What are Billable Hours and How to Efficiently Track Them
January 09, 2023
To bill or not to bill—that is the question.
Tracking billable hours is one of the easiest ways to improve your company’s productivity and make invoicing easier. But what exactly are billable hours, and why should you care about them?
In this article, you’ll find out what billable hours are and how tracking them can help you stay at the top of your industry. On top of that (pun intended), you’ll learn how to create invoices easily using a free online generator!
So, let’s dive straight into it!
What are Billable Hours?
Billable hours are the total amount of time you spend working on tasks related to a specific project for your client. Then, you use these tracked hours to charge your clients according to your hourly rate.
What is considered a client-related task varies from business to business. Here are some typical tasks that various types of professionals consider billable:
- Conducting research
- Planning projects
- Coming up with project timelines
- Attending meetings with clients
- Reading and answering work emails
- Revising projects at the client’s request
- Performing work toward completing the specific project
To better understand billable hours, take a look at an example. Let’s say that a writer spends 3 hours on research, 6 on writing, 1.5 hours on editing, and half an hour on email communication. In that case, they would have 11 billable hours in total. If they charge $30 per hour, they would earn $330.
Why is Tracking Billable Hours Important?
One of the biggest reasons billable hours are important is that they make it easy for you, as a business owner or an independent contractor, to figure out how much you charge your clients.
Knowing how much time it’ll take you to complete a project will help you set an hourly rate, which will in turn allow you to make money and maintain a sustainable cash flow. According to a Harvard Business Review article, companies that don’t track billable hours lose up to $50,000 annually.
Billable hours are essential for various industries that usually bill by the hour. Some of these include:
- Freelancers, such as graphic designers and photographers
- Web developers
- Public relations firms
- Consultants, lawyers, law firms, and other legal professionals
- Advertising agencies
What are Non-Billable Hours?
You can’t bill all of your hours to clients, regardless of whether you're a freelancer, small business owner, or an independent contractor. Here are some examples of tasks that are not considered billable:
- Business marketing
- Reading and answering internal team emails
- Networking, team buildings, training events
- Business planning
- Administrative tasks
- Developing new project proposals
- Meetings with new clients
- Consultations that take place before starting a project
- Work that’s not defined in your contract or invoice
- Fixing errors you could have avoided
- Invoicing, processing payments, and handling paperwork
How to Tell if Your Hours are Billable
To precisely evaluate whether you can bill your clients for certain hours, ask yourself some of the following questions:
- Does the time I spend completing this task contribute to project completion?
- Does the time I spend on the task benefit the client or me
- Is the task I’m working on included in the scope of work or in the service-level agreement (SLA)?
- Did the client request I spend time on the task, or is it driven by mistakes on my end?
How to Track Billable Hours in 6 Simple Steps
Now that you know every important detail related to billable hours, let’s learn how to track them!
#1. Determine Your Hourly Rate
First things first, before you even begin tracking your billable hours, you should determine your hourly rate. This is the rate you’ll charge clients for your work, which will ultimately go on the invoice you provide them.
Once you find out what the annual salaries of your competitors are and have a precise number in your head, divide it by the number of working hours in a year. A typical year has 2,080 working hours if you’re working a full-time job.
After coming up with an hourly rate, consider slightly raising it to compensate for the time you’ll have to spend working on non-billable tasks, such as pitching new project ideas.
#2. Choose an Invoicing Schedule
The next step of the process requires you to determine when you’ll send your invoices. Generally, most freelancers and small businesses have monthly billing cycles, and they send their invoices on the last day of the month.
But this rule doesn’t have to apply to you, as you can charge your clients whenever you want. For example, you can send bi-weekly or bi-monthly invoices or even send advance invoices at the start of each month.
#3. Create a Time Log
Next, you must create a time log where you’ll actually track your billable client. You can do this manually by using software like Microsoft Excel, which has templates for exactly this purpose. Simply fill in the columns by adding the following:
- Client name
- Project name
- Description of the tasks performed
- The date and the time spent working on each task
#4. Track Your Hours by Project
Once you have a time log, it’s important to remember to record your billable hours for each specific project. This will allow you to know exactly how much work you have completed for each client when you’re creating your invoices.
Another benefit of tracking billable hours this way is that you’ll know exactly how much time you're spending on each client or project per billing cycle.
#5. Review Your Time Log
Although this step is not necessary, it’s certainly recommendable. Namely, you should review your time log, calculate your total billable hours for the project, and see whether it matches the actual time you worked.
#6. Make a Detailed Invoice
Last but not least, you must create an invoice, which you’ll forward to your clients so they can pay you. You should try to make your invoice as detailed as possible, so the receiving party will know what exactly they’re paying you for.
Although invoices differ from business to business, they generally contain the following:
- Your company information, including name, address, phone number, email address, logo
- Your client’s contact information, such as phone number, address, email address, etc.
- A breakdown of the services you provide
- The billable hours for each itemized service
- Payment terms, including total price, payment methods, deadline, etc.
- Applicable taxes (if any)
Learn to Create a Top-Notch Invoice the Easy Way
Making an invoice can be difficult and time-consuming, especially if you’re doing it on your own and using the wrong software.
For example, if you use Microsoft Word, you’ll have to write each section of the invoice from scratch, which will take a lot of time and can produce some unnecessary errors.
So, how do you actually make flawless invoices without wasting too much of your time? The answer is to use free online invoice generators. They are super simple to use, and they can provide you with tailor-made invoices in an instant. Here’s how they work:
- Open the free invoice template
- Fill in the empty fields
- Preview your document
Once you’re done, you’ll be able to instantly download your invoice and then forward it to your client, either in physical or digital form.
Benefits of Tracking Billable Hours
Are you still debating whether you should track your work hours? Check out some of the benefits you’ll reap from tracking billable hours.
#1. Better Estimates for Future Projects
By tracking billable hours, you’ll know exactly how much time you put into completing a certain project. You will have all of your tasks listed in one place, and you’ll be able to see which ones took up most of your time.
This way, you’ll be able to create better estimates for your future projects, which will reduce the chances of you leaving clients unsatisfied. Knowing whether you have time to complete a certain project or whether you can complete more than one project at a time goes a long way.
#2. Easily Determine the Profitability of Projects
Billable hours are the key metric when determining whether the project you’re working on is profitable. Basically, you’ll want to bill more hours than your costs, which in turn means your business is making money.
#3. Makes Invoicing More Accurate
Having detailed invoices is super important if you want to avoid any client disputes. More importantly, it will help you get paid for what you’re worth without underselling any services you provide.
On top of that, providing your clients with invoices in which you list precise billable hours will help you gain their trust and maintain a positive business relationship.
#4. Keeps Productivity at Maximum
If you’re leading a team of professionals, tracking billable hours will help you determine whether your employees are working efficiently. They should track the hours they work on all of their tasks, so you can be assured that you’re giving them salaries that they actually deserve.
You will also be able to increase the productivity of your team because you’ll know who’s working hard and who’s slacking. But, most importantly, you will be able to reward the employees who perform at their maximum or even above their expectations.
Tips for Increasing Your Billable Hours
To help you increase your billable hours and in turn earn more money, we’ll provide you with some handy tips in the section below. Let’s check them out!
#1. Track All Your Billable Time
One of the most crucial things you can do to increase your billable time is to track all of the tasks you work on. Although it might sound funny to track a 10-minute meeting or a phone conversation, these small increments will add up over the span of the whole project.
So, track every minute you spend working on your client’s project, whether you’re answering emails or having meetings.
#2. Record Your Non-Billable Time
Besides tracking billable hours, you should also track non-billable time. Like the previous tip, this one might sound silly, but tracking your non-billable hours will allow you to look back at a certain workday and determine how you can become more efficient.
For example, if you spend a lot of time during the day on administrative tasks, such as scheduling meetings, you might want to hire an assistant to help you with the workload. This way, you’ll save some time, and you’ll be able to focus more on the actual work.
#3. Track in Real Time
If you don’t want to overlook any billable time, you should track all of your hours in real-time. Start tracking whenever you start working and stop only when you finish a task.
This is much easier than looking back and trying to add up how many hours you’ve worked on a specific task or project.
#4. Don’t Procrastinate
Although it might seem obvious and hard to do, you shouldn’t procrastinate if you want to increase your billable hours. This is especially true if you’re a freelancer or if you work from home because it’s super tempting to scroll social media rather than do your job.
One of the best tips we can give you is to clear your workspace of any distractions and even track the time you procrastinate. Once you see how many hours you spend on YouTube or Instagram rather than working, you’ll be surprised at how willing you’ll be to stop doing it.
#5. Use Additional Software
A super efficient way of increasing your billable hours is to use additional software other than Excel. There are numerous applications on the internet that track your working hours in your stead and calculate them for each of your projects or clients.
One of the best tools you can use for this is ClickUp. This is a project management tool that you can use to track every bit of time you spend working on a certain task. Simply create an entry for each client, name your project, create some tasks, and start tracking!
The biggest benefit of ClickUp is that it allows you to track your hours in real-time. All you have to do is click on the little play button when you start working and pause when you’re taking a break. The hours will add up for each entry, and you won’t have to enter anything manually!
#6. Set Goals for Your Billable Hours
Based on the amount of time you have available to work each week, you should set a goal for your billable hours for every day or week you work. This will allow you to free up a lot of time you’d otherwise spend on non-billable tasks.
For example, let’s say that you want to work 30 hours during the week. Once you have a specific amount, break it down for every day, so you work 6 hours per day instead of ramping up hours by the weekend.
#7. Regularly Review Your Work
Once you get into the routine of tracking billable hours, you should make sure to review them regularly. Don’t forget to check what you or the team of people that you work with have accomplished during each day or week.
This will allow you to see whether there are any discrepancies in the work, whether anyone is not performing well, or whether there’s any issue with your tracking.
Software like ClickUp will give you precise numbers on how much everyone in your team worked, the total hours, and how long each specific task or project took to complete.
Whether you’re an independent contractor, freelancer, or a small business owner, chances are that you can greatly benefit from tracking billable hours, one way or another. Hopefully, this article has helped you decide whether you should track your work time.
Regardless of your choice, feel free to check out our invoice generator to make these important documents in no time. On top of that, we can provide you with tailor-made MISC-1099 forms, W-2 forms, pay stubs, and more.
- Billable hours are the total amount of time you spend working on a client’s project, which you can use to charge your clients according to your hourly rate.
- Some of the most common professionals that track billable hours are freelancers, web developers, public relations firms, consultants, lawyers, and others.
- To track your billable hours, you must first determine your hourly rate, choose an invoicing schedule, create a time log, and then track your hours by project.
- Tracking billable hours is important as it allows you to better estimate future projects, improves productivity, and makes invoicing much easier.
- To increase your billable hours, use additional software, track in real-time, and don’t procrastinate.