What is the difference between billable and non-billable hours?
Billable hours are the hours spent working on client projects. Non-billable hours are any that are spent on administrative or overhead projects that are not directly related to client service.
For example, sending emails to clients would count as billable time. However, upgrading your email software wouldn’t count as directly servicing those accounts.
Calculating billable hours can help determine employee workloads and manage efficiency. If this process is new to you, here’s what you should know about billable vs. non-billable time.
Billable hours
The advantage of billing time to clients with set billing rates is that it gives your client a clear picture of how you spent your time and why it is worth their money. Tracking hours you’re billing also ensures you will be paid for any overtime hours worked.
Your client may ask that you to note what you’re billing for them. This provides further clarity for them, and while it can be more work for you, it is a way to demonstrate your process and progress to the client.
Here are some scenarios when you will need to use billable hours:
Sending invoices to a client
Preparing project estimates
Payroll for employees and freelancers
Budgeting future projects
Depending on your client agreements and internal policies, billable time may or may not need to be reported on a timesheet. Regardless, timesheets allow for simple billable hours tracking and ensure the accuracy of your billable hours estimate.
Non-billable hours are not a complete loss for your business. While clients may not pay for this time, it is still necessary.
Depending on your internal policies and agreements, getting up to refresh your coffee or chatting with your team during a Sprint meeting will not be billed to a client.
As an employee, don’t worry; your employer will still pay you for these hours. For freelancers or business owners, non-billable hours will help you increase your profits and benefit your business.
How many working hours should be billable?
Now that you know the difference between billable and non-billable hours, you’re probably wondering, how often should I be doing work that isn’t billable?
There isn’t a straightforward answer, but we all know no one can be working on client projects for 8 hours a day (you’ve got to get a lunch break in your day!).
But how productive should you be in terms of client work, especially when you’ve got to pay the bills? Your expected billing rate depends on the industry and your client’s expectations.
On average, that typically means billing around 30 hours out of 40 working hours a week. For some high-performing fields, that number may be even higher.
According to the Yale Law School Career Development Office, “to be profitable to your firm, [legal professionals] must make enough money from your billable hours not only to cover your salary and overhead but also to generate revenue for the firm.
The most direct way to track your productivity using billable hours is to determine your utilization rate. You can evaluate your billable hours' utilization rate with this formula.
Depending on requirements, you may also need to consider the opposite — the issue of billable rate overrun. The overrun rate means you have exceeded the allotted hours a client has allowed for a project.
You will get used to balancing your billable hours over time. By automating your hourly time tracking, you may be able to increase your utilization rate and spend less time focusing on tracking your billable hours.
Billable hours are "the hours for which clients are charged", while "some hours worked by the firms staff are not billable because the staff members are not involved in a consulting job for a client".
are the hours spent working on client projects. Non-billable hours are any that are spent on administrative or overhead projects that are not directly related to client service. For example, sending emails to clients would count as billable time.
The main difference is that billable hours are spent working on a client's project, while non-billable hours represent time spent on administrative tasks such as meetings, training, etc. But there are other factors to consider, like the billing rate, business impact, and priority.
Billable hours are the hours law firms charge their clients for, directly affecting their revenue. Conversely, actual hours encompass all work done by lawyers and staff, including non-billable tasks such as administrative duties and client relations.
The commonly-held estimate of billable time lies somewhere between 60-80 percent, which is known as the utilization rate. While that range may seem large (it is) and anything under 80 percent may sound low (it does), non-billables vary by industry, and many tasks deemed non-billables actually help companies grow.
Instead of thinking of non-billable hours as time you can't get paid for, you should think of it as an investment in your organization's future. You won't get paid directly for it, but the non-billable effort you put in now will help you increase profits and grow your business over time.
What is the difference between billable and non-billable hours? Billable hours are the hours spent working on client projects. Non-billable hours are any that are spent on administrative or overhead projects that are not directly related to client service.
In some firms, this can lead to unethical behavior. Attorneys may engage in work that is purposely duplicative or unnecessarily detailed just for the sake of consuming time. Hourly billing may also lead to stealing from clients by augmenting or even fabricating hours.
Calculating billable hours is straightforward: you take how much you've worked and multiply it by your hourly rate. But, the complications arise when you charge different fees to different clients, or when you have a diverse team doing differently paid work, and you need to factor in all those different rates.
The biggest claim of proponents of the billable hour model is that charging by the hour promotes productivity. If only the work you do for the client matters, then you're more incentivized to actually do that work, rather than some of the other things you might have on your plate.
Most law firms set a yearly billable hour target for their associates. This figure typically ranges between 1,700 and 2,300 hours, forming the average billable hour requirement.
3:1 is a standard billing rate to salary ratio in consulting and other professional services firms. This standard is also known as the "rule of thirds", as the billing rate includes one-third salary, one-third overhead and one-third profit.
Many organizations aim for utilization rates around 80% and will measure billable utilization against a 2,000 hour per year target when benchmarking themselves against the market.
They can save a lot of time during invoicing. They provide an ideal amount of time to prevent excessive rounding. At the same time, 6-minute increments are small enough to ensure accuracy and transparency when invoicing.
Some examples of non-billable work hours are things such as team meetings, staff development/training, or networking and attending conferences. These are items which would raise the eyebrows of any client when appearing in their invoice, as they are not specifically for that client.
Even though the non-billable expense is related to the work, it is not typically itemized to the client like the billable expenses would be. Therefore, the agency would pay for the subscription using its own funds or from a business account, where billable expenses would be directly reimbursed via the project invoice.
When working for a client, any tasks you complete on their behalf count toward your billable hours. These tasks will vary by industry or profession but may include: Attending project-related meetings. Completing and reviewing work for the client.
If you work 32 hours for customers in your 40-hour working week, and spend the rest of your hours on internal work, you will have a productivity rate of 80%. Your billability is the number of your productive hours that you can charge to your customer.
Introduction: My name is Nicola Considine CPA, I am a determined, witty, powerful, brainy, open, smiling, proud person who loves writing and wants to share my knowledge and understanding with you.
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Depending on requirements, you may also need to consider the opposite — the issue of billable rate overrun. The overrun rate means you have exceeded the allotted hours a client has allowed for a project.
