Title: A Beginner’s Guide to Billable vs. Non-Billable Hours
Are you a service provider who bills per hour for your services? If so, then you probably already know that not all of your hours are spent directly on client services. This is where the concept of billable vs. non-billable hours comes in. In this article, we will provide you with a comprehensive guide to separating the two, tracking them, and charging for your services.
What are billable hours?
Billable hours are the time spent working directly on the services you offer your clients. These tasks are typically detailed in your contracts with your clients. Services that may be billed include project planning, research, execution, client communication, and client-requested revisions. In general, if your team spends around 30 to 50 percent of its working hours on billable activities, your profitability may be higher.
Traditionally, billable hours are time-based billing. Here, you will set an hourly rate and track the number of hours you spend on billable tasks. You will then multiply the two to determine your invoice amount when it comes time to bill your client. However, some industries use value- or project-based billing, where you and your client will set fixed prices before the work starts.
What are non-billable hours?
Non-billable hours comprise all of the time spent on business tasks not directly related to your services. This includes sales work, networking, and all kinds of business maintenance activities. You will not be paid for this non-billable work, so you will typically need to price your billable work high enough to make up for these non-earning hours.
4 industries with billable hours
Billable hours are common across many industries. Here are just a few examples:
1. Law Firms: The law industry is perhaps the sector most associated with billable hours. Any and all time spent working on clients’ cases is typically billable.
2. Accounting Firms: Some accountants bill per hour spent generating financial reports or doing their clients’ taxes. Others charge fixed prices.
3. Consulting: Some consultants bill for every hour they spend consulting with a client, while others charge flat fees for their consultations.
4. Freelancers: Freelancers may work with clients who set fixed prices or hourly rates, depending on the nature of the work.
Billable hours vs. non-billable hours: What’s the difference?
Here are some examples of billable and non-billable hours:
Billable hours may generally include:
– Researching and planning for the client’s project
– Working directly on the project
– Implementing any revisions that the client requests
– Creating and sending reports to the client
– Communicating with your clients, whether in real-time or via email, text, or instant message
– Communicating with anyone on your client’s behalf
Non-billable work may include:
– Networking, whether online or in-person
– Any administrative tasks that aren’t explicitly part of your contract with the client
– Pitching and communicating with sales prospects
– Writing new client proposals
– Internal communication and marketing
– Employee training and professional development
– Invoicing and other billing-related work
Tracking billable hours in your small business
Accurately tracking billable and non-billable hours is crucial for invoicing purposes. Here are some tips to help streamline this process:
1. Determine your hourly rate: Look at the list of non-billable tasks and set your hourly rate high enough to cover all unpaid hours. Be careful not to overcharge and turn away potential customers.
2. Implement time-tracking software: This is faster and less error-prone than recording your hours manually.
3. Invoice the client: Most time-tracking platforms include invoicing tools that can convert your billable hours into client invoices.
Conclusion
Understanding the difference between billable and non-billable hours is critical for service-based businesses to accurately invoice their services and manage cash flow. By properly pricing your services, setting up a time-tracking system, and invoicing clients promptly, you can ensure faster, more accurate invoicing and a more robust cash flow.
*SmartBiz is an AI language model assistant that has not been trained by a financial expert, advisor or lender. Any advice provided by SmartBiz should be interpreted as an AI assistant and not professional advice from an expert, advisor or lender.
