The difference between billable and non-billable work

billable and non-billable work with resource management tool

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Surprisingly, many companies, consultants and freelancers operate on the basis of a specified hourly rate. This simply means that you negotiate a rate, record the work hours dedicated to a project and then present the invoice to the customer. Sounds simple enough, doesn’t it? In reality, the effective application of such an approach to maximize revenue often proves more complex and tricky than that.

Even for the hardest workers, some billable hours dedicated to a project don’t make it onto the bill. Sadly, on average, only 2.8 hours tracker of the total working day are actually devoted to productive activities, meaning that most of the hours are non-billable activities. The bulk of the remaining time is swallowed up by so-called “non-billable” administrative tasks, which are sometimes unavoidable, they may even be vital to your company’s profitability, but you simply can’t re-invoice them to your customers.

It is therefore essential to make a clear distinction between billable and non-billable work. And for good reason: non-billable time is lost time for the company, which sees no revenue for this time and is unable to cover its costs.

Let’s explore this question together in this article: billable hours vs non-billable hours.

What is billable work?

The concept of billable work encompasses, straightforwardly, all the assignments and tasks expressly related to your customer’s project. This term evokes the various service elements that will appear explicitly on the invoice you plan to send your customer. In other words, when we talk about billable work, we’re talking purely and simply about the actual remunerative responsibilities of any project. In most cases, this is work expressly stipulated in your contract with your customer.

Sometimes referred to as billable hours, billable tasks or billable work, hours per project, these designations all point to the notion of a task billable to a customer. For service companies such as consulting agencies, law firms, accounting firms or others, billable work is one of their primary sources of revenue. As a result, it’s usually the main measure of employee performance. Billable hours are the hours you’re suppose to get paid by your customer.

To avoid any misunderstandings, it’s always a good idea to clearly specify example of billable and example of non-billable before committing to a project. Typical billable tasks include those listed below:

  • Project planning
  • Research
  • Project execution
  • Direct interactions with customers, such as appointments and consultations, employee time
  • Customer-requested alterations

It is also worth mentioning that billable work is usually subdivided into three sections:

  • Time-based billing (billed hours)
  • Value-based invoicing (fixed price)
  • Project billing

Time-based invoicing is undoubtedly the most widespread form of billable work. An employee records his or her time, then invoices the customer based on an billable hourly rate. In this case, time-tracking and number of billable hours are important and a time tracking software seems to be a great tool to increase billable hours.

However, not all billable work falls into the category of time-based invoicing. For example, if you’re collaborating with a customer on the design of a new website, you have the option of proposing a fixed price for your services. This means that you don’t count each hour of service, but simply apply a single rate at the end of the project.

Understanding the concept of non-billable work

Non-billable work refers to all actions performed by an employee which, although they may be related to a specific project, are not likely to be billed to the customer. This includes, but is not limited to, public holidays, vacation, ongoing professional training, illness, time spent on personal tasks and any other time not specifically categorized. Non-billable hours don’t have the purpose to brings money to you. For example, if you spend three hours checking your e-mail inbox before starting a billable task for a brand-new customer, these three hours will be counted as time spent on non-billable work. You may reduce or track non-billable hours if you can and track number of hours per week are considered billable and those who are non-billable.

In fact, “non-billable hours” represent all those moments devoted to the various tasks you may perform during your working time, from routine administrative tasks such as sending emails, to commercial activities, to any form of training and not actual hours spent on a billable project. In other words, if your work isn’t directly billed to a customer, or if you don’t interact directly with them, it’s highly likely that these moments will be considered as non-billable hours. You may always have non-billable hours is essential on a day, because you’re responding to an e-mail, but the clue is to keeping track of your non-billable hours. Non-billable hours can costs you multiples hours per year amoung total number of available hours but there are still essential so you must find right balance between billable and non-billable hours or reduce non-billable hours.

While non-billable work may seem undesirable because it is not explicitly requested by a customer, it is nonetheless essential to the smooth running of the company. To illustrate, the employee professional development process will have a significant impact on the quality of overall performance, but can rarely be attributed to a particular customer project. Similarly, social events, essential to maintaining team morale, cannot be billed directly to customers. It’s more about taking some non billable hours without sacrificing quality.

It’s true that these billable and non-billable activities, which do not fall within the scope of billable work and therefore constitute non-billable work, nevertheless require you to compensate your employees for the time and energy they have invested in them. Here are a few illustrations of what non-billable work actually means:

  • Create business proposals and pass them on to potential customers
  • Presenting new projects to customers
  • Include consultations and team meetings prior to concluding a contract
  • Rectifying errors
  • Billing management
  • Internal meetings and team communications
  • Efforts devoted to internal marketing activities
  • Ongoing professional training for the team
  • Various unbilled administrative tasks

Although the tasks listed above seem essential to the smooth running and development of your business, it’s essential to keep a close eye on the hours available devoted to these non-billable functions. They often tend to get in the way of your organization’s and your company’s profits but it’s very important to understand billable vs non-billable hours.

Capture the nuances of billed and unbilled tasks

The debate between billable vs non-billable work can vary according to the scope and specificity of the project. However, a crucial first step is to define, in consultation with your customer, which work will be invoiced and which will not fall into this category. Define how billable utilization is crucial and always good for client’s project management.

Communication is key, isn’t it? It’s essential to convey these essential details to every member of your team. Make sure they’re clear about the billable and non-billable aspects of the work they do. Many non-billable hours amoung total working hours are lost every week, so you can imagine per year…

Then there’s the thorny question of time management on a project: how do you determine how many hours to bill your customer for? Rigorous time management makes it easy to distinguish between billable and non-billable hours helps you.

Traditionally, companies have relied on old-fashioned spreadsheets to record and track working hours. Unfortunately, this method turns out to be rather inefficient and time-consuming. It forces employees to enter working time manually, which increases the volume of non-billable hours and risks producing less accurate data.

The solution? Opt for time-tracking software. Encourage your team to use it for even the most minor project tasks, such as answering customer phone calls or e-mails. At project close, simply add up the total billable hours.

Accurate tracking of billable time allows you to measure your utilization rate, which corresponds to billable hours divided by total available time, a valuable measure for evaluating your revenue-generating performance and also benchmarking yourself against your peers within your industry.

The crucial need to track non-productive hours

In a working world where every minute of our time comes at a price, keeping track of non-work time is not only essential, it’s decisive. You may have noticed how billable and non-billable time is important.  By keeping a keen eye on the hours you spend on billed and unbilled tasks, a clearer picture of your financial and productivity performance begins to take shape. If the non-billable component of your hours is becoming outrageously large, it’s time to review your projects and processes to improve time utilization in the future.

It’s vital to keep an eye on both paid and unpaid hours to get the full picture. By analyzing the time spent that is not directly attributed to your customers’ projects, you can take stock of the true costs associated with the various tasks, and decide whether these projects are really as profitable as they appear. You need to calculate billable hours per project, tracking billable hours worked by using time tracking software or a time tracker. Time your employees is important and hours as well.

In addition, monitoring billable or non-billable hours also gives insight into the individual efficiency of each team member. If an employee seems to be spending too much time on unpaid tasks, it might be wise to intervene with corrective measures to help improve that person’s efficiency.

The last but not least benefit of tracking non-working hours lies in its contribution to planning future projects. You’ll get a clear picture of the time needed to complete a project, and the total cost involved. Ignoring unpaid hours is risky, and can lead you to set unreasonable deadlines or rates too low to cover your costs.

Strategies for minimizing unpaid time at work and increasing profitability

An excess of unpaid hours is a real blight on your business. In fact, in many fields, unpaid hours far exceed paid hours. Let’s illustrate this with the example of law firms, where legal professionals often spend more time on unbilled tasks than on those they can bill. This is a tenable situation for the law firm because of the high hourly rates they charge. For most other industries, however, it’s not so easy. They have to find a balance between unpaid time and time that generates profits.

But there are steps you can take to reduce non-billable time.

Track their billable and non-billable hours isn’t enough

Avoid distractions as much as possible for a productive use of time. While taking regular breaks is crucial as it can boost overall productivity, properly tracking each employee’s working time can ensure that neither you nor your team fall behind on tasks unnecessarily. You must track both billable and non-billable hours.

Reduce non-billable hours by automating administrative tasks

One way to reduce your total hours dedicated to administrative tasks is to use automation strategies. Analyze non-billable hours and identify time-consuming projects. Adopt software that’s easy to use.

For example, the invoicing process can often take up a lot of non-billable time. By automating your invoicing process, you can speed up your work and save time, allowing your team to devote more hours to profitable tasks!

Tracking the hours and find ideal billable time

Make sure that you and your team members account for every minute spent on a project. This may take many billable hours to at first, but it will become easier over time, once you get the hang of it. And remember, by increasing your billable hours, you’ll be improving your organization’s financial performance. Spent on billable hours is crucial for your project.

Crucial foundations

The performance of your financial project is intimately linked to the fraction of hours you manage to translate into invoices. Nonetheless, it’s vital to focus some of your attention on your non-billable tasks, since they play such an important role in balancing your business, despite the lack of direct income they generate. It’s therefore imperative to have a clear vision of non-billable expenses before a project is launched. So don’t forget to include both billable and non-billable hours in your budget planning.

Optimize the management of your billable and non-billable hours as much as the tracking of your project progress by adopting Teambook, a resource management tool.

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