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Are you looking to figure out how to calculate billable hours for your business? Maybe you’re unsure if it’s relevant to what you do. If you’re a business owner or freelancer, this should be something you want to master.
However, it’s also relevant to anyone who deals with clients, like consultants, creative teams, developers, cleaning companies, landscaping, fishing lure creators, or lawn gnome decorating specialists.
Let’s look at how calculating billable hours works and how Hubstaff can help make that whole process much more manageable.
Billable hours, for those who are unfamiliar, are self-explanatory. They’re the hours tracked by an individual on a team as they’ve worked regular or overtime hours that can be billed to a client.
This is why they’re so important. If you haven’t tracked your hours accurately — both billable and non-billable (we’ll discuss that later) — then you won’t know how much to charge your clients and can’t correctly bill anyone, meaning no one gets paid.
And no one wants to be told they’re not getting paid.
This won’t come as a surprise to anyone: businesses run on money. At any point, you’re either paying someone to do something or receiving money as payment for something you did.
However, knowing exactly how much money should be moving around is what billable hours are for. Here are a few particular instances where you’d need to have calculated billable hours:
Sending out invoices to a client
Preparing accurate estimates
Paying your employees and freelancers for their work
Preparing budgets for upcoming quarters
Budgeting out projects
If we talk about billable hours and why they’re important, we also need to chat about non-billable hours.
First, what are non-billable hours? They’re simply any time you spend at work that can’t be billed to your clients. These things are usually admin work but can also include:
Employee onboarding and training
Working on pitches for new clients
Company-wide meetings
Networking
Bathroom breaks
Entertaining clients
Invoicing, payroll, and bookkeeping
Friday lunches
Happy hour
Secondly, why are they so important? As you can imagine, it would be almost impossible to run a business with some non-billable work, no matter what type of company you run.
But how do you ensure you get the most out of your non-billable time? To start, you can track those hours to see their actual value. Here are some of the main benefits of tracking non-billable hours:
Non-billable hours remove inefficiencies
By tracking how much time you spend on tasks you can’t bill to anyone, you can see how much you pay your team versus how much you accrue. Plus, it helps you see how your team spends their time, meaning you can better minimize hiccups or slowdowns in your process.
Non-billable hours help foster growth
How much time does your team spend looking to better themselves for the company? Non-billable hours are an excellent way to determine that. You can better track how much time everyone spends cracking away on projects versus how much time they spend researching industry trends and studying up on their specialty.
Non-billable hours help you see where the money is
By tracking billable and non-billable hours, you can better understand how much each of your clients costs you and which ones are the most profitable. This can help you better quote clients in the future and help you balance the time spent on certain types of work to foster growth.
While there isn’t a set precedent for how much time should be spent on non-billable hours, there are a few things to consider.
For one, it largely depends on the kind of business you run. While a cleaning company may only spend a few hours on the job, they usually charge a flat rate to their clients, while a law firm might charge by the hour. A company with numerous remote employees or clients might have more admin work — figuring out payroll and invoices — while a more automated company might spend significantly less time doing that.
What you should consider with non-billable hours is their worth to your business. If there’s a lot of training involved with what you do, those hours should be given more importance. However, if your company works off the old “time is money” adage, then maybe you should find ways to cut down on non-billable hours.
It has less to do with your industry and more with your company. When trying to figure that out, look at how much non-billable time you currently use and see if that benefits your company.
Both billable and non-billable hours are essential. But should they be separate affairs?
The short answer is yes.
You run into several issues if you keep billable and non-billable hours on the same timesheet. For one, you can’t bill your clients accurately if you’re not separating all your hours.
On the one hand, your client won’t be very pleased if they find out you’re billing them for the hour your team spent watching a guy on YouTube eat a 30-foot burrito. Similarly, you won’t be happy if you can’t accurately bill them for your work because you didn’t track it accurately.
The simple solution to this is to track your hours.
When calculating billable hours, businesses have various methods at their disposal, ranging from traditional spreadsheets to more sophisticated software solutions.
Let's explore a few approaches:
Manual solutions: Some businesses use manual solutions like paper timesheets for record-keeping. While straightforward, these solutions are prone to errors, lack real-time tracking, and will not scale well for businesses with larger teams. Manual tracking becomes more complicated when you need to track how many billable hours you’ve worked.
Spreadsheets: Many businesses start out tracking their time using spreadsheets. Using tools like Microsoft Excel or Google Sheets, teams can manually record hours worked, apply hourly rates, and calculate billable amounts. This cost-effective method may become cumbersome as the scale of operations grows.
Software solutions: The best way to track your time is by using dedicated time tracking software. Time tracking apps automate the process, allowing teams to easily track billable hours, apply rates, and generate accurate invoices. Software reduces errors and provides real-time insights into project progress and team efficiency.
Transitioning to a more advanced solution like Hubstaff can further enhance the efficiency of billable hours management.
One of the best ways to track your team’s hours (we think) is with Hubstaff. Our robust time tracking app makes it easy to track time, activity, and progress on projects all in one place.
Hubstaff can also be used to calculate billable hours. Here’s how:
Inside Hubstaff, you can set up individual projects based on your unique clients. If you’ve been using Hubstaff, you’ve probably already done this. But, if you’re new to our platform, you can easily do that in your projects tab.
Hubstaff makes it easy to set billable rates for each team member. By doing this, you can fully customize what each team member accrues based on the projects or clients that they’re working on.
Once you’ve set up your projects and rates, the next thing to do is get down to business. Have your employees track their time using our desktop, web, or mobile apps. Depending on the project they’re currently working on, ensure your team is tracking their time towards the correct task.
While your team is cracking away at their tasks, ensure they’re not going overboard by setting budget limits. You can do this in the projects tab in Hubstaff. By selecting a project’s budget limit, you can make sure that the appropriate amount of time is being spent on any given project based on what you’ve quoted your client or how much money you’ve allocated toward that task.
After the workweek ends, you’ll get a notification in your inbox that it’s time to pay your team members for all their hard work. All you have to do is accept their hours worked, and they’ll automatically be paid based on the bill rate you set up before.
Once it’s time to send the client the bill, you must head over to your invoices tab within Hubstaff. Find the client to whom you’d like to send the invoice, and Hubstaff will automatically calculate the line items based on the work your team has done for them. Then, you have to send them the invoice; it's as simple as that.
Depending on the industry you work in, calculating billable hours may look a little different.
As a freelancer, you typically have several ongoing projects you’re working on at once. Making sure you’re tracking your billable hours accurately means you’ll be able to bill your clients appropriately. Additionally, by seeing how many non-billable hours you accrue each week, you can better estimate how much bandwidth you might have for starting new projects or taking on new clients.
Lawyers, like freelancers, typically have a large number of clients that they’re juggling at once and are required to meet billable hours targets. However, unlike freelancers, some law firms require that their team members meet a minimum number of billable hours each year. Sometimes, their bonuses are even based on the hours they log yearly. So, as you can imagine, keeping track of your hours as a lawyer is extremely important.
Similar to lawyers, consultants work with a large body of clients and have to keep a detailed log of hours to make sure that they’re billing everyone correctly. Additionally, not every client will have the same bill rate, meaning having an intuitive way to track those hours is extremely important. Unless, of course, you like to be confused and flustered a lot. Then, by all means, go for it.
If you run a company like a landscaping or delivery business, you and your team members are often on the go. This can mean that it’s sometimes hard to keep track of who’s working, how long they’ve worked for, and when they worked. By tracking everyone’s billable time accurately, you can better bill your clients for the work they need to be done. This can keep things organized and help avoid time theft. Additionally, by keeping a log of these hours, you can see if you need to increase rates or cut down on non-billable time.
Let Hubstaff ease the pain of calculating billable and non-billable hours. No credit card required. Cancel anytime.