Billable vs Non-billable Hours: What Is the Difference?

Knowing the difference between billable and non-billable hours is important for any business that works with clients. It lets you track profit, improve your workflow, and succeed.

What is a Billable Hour?

A billable hour is the time you spend working directly on client projects and can charge them for. For example you are a graphics designer, this would includes tasks like:

• Creating design options for a client’s logo
• Selecting images for a whitepaper you are designing
• Consulting with a client on their design strategy

These hours directly help finish a project for a client. So, you can bill for them and charge them.

This is how many businesses work with clients, including freelancers, consultants, or agencies. And consider that 20% of all invoices in the digital marketing and PR space are paid late. So you need to keep track of their work and directly or indirectly use the hours to make money at an hourly rate. It all boils down to understanding the difference between billable and non-billable hours.

Imagine you’re a lawyer working on a complex legal case for a large corporation. The time you spend researching case law, drafting legal documents, attending meetings, and negotiating with opposing counsel is billable. According to industry data, lawyers bill an average of 1600 hours per year. This means that even a relatively small case can take significant time and resources. So is the time you spend revising your work based on the client’s feedback and finalizing the legal strategy. You can charge the corporation for these hours. They are directly related to the case.

Non-Billable Tasks

Not all work hours are directly billed to clients. These are called non-billable hours. They include important tasks or lost time. These tasks keep your business running smoothly. But, they aren’t tied to a specific client project.

Here are some examples of non-billable activities:

• Searching for new client acquisition
• Attending industry workshops to develop your skills
• Administrative tasks like bookkeeping or scheduling meetings
• Internal team meetings to brainstorm or discuss projects
• Any lost time due to mistakes and other non billable time.

Back to the example of the designer working on a logo for a new restaurant.
Your workday isn’t only about creating logos. There are other important tasks for your business. But, you can’t charge the restaurant for them. These are called non-billable tasks. For example, maybe you spend time each day acquiring new clients. Or, you attend a webinar to improve your skills. These activities are important to have business success. But, you can’t bill the restaurant or another client for them.

Why Billable vs. Non-Billable Matters

Knowing the difference between billable and non-billable hours helps you see how profitable you are. By tracking both types of hours, you can see where time is spend or lost:
* Time spent making money (billable hours).
* Time spent on important but non-money-making tasks (non-billable hours).
* And the third type, wasted time.

This allows you to make sure you’re charging enough for your services to cover all your costs and make a profit. Think of it like this. Your billable hours are like income. Your non-billable hours are like expenses. You don’t want expenses to top income. So you don’t want non-billable hours to take too much of your billable time.

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Billable Hours in Detail

Now you know the difference between billable and non-billable hours. The former are the hours you charge clients for. The latter are essential tasks you can’t bill them for. Now, let’s have a closer look at billable hours.

Billable hours are the golden ticket for any business. They represent the time you spend directly working on client projects. You can track it and charge them for it. Think of it as the time you’re “on the clock” for your client.

Here are some classic examples of billable work:

• Project planning is the time you spend strategizing with the client. You define the scope of work and create a timeline.
• Execution. This is where the magic happens. It’s the time you spend working on the project itself. You might be designing a website, writing content, or developing software.
• Client communication. Client meetings, phone calls, and emails are regular. They are to discuss the project, answer questions, and get feedback. All count as billable hours.
• Revisions: Let’s face it, projects rarely go exactly as planned. The time you spend adding client feedback and revising your work is also billable.

So, how do you know how many billable hours to track for a project? This is where time tracking comes in. There are many ways to track your time, from simple timesheets to time tracking software. Choose a method that works for you. It should let you record the time you spend on tasks in a project accurately.

Here’s the golden rule: be diligent about tracking billable hours. Don’t wait until the end of the week to try and piece together your time spent on a project. Record your time in real-time or shortly after completing a task to ensure accuracy.

Non-Billable Hours in Detail

We’ve covered billable hours – the time you spend directly working on client projects and get paid for. But not all your working hours fall under this category. There’s another crucial component – non-billable hours.

These are the hours you dedicate to essential tasks. They keep your business running smoothly. But, you can’t directly charge clients for them. Don’t be discouraged, though. Non-billable activities are just as important as billable work for your long-term success.

Here are some everyday examples of non-billable work:

• Administrative tasks. Invoicing clients, scheduling meetings, and managing your email inbox are all necessary. But, you wouldn’t bill a client for them.
• Training and development. Investing time in learning new skills or attending workshops helps you stay on top of your game and better serve your clients, but it’s not directly billable.
• Marketing and business development. These tasks are crucial for getting new business. They include networking with potential clients and updating your website. But, they’re not tied to any specific project.
• Internal meetings. Team brainstorming sessions, project planning discussions, and performance reviews are non-billable hours. But, they contribute greatly to business success.
• Fixing mistakes: Let’s be honest, mistakes happen. The time you spend fixing your own avoidable errors on a project wouldn’t be billed to the client.

You might say, “Isn’t the goal to maximize billable hours and cut non-billable ones?” While boosting your billable hours is key, totally removing non-billable ones isn’t realistic or even good. Here’s why:

• Non-billable time contributes to better client service. Training allows you to offer your clients the best possible expertise. Internal meetings help streamline communication and project execution.
• They’re essential for long-term growth. Investing in marketing and business development secures a steady stream of future projects.

The key lies in finding a healthy balance. Track your non-billable hours just like you track your billable ones. Many time tracking software options let you categorize both types of activities. This helps you understand where your time goes and identify areas for improvement.

Tracking Billable and Non-Billable Hours

The next step is mastering how to track them effectively. This knowledge lets you see how much billable time you’re making. It helps you find areas to improve. It also helps you increase billable hours.

Imagine you’re a freelance writer. You spend 8 hours on a client article. But, you also spend 1 hour on a proposal for a new client and another 30 minutes on emails. Tracking billable and non-billable hours helps you understand how your workday breaks down.

Here’s why tracking both types of hours is crucial:

• Improved accuracy in client billing. Track your billable hours. That way, your invoices show how many hours you spent on a project. This builds trust with your clients and avoids any billing disputes.
• Informed project estimates. Tracking billable hours on past projects accurately. It lets you make better time estimates for future projects. This helps you avoid underestimating the time needed and potentially losing money.
• Identify areas to increase billable hours. Tracking non-billable hours can reveal areas for improvement. It can free up time for billable activities. For example, maybe you realize you spend a lot of time searching for files. A better system could save you valuable billable hours.

Software and tools to track your billable hours

So, how do you actually go about tracking your billable and non-billable hours? There are several methods you can choose from:

• Manual Timesheets. This is the simplest method. You calculate billable hours spent on tasks in a paper or digital spreadsheet. While effective, it can be time-consuming and prone to human error.
• Time Tracking Software. Many software options are available specifically designed for time tracking. These time tracking tools have automatic timers. They also have project categorization and detailed reports. These features make tracking and analyzing your time easy. Some of the best ones include Connecteam, Toggl and Timecamp. You can find a list of the best time tracking software here. 
• Tools with Built-In Time Tracking. Some project management platforms let you track time in the tool you already use. It’s for project communication and task management. This can be a convenient option if you’re already using such a platform. Good options include Notion, Asana, and Trello. 

Here are some additional tips for effective time tracking:

• Define clear categories before you start tracking. Have them for both billable and non-billable activities. This ensures consistency and makes it easier to analyze your data later.
• Track Time in Real-Time: Don’t wait until the end of the day to try and recall your hours spent on different tasks. Track your time in real-time or shortly after completing a task for maximum accuracy.
• Encourage Team Buy-In. If you have a team, stress the importance of time tracking for both individuals and the whole business. Getting everyone on board will ensure you have accurate data to work with.

When you track your billable and non-billable hours, you gain insights into your total billable hours. This lets you make decisions to optimize your workflow, remove non-essential tasks, and reduce non billable hours.

5 Strategies to Optimizing Billable Hours

Now it’s time to maximize your most valuable asset – your billable time. Here are some strategies to help you achieve this:

1. Set Competitive Rates. This might seem obvious, but charging a fair and competitive hourly rate is crucial. Your rate should cover your business expenses and allow you to make a profit. By setting a good rate, you ensure each billable hour is a big help to your bottom line.
2. Effective Project Planning. Before diving headfirst into a project, do thorough planning. This includes defining a clear scope of work with your client. You’ll also outline project milestones and set realistic deadlines. Clear project plans help avoid misunderstandings and “scope creep”. This is when project requirements change unexpectedly. This leads to extra work and project delays.
3. Improve Workflows. Look at your current workflow. Find areas to improve tasks and remove unnecessary steps. Consider automating repetitive tasks like sending invoices or scheduling meetings. This frees up valuable employee time for billable activities.
4. Delegate Effectively. If you have a team, don’t be afraid to delegate. Delegate non-essential tasks. These include administrative work or research. Doing so frees up your time and that of your senior staff for higher-value, billable activities. Everyone’s time is valuable. Delegating well ensures the right people work on the right tasks.
5. Invest in Employee Training. Investing in your team’s skills and knowledge through training might seem counterintuitive. It involves non-billed hours. A well-trained team works faster and makes fewer mistakes. This cuts rework and leads to better results for clients. It may also lead to bigger projects and more billable hours.

Let’s look at some specific tactics you can implement:

• Minimize Time-Consuming Tasks. Track your time to identify tasks that consistently eat up large chunks of your or your team’s time. Can you find ways to simplify these tasks? Can you use technology to automate them, or give them to someone else?
• Prioritize High-Value Activities. Focus your energy on the tasks that generate the most revenue. This might mean more time on client communication. It could be for strategy sessions or core projects. The exact focus depends on your business.
• Reduce Unnecessary Meetings. Team meetings can be valuable. But, too many or poorly planned ones can waste a lot of billable time. Set clear agendas. Keep meetings focused. Encourage shorter, more frequent check-ins instead of long sessions.
• Track Employee Time. If you have a team, consider using time tracking tools. They let you monitor how much time employees spend on tasks. This data is very valuable. It helps find areas for improvement. It also ensures everyone is using their billable hours well. But, be wary of creating a culture of micromanagement. Focus on overall efficiency and results, not micromanaging every minute.

The Impact of your Billable Utilization Rate 

Now you understand how to increase your billable hours. But, there’s another key metric to consider: your utilization rate. Imagine you’re running a software development company. Your utilization rate is the percentage of time your employees spend on billable client work. It’s compared to their total working hours.

Why is Utilization rate important? 

A high utilization rate can show that a team is efficient. They are making the most revenue they can. For example, if your developers consistently track their time and spend 80% of their hours coding for clients (billable work). The other 20% they spend on non-billable tasks like training or meetings. This is a high utilization rate.

However, it’s important to find a balance. While a very high utilization rate might seem ideal, it can also lead to burnout for your employees. They need time for breaks. They also need time for professional development and non-billable tasks. These help them stay well and productive.

How do you track your utilization rate? 

Many time tracking tools calculate this automatically based on the data you enter. Even if you work on fixed price projects instead of hourly billing, knowing your team’s use rate helps you estimate project timelines well. It also ensures you allocate resources well.

The goal isn’t to squeeze every minute into billable work. It’s about finding a healthy balance. It should optimize your team’s time and billable hours. It should ensure long-term success for your business.

Billable vs. Non-Billable Hours FAQs

Do I get paid for non-billable hours?

No, as a freelancer or consultant, you typically don’t get paid directly for non-billable hours. These are the hours you spend on important tasks that keep your business running smoothly, but you can’t directly charge clients for them. Examples include training, administrative tasks, and internal meetings.

What is the difference between billable and non-billable hours?

• Billable hours: The time you spend directly working on client projects that you can track and charge them for. This is the income-generating time for your business.
• Non-billable hours: The time you spend on essential tasks that you can’t directly bill clients for. While they don’t generate immediate income, they’re still crucial for your long-term success.

What is considered billable hours?

Billable hours typically include anything directly related to completing a project for a client. Here are some common examples:

• Project planning and strategy sessions
• Executing the project itself (writing, designing, developing)
• Client communication (meetings, emails, calls)
• Revisions based on client feedback

What percentage of hours should be billable?

The ideal percentage of billable hours depends on your business model and project type. Aiming for a high billable hour percentage can lead to burnout, while a very low percentage might indicate inefficiency.

Here are some tips:

• Track both billable and non-billable hours to understand your current ratio.
• Identify areas where you can streamline non-billable tasks.
• Invest in your skills and your team’s skills through training (non-billable) to potentially increase project scope and billable hours in the long run.