Many professional industries work in billable hours. But knowing how to keep track of billable time can be a tricky business. Billable hours are lucrative for firms. Sometimes employees are required to reach ambitious quotas. As such, maximizing efficiency and productivity is essential.
No employee wants their hard work going to waste. The benefits of staying on top of the billable hours worked should never be underestimated. In this article, we’re going to discuss everything you need to know about billable hours and the tools you need to start optimizing outputs as soon as possible.
- What are billable hours?
- What is the difference between billable and non-billable hours?
- How do you calculate billable hours?
- How many billable hours are “normal?”
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What are billable hours?
The term, “billable hours” can sometimes cause confusion because people in many different professions charge for their work through invoicing. Building contractors and freelancers, for example, could be said to work something akin to billable hours on a daily basis.
But this is not exactly the same thing. Only a select few industries actually have requirements for billable hours. Within the legal profession, for example, attorneys are required to complete a set number of billable hours each week. Failing to meet the quota could spell trouble.
Billable hours: The true meaning
Billable hours are those hours worked that require compensation. In other words, they are the hours that you bill clients for and they pay directly. For lawyers, consultants, accountants, and other professionals with billable work, these payments do not apply to other work tasks done for the firm to which they are professionally affiliated.
Billable hours apply only to clients. They are designed to ensure financial compensation for any time spent on individual client cases. The bill, in most cases, must therefore be paid by the client themself. Billable hours are, as a result, extremely lucrative for firms.
Let’s take a look at a few examples.
|Task||Is it billable?|
|Answering the manager’s email||No|
|Answering a client’s email||Yes|
|Employee annual review||No|
|Client meeting (remote or in person)||Yes|
What is the difference between billable and non-billable hours?
So, we know how important it is to keep track of our billable hours. But with such busy work calendars, how can we differentiate between our billable and non-billable hours effectively?
In simple terms, if you’re working for a client who is paying you by the hour, it’s billable. If you’re working on non-client specific tasks, it’s non-billable.
Let’s look at some situational examples.
- Client correspondence
- Planning for a client
- Phone calls
- Emails with clients
- Communicating via text messaging
- Video meetings
- Client revisions
- Working on any aspect of a client’s project
- Research for a client
- Business marketing
- Internal team emails
- Networking, law school, or training events
- Internal team meetings
- Business planning
- Administrative tasks
- Liaising with new clients or client development
How do you calculate billable hours?
The standard process for calculating billable hours looks something like this.
- Set an hourly rate.
- Track every billable hour on a timesheet.
- Add up your billable hours.
- Multiply total billable hours by billing rate.
- Add fees or taxes to the client’s invoice.
It can be difficult for lawyers, consultants, accountants, and other professionals who combine billable and non-billable time to keep track. Luckily, these days there are lots of tools out there to make keeping on top of billable hours that little bit easier.
Here are some ways to use software and solutions to help track billable hours accurately.
Chart hours in Excel
Excel has a template specifically designed for managing your billable hours. You can input hours worked and pay rate for each client on any given work day, with time-in, time-out tracking.
A digital time tracker or manager is designed to record your working hours. It helps to simplify billing clients and provides data to support your invoicing. Such tools are ideal if you offer legal services or other work where keeping accurate records of billable hours is crucial.
See how MHP&S, a remote-friendly law firm, easily manages its billing by integrating a time tracking app with its communication platform (which allows them to have video conferences, message each other, and more).
Time trackers like Time Miner can be integrated into your communication app to track how much time is being spent on calls, text messages, and meetings. This way, your communication platform (which you’re already using to make phone calls, video calls, and so on) automatically logs all your client communication and helps you manage any respective billing efficiently:
To make it easier to track your billable hours, streamline the number of apps you use. Specifically, instead of using separate apps for video conferencing and messaging, try to find a versatile app that can provide different communication channels in one place. This is how RingCentral’s desktop and mobile app works, as a quick example:
There are many software options out there, designed to aid resource and practice management. This software not only helps offices keep track of billable hours, but also makes other useful tasks easier, like productivity analysis, costing, reports, invoicing, and accounting.
Here are a few options:
- Saviom—best for resource management and workforce planning
- TSheets—best for time tracking and custom billing
- QuickBooks—best for invoicing and cash-flow management
- PracticePanther—best for secure legal management
Don’t let hours go to waste: Use a template
Maintaining a template to track your billable hours accurately is also a useful idea. After all, anything that isn’t tracked didn’t really happen. In other words, it gets wasted and that means hours or days of productivity lost.
Say you’re a lawyer. You’re working long weeks, upwards of 70 hours. Keeping track of what’s billable and what’s not while working can be a struggle. Using a timekeeping or productivity app is a smart choice. It’s a great way to avoid letting work hours go uncompensated.
How many billable hours are “normal?”
There is no one size fits all answer to this question. How many billable hours you aim for will depend on your industry and professional position. It is also possible to monitor the utilization rate of employees working billable hours.
The utilization rate calculates billable time as a percentage of an employee’s total working hours. In other words, the utilization rate is a metric of overall productivity. It is calculated by dividing the total billable hours by the total hours available, then multiplying by 100.
The law firm example
Some industries implement billable hour requirements or quotas. Legal professionals, for example, are sometimes required to work a minimum number of billable hours. That’s because billable time increases profitability. But there is a downside to this methodology.
How many hours in a year?
To maximize on an attorney’s billable hours, some law practices resort to increasing their overall work hours to upwards of 70 or 80 hours per week. A billable hours quota of over 2,000 hours per annum is not unheard of.
It’s, therefore, essential that law firms streamline their operations for better time management.
To bill or not to bill?
It’s time to put your newfound know-how into action. To bill or not to bill? That is the question. By knowing exactly which tasks constitute billable hours and how to keep track, you’ll be ready and set to optimize everything from workflows to invoicing.
Originally published Dec 08, 2020, updated Dec 30, 2022