5day.io, you can categorize your tasks into billable and non-billable work. Use the auto-timer to track time to-the-minute, so no effort is missed.
Additionally, you can onboard your clients to oversee the projects’ progress and give them the right to approve timesheets directly with custom roles and permissions.
Here’s how it looks in action:
Once you are done with the task and have the total time logged in, you can submit the timesheet for approval, where your client can directly approve it.
Create a client invoice
After tracking the hours, now it is time to create a client invoice. To know the total billable work and project billing, multiply the total time with per hour rate.
Here are some best practices to create a professional invoice:
- Include all necessary details: invoice number, date, due date, client name, and your contact details. Use a clean layout that is easy to read.
- List each service or product provided with a description, quantity, unit price, and total amount. This builds transparency and avoids disputes.
- Bold the total amount due and clearly state payment terms, methods (e.g., bank transfer, PayPal), and late fee policies.
- Add your business logo and use consistent fonts and colors to make your invoice look polished and reflective of your brand.
- Send invoices immediately after project completion using reliable invoicing software to streamline payment tracking and reminders.
How to increase your billable hours?
Increasing billable hours is important to boost the revenue generation of your business and increase profitability. Let’s look at two simple ways you can increase billable time in your projects:
1. Automate repetitive, non-billable work
Employees spend a lot of time on repetitive work like creating meetings, sending documents, and filling out timesheets. Automating tasks like these with workflows, and auto timers helps save time to focus on more strategic and billable work.
2. Distinguish high value tasks
Create a system to bifurcate high value tasks for low value tasks. This means focusing on the effort-value metric and avoiding high effort and low value tasks at all costs.
One way to gauge which tasks are high value is:
- Assessing their Direct Impact on Revenue: Tasks that clients are paying for or lead to additional income.
- Choosing Client-Centric Work: Deliverables or services that contribute to client success and retention.
- Strengthening your Strategic Value: Activities aligned with business growth, such as networking, proposal writing, or developing scalable processes.
Why choose 5day.io as your time tracking tool?
5day.io combines time-tracking for accurate time management with project management. Which means, you can track time for your tasks based on billable and non-billable categorization.
Its user-friendly interface, customizable reports, and focus on billable tasks help you optimize every hour you work. Whether you’re an individual freelancer or part of a team, 5day.io can be the right fit for you to track, analyze, and monetize your time with precision.
Want to see it in action? Claim your completely free 3-month trial now.
