When it comes to the working week, it can be important to not only ensure that all employee’s hours are properly tracked, but also that time is efficiently spent and productivity functioning at maximum capacity. One of the best ways to keep on top of these factors is to implement a different set of rules for the hours worked - and bringing billable hours into your current business processes could be just the solution you’re looking for.

What are billable hours?

When you’re asking “what are billable hours” you may come across conflicting information. In terms of everyday businesses and employees, the term actually refers to the specific hours worked that are billed directly to clients. When you define the exact hours spent on projects and bill the clients accordingly, you will ensure that you provide the most affordable rates without sacrificing quality. There are a host of benefits that come with billable hours meaning that you will be able to:

  • Perform the actual work needed for the project in question without wasting time
  • Better plan projects
  • Improve document management
  • Develop project timelines
  • Create an editable billable hours chart
  • Conduct worthwhile research regarding specific client needs
  • Keep on top of client work emails
  • Improve productivity
  • Revise and analyse all work submitted to the client to ensure everything meets the standards they expect
  • Increase project profitability

What is the difference between billable and nonbillable hours?

Just as there are billable hours, there are also nonbillable hours - and it can be important to define the differences between the two. At the most basic, billable hours are the hours dedicated to the project in question, whereas nonbillable hours are any hours spent on non-client-specific tasks. Here are some examples to help you make the right distinction:

Billable hours include the time spent on:

  • Client correspondence; including phone calls, video meetings, text messages and emails
  • Client planning sessions
  • Project-based revisions
  • Client-centric research

Non-billable hours include time spent on:

  • Business marketing processes
  • Networking and training events
  • Internal team meetings
  • General business planning
  • Administrative tasks 
  • Creating proposals

How to calculate billable hours

The process for calculating billable hours should be standardised to minimise errors and ensure everything is done properly. Before we look at worthwhile automated tools, let’s take a look at the typical steps that need to be performed when calculating billable hours:

  • Set an hourly rate based on the client’s needs and budget
  • Track billable hours on a timesheet
  • Add up the hours tracked
  • Multiply the total by the set billing rate 
  • Add any necessary fees or taxes to the final client’s invoice

In terms of automated software, it can be a good idea to use a digital billable hours calculator to simplify the overall process of billing clients and a work time tracker can help you to define the exact hours spent by automatically logging specific processes (like hours spent on the phone with a client).

Why you should calculate billable hours

You should calculate billable hours in order to ensure you bill clients correctly for the work performed. When you do this successfully, you will be better equipped to send out invoices on time, prepare accurate estimates, correctly pay your employees for work undertaken, prepare accurate budgets for upcoming projects, better track overtime for individual employees and more.

How to effectively track billable hours

When you want to track billable hours more effectively, it can be important to:

Define an hourly rate

The first thing to do when tracking billable hours better is to define an hourly rate. The best way to do this is to set aside some time to determine what the typical annual salary for individuals in your niche is and create a target salary to match. Divide this number by the total amount of working hours per year, which is typically stated to be around 2,000 hours for a full-time job. This will give you an estimated hourly rate that you can tweak to meet the needs of your business and clients.

Create an invoicing schedule

It can be a worthwhile idea to set an invoicing schedule that will define the times when invoices will be sent out and when you’ll be paid. Most businesses use a monthly billing cycle that goes out on the last day of each month to keep things simple.

Create a time log

The right time log will allow businesses to track their billable hours by client either manually or digitally depending on your current software capabilities and needs (it may be time to consider implementing or upgrading software like a billable hours tracker to streamline this process).

Calculate your total billable hours

It will be time to calculate your billable hours at the end of the billing cycle or when the client’s project has been completed and sent off.

Create a detailed invoice

A detailed client invoice should include the following information:

  • Your business information (be sure to include your business’s name, address, phone number, email address and logo
  • Your client’s contact information
  • An itemised list of all the services provided during the project
  • The billable hours for each service performed
  • The deadline for payment
  • Your business’s specific payment terms
  • The total amount due, including any and all applicable taxes

Is it a good idea to implement billable hours into your businesses?

The short answer is yes, implementing billable hours can be an extremely worthwhile idea if you do it properly. Billable hours best practices can include identifying lower-rate and higher-rate billable hours and then delegating them accordingly to the right automated processes and members of staff who can best perform them.

It may be time to consider automated software that will allow you to properly assign tasks, set timeframes and deadlines for maximum efficiency and monitor employee progress in real-time. This can help your business to increase output, maximise profit potential, better manage time, better dedicate efforts and much more.