Many small businesses and law firms publish hourly rates upfront to ensure clear client communication. Given the effective ways to maximize billable hours in all firms, let’s look at how resource management software can help. Tracking billable hours is essential for a business as it provides valuable data for decision-making, supports effective project management, and contributes to the firm’s overall success. The more accurately you track your billable time, the better you can ensure you’re being paid for all the work you do. Without precise tracking, you might undercharge clients, leaving money on the table.
Productive also offers integrations with popular invoicing and project budgeting tools such as Xero and Quickbooks, so you don’t have to drop all your established workflows and preferred tools. Simply build your invoice in Productive, and then copy it into your preferred solution. This formula helps ensure that your rate covers your costs and meets your financial objectives. You can edit these time entries, round them for easier invoicing and payroll, delete them, or export them in PDF, CSV, or Excel format. You can also choose specific date ranges to show data from a specific time period and edit time entries. Again, it’s easy to create, edit, assign, and track tasks in Toggl Track.
Other companies invoice their clients twice a month, based on the volume of work tasks. In some companies, billable hours are also used to monitor monthly project cash flow and budgets. This way, you can find ways to optimize your processes and increase billable hours and profits. The billable hours are those directly related to the client and that can be billed to the client.
Managers or finance teams should periodically review time-tracking data to check for discrepancies. This ensures employees are following policies and that the company is capturing all billable hours efficiently. For example, if you work 2,080 hours during the year, and 1,900 of those hours are billable, your utilization rate is 91.3%. Measuring utilization rates can help you benchmark employee performance and increase profitability. If some employees are working more non-billable hours than billable hours, you might have poor cash flow and unhappy clients. It might seem unnecessary in the moment to track a 5-minute phone meeting or the two minutes it takes to send a work email.
Step 4: Review and calculate your billable hours
- This can direct you on which projects to bid on as your company grows and how to prioritize your current projects.
- Use a timesheet or time-tracking software to record your billable hours.
- Trusted by Roblox, Deel, and Lightspeed Ventures teams, Tackle helps executives, team leaders, and customer-facing professionals understand and optimize their time allocation.
- The billable hour is an easy concept to calculate and understand, and today’s levels of law firm profitability suggests little urgency to change.
Understanding billable vs. non-billable time ratio helps with forecasting revenue and managing business finances effectively. You also have client Y, who only required a handful of changes, which resulted in about six non-billable hours. Once you’ve identified your hourly rate, you’ll need to determine how to manage your invoicing process.
Non-billable tasks include activities necessary for business operations but cannot be charged for, such as administrative tasks, internal meetings, and training. Billable hours are the time spent working on tasks directly related to client projects that will be invoiced for. Tracking hours spent on client projects helps them get their pricing right, manage project scopes effectively, and allocate resources efficiently.
Set Non-billable Hour Limits
The key is to develop a habit of logging your time consistently and accurately. When clients can see a clear, detailed breakdown of the hours you’ve worked, they’re more likely to feel confident in the value they’re receiving. This transparency can reduce disputes and lead to stronger client relationships. Calculate the hourly billing rate by adding your direct costs, overhead, and desired profit, then divide by the number of billable hours you plan to work.
Employees must understand which tasks contribute to client work and which do not. Billable hours are the time spent working on tasks directly related to a particular client project. Disputes over billable hours usually come billable hours down to unclear communication.
It helps optimize pricing strategies and reduce the risk of underbilling, thereby improving overall profitability. Because it’s all in one place, your billing process becomes faster, clearer, and less prone to error. Add notes to explain what each time block covered, especially for longer projects. We ended up terminating contracts with two of our oldest clients after only a few months of using Productive.
The right tracking tool should reduce administrative burden while providing valuable insights into how time is spent across your organization. Most professionals round up to the nearest 6, 10, or 15 minutes, depending on the industry. Be sure your invoice shows clear time logs to support your billing method. Tracking chargeable hours is not just about keeping tabs on your work—it’s about maximizing revenue, ensuring client transparency, and maintaining legal compliance. In case your projects are about construction or architecture firm, you should read our list of architecture management software. Visualizing estimated vs actual time tracked helps easily identify bottleneck tasks so you can take action before they derail a project.
Early communication lays the foundation for a transparent client relationship as it sets clear expectations around deliverables. Honesty and transparency around billable hours can also help build client trust. This is probably the most obvious and the most difficult way to increase your billable hours. When you stay on track during business hours, you may be amazed to see how much your billable hours increase. Entries can be adjusted to account for breaks, making it easy to get an accurate count of all your billable hours.
Employee Monitoring
- This concept is prevalent in various service sectors, including IT consultancy, audit and accounting firms, legal advisory organizations, etc.
- If we know we’re doing 30% on internal projects, then we know we’ve got the capacity to take on more client work.
- It also instills confidence in the accuracy of calculated costs, reducing disputes and convincing clients to make timely payments.
- When you track every minute you spend on a project, you may be surprised to learn just how many tasks constitute your billable hours.
To that end, in July Eudia acquired Johnson Hana, a European legal services firm, adding over 300 lawyers to its offering. The company said Eudia Counsel will help more people resolve legal issues affordably while supporting small businesses and new entrepreneurs. The Wall Street Journal reported in October 2024 that major corporate clients were growing “indignant” at the stickiness of the billable hour. Treat non-billable time with the same level of importance as billable work. Encourage teams to log these hours to identify inefficiencies and make better decisions about workload management.
For law firms, tracking and managing billable hours is crucial for profitability. For clients, understanding billable hours can help them make informed decisions about the costs of legal representation. Firms should leverage time-tracking software to automate the recording of time spent on client projects, ensuring all billable activities are captured accurately and promptly. With features like project-specific timers, task categorization, and detailed reporting, time-tracking software helps eliminate errors, reduce administrative burden, and enhance invoicing accuracy. Tracking billable hours against the revenue generated helps companies assess the profitability of different projects or clients.
