In professional services, some of the most fundamental discussions revolve around hourly rates, monthly retainers, and project-based fees. Successfully satisfying client needs winds up involving as much conversation around the cost as it does the actual work requested – and as a result, contractual terms must be carefully and meticulously agreed upon before getting started. This makes it especially important to clarify exactly what activities constitute billable vs. non-billable hours.
Easier said than done, however, as determining what task belongs to which category can present quite a challenge. Following that, the invoicing process must undergo both sending bills and receiving payment on a reasonable timeline.
But there is good news: adopting best practices around billables can help make the entire process easier. With a clear understanding of what can be billed to clients and how to best invoice, businesses can streamline operations, improve overall efficiency, and experience higher profitability. Read on to learn three smart strategies to help your business increase billable hours, decrease non-billable hours, and navigate project invoicing with confidence moving forward.
But First Things First: What’s Billable, and What’s Not?
What’s Billable Hours?
Billable hours are not simply “hours worked,” unfortunately. There will always be some percentage of tasks that must be completed and are not billable. In short: Billable tasks are “pure project work that can be billed back to the client,” like project planning, client communication and meetings (both scheduled and unplanned), research, production work, engineering, and revisions.
What’s Billable vs. Non-billable Hours?
Non-billable hours comprise the activities your organization would be doing even if the client didn’t exist. These activities include internal meetings, networking and prospecting for new clients, marketing and advertising, administrative tasks like paperwork, filing, invoicing, expense tracking, bug fixing, or code refactoring, training, etc.
What’s the Importance of Tracking Billable and Non-billable hours?
We all know that service providers love to bill the client for many billable hours, but we also cannot deny that you also need to justify the time you have spent on a task or project. Tracking hours correctly is not only necessary so that you can make your projects more successful in the future, but also because it gives realistic vision into several business statistics like:
- How much time your employees spent on a particular task or project
- How much profit or loss your business made
- How much is your team productive, and what’s its performance
- How can you plan more efficiently
- How should you make better future billing estimates
- How much cost-effective the project was for your business
- How to make projects more fruitful in the future
Sound good? Then let’s move on to those best practices:
1. Invest in quality time tracking software
Quality begets quality. But individual employees painstakingly capturing hours in a spreadsheet, Word doc – or even with pen and paper – don’t exactly measure up. Others must still aggregate this data into something meaningful, accounting for differing pay rates and more – and even then, the potential for human error is almost guaranteed. Without precise, real-time project tracking in place, an organization lacks the proper tools for measuring billable hours accurately – ultimately resulting in steadily lost revenue. Investing in a time-tracking software that diligently and promptly records employee hours with ease and convenience is the only way to ensure true quality. The benefits are immediate:
- Save time and wasted effort by employees and finance personnel when everything associated with time and billing is automated.
- Understand an employee’s contributions—both to individual projects and the overall health and success of the business—by viewing his or her utilization rate and productivity.
- Assess the health and status of a project in real-time by watching the project progress compared to hours spent by employees.
- Allocate (or reallocate) your best resources based on clients who contribute the most to your revenue.
- Capture the actual cost of projects and utilize the aggregated data to ensure that future project estimates are more accurate.
2. Track everything – including non-billable hours
Tracking billable hours is a prominent undertaking – but less so are the advantages gleaned by monitoring and examining non-billables. By doing so, businesses have the opportunity to discover some exciting trends in the “big picture” as well as the fine points. With a neat overview of the situation, you can begin to shift priorities and set guidelines for different tasks such as meetings, training, and team activity. For example, How much meeting time is necessary for client projects? How much time should be devoted to training? Does your team work well together? With every insight comes the ability to improve the situation for everyone.
3. Automate to bill tasks
Administrative duties are never going to be billable hour tasks, so why not minimize their impact? The best way to achieve that is through automation. An easily deployed, scalable solution can provide everything an organization needs to succeed:
- Employees can take back the valuable time spent keeping track of their hours and tasks, which means that potential billable hours increase as employee frustration decreases.
- Managers have real-time visibility into project progress and profitability to date, which allows for adjustments to be made.
- Finance and billing no longer need to meticulously aggregate disparate sources of data in order to bill clients and are on the same page with the delivery team.
- Clients receive automated invoices that are consistent and informative. Bonus: clients are less likely to object to project costs when they can clearly see how hours have been allocated.
- The company benefits from minimizing non-billable hours and from sending invoices right on time every month.
With a software solution that centralizes time capture, eliminates the challenges of a manual system, streamlines billing and invoicing, saves time, improves morale, and delights clients, you’ll wonder how you ever functioned without an automated software solution.