Many professional organizations, like law firms, PR firms, and consultants, have billable-hour requirements to run their businesses successfully. But knowing how to keep track of billable and non-billable activities can be a constant challenge when you’re a small business or starting out as a contractor or freelancer taking on new clients.
Billable hours are how you get paid but performing non-billable work is also critical for running your business and growing your client base. Knowing how to balance billable and non-billable hours effectively will ensure that you can turn a profit while also keeping your work pipeline filled with future job opportunities.
To ensure you get the most out of every hour at work, we’ll explore the difference between billable and non-billable hours, why it’s essential to track both types of work, and how tracking your time can help you increase your margins and take on more work.
What Are Billable Hours and Non-Billable Hours?
Billable hours are simply the hours of work you charge clients for. This ensures you’re paid for completing tasks that are relevant to the job or project you're doing on behalf of your clients. Any other tasks required to successfully run your business but not directly related to your clients’ projects, such as bookkeeping, marketing, or client outreach, are known as non-billable hours.
Both types of work are vital for running your small business or freelance operation, but it’s essential to understand how to balance your time between billable and non-billable hours.
Examples of Billable vs. Non-Billable Hours
As previously mentioned, billable hours are the work hours spent on assignments you can bill directly to your client. These hours need to be carefully documented so you know what to bill clients for your services. Here are examples of work that should be tracked as billable hours:
- Client meetings and phone calls
- Project planning and research
- Requested revisions or edits to project deliverables
- Time spent traveling and visiting with the client
Non-billable hours, on the other hand, are hours spent to benefit your business but aren’t spent explicitly on one specific client. Here are examples of work that fall under this category:
- Marketing your business
- Administrative tasks
- Human resources
- Internal meetings or correspondence
- Sending out proposals to prospective clients
How to Calculate Billable Hours
Before you can start getting paid by your clients, you need to know how to calculate your billable hours so that you can send out correct invoices. Calculating your billable hours and invoicing your clients follows a standard process, which includes these steps:
- Set an hourly rate.
- Track your time.
- Add up your billable hours for each client.
- Multiply your total billable hours for each client by your hourly rate.
- Add any necessary fees, taxes, or add-ons to the client’s invoice.
While the steps are quite simple, it can still be challenging for professionals to keep track of the time they spend on different tasks, especially when you’re context switching between different clients and types of work. Luckily, there are many tips and tools to make tracking your billable and non-billable hours easy so you can spend more of your time on the critical parts of your job.
Why It’s Important to Track Both Types of Work
Even though you might only be directly paid for your billable time, it’s essential to track all working hours. Tracking billable and non-billable hours will help you clarify how your time is spent throughout the work week so that you can identify where improvements can be made. Without knowing how every hour is being used, you can easily overlook where time is being wasted and how to optimize some of your business processes.
Non-billable time should also not just be seen as unproductive time that should be cut at all costs. In fact, non-billable time can be very productive for growing your business and planning for future opportunities. Instead of thinking of non-billable hours as time you can’t get paid for, you should think of them as opportunities to invest in your company’s future. Productive ways to invest your non-billable time could be developing a marketing campaign, optimizing your website, or standardizing your business practices to save time and effort in the future.
4 Tips for Tracking and Tackling Billable and Non-Billable Hours
Keeping track of and optimizing your billable and non-billable hours doesn’t have to be another dreaded task on your ever-growing to-do list. Here are four tips for helping you track and organize your time so that you can devote more of your efforts to your work.
1. Choose a Time-Tracking Method
To start, you’ll want to decide how you’re going to track time. Two of the most popular options include using a timesheet or dedicated time-tracking software.
A timesheet is a popular visual tool for showing how each hour is being used. Timesheets are tracked manually, typically using a spreadsheet like Excel, but can also be done with pen and paper. What’s important to remember is not to get too caught up in creating and optimizing the tool. Instead, there are plenty of free online templates and resources for tracking your hours so that you can spend more of your time on what’s important.
The downside to manual tracking is that it can be time-consuming and just add to the amount of work you have to do. Instead, choose a time tracker like Rize that will improve your productivity.
Rize runs automatically in the background, keeping track of what you’re doing and how much time you’re spending on different activities. Plus, with app features and functionality like customizable categories, Google Calendar integration, and project tagging, you can easily differentiate between work that’s billable and non-billable.
2. Prioritize Your Tasks and Incoming Requests
Whether you’re working as part of a team or have employees working for you, there are going to be times when many people, including your customers, are asking you for things. If you don’t know how to prioritize all of the inbound requests, you can quickly get overwhelmed and spend too much of your time on non-billable work.
Implement a system for prioritizing your tasks and goals. This will help you determine what needs to be done first, what can be delayed, what needs to be done by you, and what can be delegated.
You must also effectively communicate with your colleagues and employees about what items should be directed toward you and what items can be delegated to others. Having a process in place for incoming requests can minimize the amount of time you need to spend prioritizing and sorting through tasks and messages.
3. Automate Non-Billable Tasks
Every business operation has repetitive tasks, such as administrative work, that can consume a lot of your time and doesn’t directly contribute to the bottom line. One of the best solutions for reducing your number of non-billable hours is automating those repetitive tasks with software.
The most significant benefit of automation is that it frees up your time to focus on project-related tasks that you can bill your client. Automating tasks such as invoicing, payroll, and email marketing can allow you to grow your business while still focusing on the important decisions that move the needle.
4. Outsource Non-Billable Tasks
Similar to automation, outsourcing is handing off work to somebody else to do it for you. You probably have non-billable tasks you don’t like to do — or perhaps there are tasks that need to be done but aren’t the best use of your time. It can help to offload or outsource those activities that are draining to you and your team.
Not only does outsourcing those dreaded tasks free up your time, but it can also free up your energy since you won’t have to dedicate your time to tasks that you dread or actively try to avoid.
Start Tracking Your Billable and Non-Billable Hours
Whether you’re a freelancer finally going out on your own or an employee working for an organization that charges by the hour, it’s critical to know how to track your billable and non-billable time. Knowing your billable hours will help you invoice clients and bring in revenue, while keeping an eye on your non-billable hours will help you find ways to improve your workday productivity and efficiency.
Want to track your time automatically as you work? The Rize app monitors your activity in real time, making it easy to see how you’re spending your day and to tabulate your billable tasks. Sign up for your free 14-day trial of Rize today.