Billable Hours Guide: Tracking Tips to Increase Profits by 20%

Billable Hours Guide: Tracking Tips to Increase Profits by 20%

how to calculate billable hours

When tracking billable hours manually with a billable hours chart, most lawyers adhere to 1/10th of an hour (aka six-minute) increments. And while there are several software available today, Time Doctor is the best tool for tracking and calculating billable hours. It offers advanced time tracking features for efficient and effortless payroll management. Lawyers, like freelancers, billable hours typically have a large number of clients that they’re juggling at once. 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 their hours logged per year. So, as you can imagine, keeping track of your hours as a lawyer is extremely important.

Knowing how long it takes you to complete a project helps you set an hourly rate that allows you to make money and run a sustainable business. 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. As a freelancer, you typically have several on-going 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.

Set rates for billable hours

As a result, you will gain your client’s trust, which will enable you to attract more potential customers in the future. Non-billable work means lower profits and higher labor costs. When your employees spend most of their time on non-billable activities, it’s hard to grow your business without adding more people . Billable hours are the bread and butter of professional services firms. Unlike manufacturing, which sells a product, or retail, which sells a service, professional services firms sell the time they spend working. Accurately tracking billable hours is a common challenge for many businesses.

how to calculate billable hours

If you bill your clients on an hourly basis, you need to be cautious of how and where you invest your time. Billable hours are defined as the time frame or amount of time that a contracted person worked on a specific case in which they can legally bill or charge for that time.

Microsoft Excel Alternatives to Use With Your Team

You might think you’re only spending five minutes on a task, but when you look at the clock, it’s been an hour! Tracking billable hours will help you keep your finances in order and make sure you get paid for every minute of work you perform for clients. According to DrewMcLellan of the Agency Management Insitute, the gold standard for most agencies is that 75% of your available hours should be spent on billable tasks.

  • We surveyed 100 companies and found that most service-based companies that bill hourly require employees to bill at least 31 hours per week.
  • For example, attorneys in legal firms must work a certain number of billable hours each year.
  • It gives you this baseline you can look at later on to predict what kind of planning will give you what outcome.
  • Once it’s time to send the client the bill, all you have to do is head over to your invoices tab within Hubstaff.
  • You’re absolutely right in that using billable utilization as the sole, one-dimensional metric to run the business can be counterproductive.

Summer vacation is the best time of the year to recharge the batteries and have some time off. But are we able to shut the laptop off and enjoy the holidays … This article offers a full guide to creating invoices for your services. The type of tasks that fall into the billable bucket will vary from business to business. In reality, we don’t see people using these more rigorous statistical methods to set min and max targets that often.

Calculating Pass-Through Expenses

It is a much more holistic measure that thinks about all of the work in a professional services organization, not just billable or chargeable. It’s work that can be delivered internally that helps advance our business overall. Every professional services manager—from the executive leadership level to delivery managers to department heads—tries to improve billable utilization.

how to calculate billable hours

Standard increments for dividing the hour are either by 6 minutes or by 12 minutes. If you’re billing by larger increments, that might not be as accurate and favorable to your client. Tracking work hours helps you as a PM to know how much time your team uses. You can delegate tasks before your team burns out because you will be able to tell if they are under too much pressure.

That’s why I recommend focusing on Gross Margin when assessing client or project level profitability and reserving net margin analysis for broader contexts in your agency. The bottom line is that if we’re looking at the project/client level – we generally want to focus on Gross Margin first. This is because it helps us understand how efficient we are at earning revenue in our agency or service business. I see this most often when questions about overhead and billable capacity come into the fold. This usually happens when someone is trying to work backward from project-costing to net-profitability.

  • Billable utilization rates are the total employee billable hours, as a percentage of total working time.
  • In this tutorial, I am going to show you 4 effective ways to calculate billable hours in excel.
  • Tracking time is not difficult and once you get a hang of it, you will find it to be more useful.
  • Despite this, these billable hours vs actual hours worked cost the workertime and money.
  • Trackingnon-billable workshines a light on the activities of your business.

For example, if your average cost per employee is $75,000, a good revenue per employee would be $150,000, a great one would be $225,000. I can understand why you might think that, but I’ll remind you that we’re using this cost per hour number to calculate our Gross Margin. Generally, we think about this in terms of how many hours per week we’re paying them for in a given period of time. I know labor burden cost isn’t a very fun name, so you’re welcome to call labor costs whatever you want. An easy way to model this is to add what we often refer to as a “Burden Cost” to an employee’s salary as a percentage.

You’ll also be able to identify which clients or projects use more of your time than others and adjust your rates accordingly. Hopefully, this post showed you that tracking billable hours is not complicated.

  • One of the best ways to track your team’s hours is with Hubstaff.
  • Separating billable and non-billable tasks inside Toggl Track is straightforward if your projects and tasks are already set up.
  • But fostering creativity in the workplace is about more than physical …

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