What Are Billable Hours? How to Get Paid on Time
Almost all the work we do involves completing tasks for the benefit of a specific client or project. The one offering the service gets for their time rather than the final product or the overall service in many instances. This means the payment depends on how these hours are kept track of, and how an appropriate bill is applied.
Although seemingly simple, it can be easy to misconstrue what is considered billable and non-billable time. Continue reading to understand what is billable work, how to calculate billable hours, and how to keep track of the work for invoicing your clients (and following up with them as necessary).
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What is Billable Time?
Simply put, the term “billable” means something that can be billed or charged. In many businesses and agencies, billable hours are how workers earn their money. A billable hour is any time spent working on assignments or tasks that relate to clients’ requests.
Activities considered billable depend on the industry. Some industries maintain a general standard of billing clients by the hour. For example, lawyers typically earn their money from billable hours. Rarely—if ever—do you find a lawyer who charges clients based on how many documents they inspect or how many words they write. Billing based on time is more efficient for lawyers, and therefore, most lawyers in the industry practice this method of charging clients.
The rate at which a client gets charged varies too. Before a business, agency, or freelancer starts working with a client, they must first come to an agreement on the rate charged per hour. The overall rate fluctuates from industry to industry. Work of higher quality or precision, and done by prestigious or well-established businesses, tend to be more expensive.
What Can Be Considered Billable Work?
Again, what is considered as billable time varies between industries. For the most part, any time dedicated to a client’s project is deemed to be billable. For example, any time a lawyer spends reading documents, constructing arguments, or investigating a case that pertains to a client project, these hours are considered billable.
Other examples across the different industries include:
- Communicating (mostly with the clients through email or phone)
The bottom line is that the work must pertain to a client and the project for which they are paying.
Industries that Typically Bill by the Hour
Many industries bill their clients based on time, usually based on how many hours they worked. Ranging from law to advertising, several sectors of work use this form of charging a client.
Lawyers, along with other legal professionals, spend a lot of time on multiple tasks, each task usually relating to one client. As a result, it is most productive to charge clients based on their time spent working rather than charging them for each activity. If law firms were to use the latter method, they would have to bill clients for every task completed like research, investigation, and document reading—therefore, calculating billable hours remains the preferred method.
Consultants aid people in different areas of work, from business and marketing to education and administration. They have to practice effective communication, constructing recommendations, and may even conduct research. Due to the wide range of work they may have to undertake while on the job, it is best to charge clients based on the working hours dedicated to their project.
Advertising agencies work with a client, create recommendations, creatively apply marketing techniques, and produce creative artefacts for advertising. All this work implies many tasks, such as research, communication, and product development. For this, it is best to charge a client for the hours worked.
When working as a freelancer, the product does not always necessarily reflect the number of hours put into a project. Often, there is a level of research done to construct meaningful and practical creations. The more well-established creators typically charge by the project, but it is still quite common to see this billing method in the creative industry.
Web developers, like ad agencies and freelancers, work with a client to build a product: usually a new website or app. To do this, developers must spend time doing the appropriate research for a product, planning the project, and designing and developing. As a result, billable hours can be an effective way to charge the client for these different activities.
Are you noticing a pattern? Billable hours come into play when there is no definitive way to charge a client for a product or service that accurately includes all the time spent on it.
What is the Difference a Billable Hour and Non Billable Hours?
While working based on time, there are two terms to understand: billable and non-billable. Billable hours consist of anything that directly involves a client’s project. This can be done at any site at any time. As long as it advances a client project, it counts as billable time.
Non-billable is time spent related to work in general but which does not contribute to a specific project. A client should not have to pay for something that does not directly involve their case, product, or service. General administrative tasks, networking, or furthering your education in the field do not count as billable time.
How to Know If Your Time is Billable
You may get confused with the difference between billable and non-billable. In certain professions, there can be a fine line between what to bill a client for and what to save for your expenses. So, if you have doubts, you may want to consider the following:
- Is the time I use benefitting the client and their project?
- Does this activity follow the guidelines found in the contract with the client?
- Is the billable time done upon the client's request, or is it a result of my errors?
- Does the task benefit the client or me?
Asking yourself these questions may help you better determine whether or not you accurately bill a client.
What Are the Pros and Cons of Billable Hours?
Billable hours are usually a pro for the worker rather than the person who has to pay for their rate. However, since there is typically a contract involved, the customer has more room to dispute or challenge certain items within the contract. Plus, they get the specifics on the tasks they pay for and the total rate.
As for the worker, business or freelancer, billable hours mean that they have more flexibility in setting their work schedule. There is no appointed day in which they have to conduct their work. The day that they should focus on most is the deadline. They should also consider when to contact their patrons. Another advantage for the worker is that they have a say in the rate. Usually, customers and the service provider discuss an appropriate rate.
One of the most significant disadvantages of billable hours is that a client may pay for the time for completing the work rather than the quality. This can be detrimental to a service provider who can deliver high quality work in a fast and efficient manner.
Additionally, a customer may also pay more money for a more experienced worker rather than a new employee when they may end up with the same quality of service. Again, this is an instance where the rate can be disproportionate to the quality.
Another con of billable hours is the cap on fees. If not explicitly expressed in the contract, then the worker has the power to work for as long as they want, with no cap on their fees. Sometimes a service provider may argue against a cap, claiming that they do not know how long a project is going to take. This can be an issue for the client, unless the project is closely monitored and safeguards are in place.
How to Track Billable Hours
In tracking your billable hours, you must first set up a rate. An hourly rate is the most common (as opposed to daily, for example). Be sure to research industry salary standards, keeping in mind your level of expertise and amount of experience. There has to be a common agreement between you and client on the rates as you set up a contract.
Before getting to work, it would help if you set up a time log. You can do this manually or use digital software as an online spreadsheet to keep you organized. Do what is best for you: whether it is with pen and paper or on your computer. Remember to use a timer so that you accurately track the number of hours spent on a specific customer's project.
To stay organized, track track how many billable hours are spent on each project. When invoicing comes around, an organized log categorized by the patron is your best friend.
The last thing relevant to tracking billable hours is sending the invoice. Calculate the total hours for each customer and send out a professional and accurate invoice.
How to Increase Your Billable Hours
You may end up with a smaller count of hours than you were expecting for a workday. Luckily, if you efficiently upgrade the way you count these hours, then you may see positive growth in the future.
The first thing is to count total billable hours accurately. The best way to do this is to start a timer when you begin and end. If you have a quick phone call with the customer, include that! It still counts as time used to advance their project. Even count the time it takes to send an email to a customer. If you are more accurate in the number of hours, then you can see a build-up of time at the end of the day.
Another way to increase your billable hours is to track time that does not go toward the billable hours. Identify how much time you spend doing other things. For example, track how often you complete administrative tasks. Over time, these hours add up and take away from your billable hours. Another example is to look at how long you take invoicing. A more efficient alternative to this is relying on automatic or digital invoicing services.
To increase your billable hours, you should also investigate how often you procrastinate on work. Yes, it may take time to charge up for the day, but this also takes away valuable time that could count toward your billable hours.
By making some small adjustments to your work schedule, you can enhance the number of billable hours you collect at the end of each day.
Common Quick Questions About Billable Hours
What is a Good Percentage for Billable Hours?
A good percentage depends on the industry and your schedule. It also depends on your motivation to rack up a consistent amount of time per day. To track your percentage, take the number of billable hours and divide it by the time you spent working. This gives you the percentage of the money you earned for all the time spent working. A good percentage could be anywhere between 75% and 100%.
Is 2,000 Billable Hours a Lot?
This is where the industry becomes critical again. The amount of time spent on a job varies from each assignment and the number of tasks they require. 2,000 is considered a 55-hour workweek. Thus, this can seem like a lot, considering that a full-time worker typically works about 40 in a week. However, the time that you spend could also lead to a bonus.
What is a Billable Expense Income?
A billable expense income is an addition to a customer's invoice not based on time. Instead, this is the money they pay to cover any extra expenses that may have accumulated on their behalf during the project.
Is Billability a Word?
Although it makes sense as a word, this term is not an official word in the English language.
Why are Billable Hours Important?
These are critical because they determine the income of a worker based on how much time they spend working. Professions such as lawyers, marketers, and freelancers all use this to determine how much money they earn. They must be specific in how much time they spend working to receive an appropriate income.
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