Let’s unlock the hidden potential that tracking billable and non-billable hours offers. Its commonly mistaken that you should only track hours that you can charge to clients but tracking non-billable hours is equally as important. By tracking the hours your employees spend on non-billable tasks such as brainstorming meetings, advertising projects and trainings, you can identify inefficiencies in your systems, re-allocate resources and retain talent along with many other benefits. This is invaluable to your business as it allows an organization to gain an understanding into the parts of your processes that are not generating return. Lets look at the difference tracking billable vs non-billable hours provides, 15 benefits of tracking non-billable hours, and how your organization can reduce the amount of non-billable hours the employees are completing.
Whats the difference between billable and non-billable hours
Understanding the difference between billable and non-billable hours is essential for any organization as both offer many benefits. This includes correctly allocating resources and talent to the correct areas of the business, ensuring consistent organizational growth and increasing profit by increasing billable hours.
What are billable hours?
Billable hours are the hours employees spent on tasks that can be directly linked to receiving payment from client. These are often related to giving a product or a service to the client. This is usually tracked to ensure payroll is accurate, oftentimes via a HR software solution. Billable work includes tasks that can be compensated for and determines how much money the client will be invoiced. This is oftentimes one of the main sources of income for businesses especially those that offers services such as consulting agencies, accounting agencies, auditing firms, legal firms, marketing agencies and freelancers.
What tasks are considered to be billable work
- Legal work: this includes court appearances, creating legal documents, consulting advice and negotiations on behalf of the client. Legal firms use billable hours to keep track of
- Project management: this includes project planning and monitoring, resource allocation, providing updates, and risk management.
- Consulting: this includes strategy development, analyzing data, support services, trainings, workshops, and performance improvement strategies.
- Working on client projects: this includes project design, project development and execution, preparing documentation such as user manuals/reports, and incorporating time for feedback sessions.
- Meetings with clients: this includes time-consuming consultations, progress meetings, review meetings, strategy planning, tracking results, and post-project reviews.
- Invoicing and reporting: this includes invoice preparation, cost reporting, budget tracking, and final reports.
What are non-billable hours?
Non-billable hours are the hours employees spend on tasks that are not directly linked to charging a client. This type of work involves managing internal processes, business development, trainings, onboarding and time management. To put it simply, non-billable hours are most likely the hours spent on tasks that are not customer facing and can rarely be directly linked to a specific client. Although these do not directly create profit they are necessary for the business to function and are oftentimes the first step to getting return from clients.
What tasks are considered to be non-billable work
- Administrative tasks: this includes sending internal emails, conducting calls or meetings internally, document management, scheduling meetings, and office management.
- Business development: this includes client acquisition, strategy proposals and development, creating and implementing internal marketing strategies, market research, and holding internal meetings.
- Training and development: this includes professional growth and development courses, onboarding sessions, technical IT training and compliance and regulation training.
- Project work: includes improving internal processes, internal auditing, implementing software and tool automation, managing internal projects and documentation.
- Time Management: this includes managing time off such as paid time off (PTO), sick leave, parental leave, or annual leave.
- Fixing team errors: this includes taking time to manage any errors an employee makes e.g., payroll error.
- Pitching ideas: this includes pitching project or partnership ideas to new clients oftentimes through outbound marketing.
How consultants should manage billable vs non-billable work
- Time tracking: consultancy firms should implement a time tracking software like Factorial to meticulously log the hours employees work ensures that accurate billing and invoicing is complete. By streamlining processes consultants can reduce the time spent on non-billable hours.
- Prioritization: although non-billable work is important, billable work brings in revenue. It is crucial for consultants to prioritize tasks and to spend more time on billable hours than on task that can be automated.
- Regular reviews: consultants should conduct regular reviews on how much time employees spend on billable vs non-billable hours. Having regular review will provide insight into where the business needs to make adjustments in order to grow their revenue.
Why you should track billable and non-billable hours
Tracking billable and non-billable hours is essential for understanding the business as a whole in order to improve and grow. Tracking both has a myriad of benefits which I will explore throughout this article. Firstly, taking record of both billable and non-billable hours is essential as it ensures clients are correctly charged for the service you provide. This also prevents potential loss due to under charging.
Managing billable hours is fundamental for billing, invoicing and financial transparency. Tracking these hours portrays if resources are allocated accurately, ensures that records and invoices are accurate when billing clients and gives valuable insight into what areas of an organization are profitable and growing. Moreover, tracking billable hours provides the first step for optimizing workflows and the bottom line.
While tracking non-billable hours does not directly link to revenue generation it is a useful tool for identifying inefficiencies throughout the business. Managing non-billable hours helps shows the organization what they may need to change in order to increase profitability, what tasks need to be streamlined and allows the organization to take accountability.
15 ways tracking non-billable hours increases your profit
Do you need more convincing as to why tracking non-billable hours is as important as tracking billable hours? Here are the top 15 benefits that tracking your non-billable hours offers:
- Resource allocation: this highlights where the organization can restructure their resources to efficiently allocate resources in order get the best results. This saves time and money!
- Identifies inefficiencies: tracking both non-billable and billable hours shows the organization how much time is spent on non-billable tasks. This highlights areas that may need to change or be restructured for example streamlining or automating process can save time on administrative tasks.
- Enhances productivity: monitoring the hours spent on tasks portrays an overview of how an employee spends their time. You can see what tasks are productive which allows employees to increase their overall productivity rate and improve time management. This also can help increase your organizations employee utilization rate which is a key performance indicator (KPI) used to track the efficiency and productivity of employees.
- Financial planning and cost management: in order to fully understand what billing costs you need to set to be profitable you need to first understand what hours you are not getting paid for. Tracking non-billable hours also helps organizations understand what salary an employee should be paid. This is because with the full picture of billable and non-billable hours worked you can understand how productive and profitable their role is.
- Improve processesBy identifying inefficiencies an organization can take steps to optimizing their processes and strategies. This can result in saving time and resources.
- Identifies less profitable clients: tracking all hours worked helps organizations understand what clients are more profitable than others. Some clients may require more non-billable hours than others. By knowing which clients are more profitable you can reduce hours spent on less profitable clients and allocate different levels of management accordingly.
- Reduces overheads: by tracking all the hours worked including non-billable hours organizations get a full overview of unnecessary overheads. This can influence increase profitability hugely.
- Informed decision making: tracking non-billable hours offers insight into key data that can help your organization make informed decisions.
- Identifies training needs: this highlights areas of improvement within employees specifically identifying training needs. By understanding what needs to improve organizations can provide training programs that target the area that needs improving.
- Play to employee strengths: by tracking employees hours you gain an understanding of how employees spend their time and you can get insight into their individual strengths and weaknesses. This allows managers to play to each employees strengths as no two employees work in the same way! Managers can assign work based on their strengths which results in increased productivity and efficiency.
- Boost employee engagement: evidently, tracking non-billable hours provides insight into how employees work. Employers can use this data to their advantage to ensure that employees do not get burned out by projects being under staffed or lacking resources.
- Retains talent: organizations like to reward employees who bring direct profit such as a sale or acquiring a new client but it is also important to acknowledge work that does not create immediate or direct profit. By understanding how much work employees are putting into non-billable hours organizations can retain talented employees that work in areas of the business that are not directly linked to return on investment. This can include but is not limited to areas such as customer experience, brand development, human resources or people management.
- Displays value to clients: by tracking non-billable hours alongside billable hours organizations can display to the client how much time, effort and resources they have invested in their partnership. This can portray a sense of loyalty and builds a trusting relationship.
- Compliance and auditing: by tracking these hours your organization can ensure that they are accurately keeping a record of all hours worked which ensures that it is in compliance with legal and regulatory requirements. One example of this would be the Fair Labor Standard Act (FLSA) which requires employers to keep track of all hours worked by employees along with their wages.
- Prioritize time: tracking non-billable hours determines how many hours are dedicated to organizational growth vs how many are spent on tasks that can be streamlined and digitalized. Additionally identifying non-billable hours provides insight into the tasks that are incredibly time-consuming. Did you know Factorial offers an all-in-one software solution for common HR pain points. By streamlining administrative processes organizations can save time, money and keep employees from burning out!
How to reduce non-billable work
Reducing time spent on non-billable hours is a crucial step for achieving organizational growth and development. You can reduce non-billable hours by completing 3 key steps:
- Automate tasks: utilize software that streamlines and automates routine daily tasks to alleviate tedious time-consuming tasks from employees. Streamlining tasks such as employee time management, talent acquisition, and reporting saves time, money and allows employees to focus on key profitable tasks or projects. Overall, developing a streamlined process that automates workflows reduces time spent on non-billable tasks.
- Optimize time: ensure that employees have key templates to follow for meetings in order to avoid distractions and to use their time efficiently. Similarly, Michigan State University claims that breaks from work increase focus and improve productivity levels. Your organization can optimize its time by ensuring that employees take regular breaks.
- Set clear expectations: employers should hold regular performance reviews and thoroughly explain billable and non-billable hours to their employees. This allows employees to fully understand how to balance their time. Conducting regular reviews is key for ensuring that the balance is maintained and that performance metrics are being met.
Why Factorial🚀?
The easiest way to allow employees to succeed in raising billable hours is to streamline your administrative processes. By streamlining your processes employees save time and you can retain talent by limiting the risk of burnout. Factorial’s all-in-one HR software solution tracks your employees hours, ensures that timesheet reminders are sent regularly and can send the data to payroll within seconds. With Factorial there is no need for a time-consuming excel sheet filled with the hours worked by your employees! Why not book a demo to save time with our time tracking software? With Factorial, the entire process is streamlined, automated, and takes only a few clicks from everyone involved.
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