Why Tracking Non-Billable Hours is Essential for Businesses & Hagrid Keeps Cutting Profit Margins

Most organizations will track billable tasks religiously because they think that’s where all the profit is. The problem with such one-sided tracking is it blinds you to the many hours and piles of non-billable activities. Those are like bleeders and can change profitable rates to ones that don’t rake in as much cash. But what does Hagrid have to do with profit margins?  

Below, we tell you all about it and bring the right reasons and ways to track what’s going on in the background to light: 

What are non-billable hours?

Time your organization spends that doesn’t benefit a specific client, but the company as a whole is non-billable. For instance, everything Hagrid does when he isn’t teaching—and sometimes, even then. The illegal crossing of dangerous species, the mysterious shopping trips that take him to shady places, and letting students get nipped by magical creatures. He spends so much time collecting material for his classes but those hours are also examples of nonbillable hours. 

Can you imagine what it must be costing Dumbledore McGonagall?

Examples of Billable vs. Non-Billable Hours

Billable work hours get billed directly to a specific client. Therefore, each of the following activities is a billable hours example:

• Meeting with a client or taking their calls 
• Working or planning for a client’s project
• Completing revisions or edits on deliverables
• Time you spend traveling or visiting a client

Non-billable hours, on the other hand, encapsulate everything you do while at work, but you cannot charge a client for. Mainly, it’s because these activities enable your business to continue functioning. However, there can also be project-specific expenses among them. 

Common non-billable activities include:

• Business development to get new clients via research, bidding, making proposals, and designing pitches or strategies for marketing and advertising
• Most company meetings, including non-client-related brainstorming sessions 
• Staff/employee development and training
• Entertaining clients
• Attending conferences and other networking events
• Admin and operational tasks, such as bookkeeping, time tracking, expensing, invoicing, and company finance management

Why do you even need to track non-billable hours?

In a few words, track those hours if you want to get more value out of them. Here are some more benefits in detail. You can:

Start Setting Profitable Billing Rates

Ideally, you set costs so that all client work would turn up a profit for the company. However, much of it gets diluted due to the non-billable activities going on in the background. For instance, the Fellowship’s duty was to get the One Ring to Mount Doom. That part was the moneymaker, sure. But nobody said the expenses would also include exorcising kings, leading undead armies, and hitting mad stewards on the noggin. So, how do you bill for that? More importantly, who do you bill for it? And how much?

Figure 2. Not to mention rescuing kidnapped hobbits who have been taken to Isengard and don’t even have the ring!

So, when you monitor both billable vs non billable hours, you can determine the true cost of a project. Your non-billable tasks may not look like much when a billable hour brings in $200. Heck, it even looks lucrative. However, you’re actually making $13/hr if it takes you 15 hours of prepping to start working! Without basing the cost on both billable and non-billable hours, you: 

• Cut into the company’s profit margins
• Devalue hours’ worth of prep, including gaining a new client or hiring talent

Better Manage Project Economics

With thorough time-tracking, you can analyze which tasks are de facto project work—and thus billable—and others that aren’t. For instance, you cannot send a bill for taking a client out to dinner. However, delivering impromptu progress updates when a client requests them is project-related. It could help you retain and improve your relationship with them.

What’s going outside the billable hours is evident:

• Hourly rate has gone down from $150 to $120 due to prep time
• Time spent receiving client calls and completing revisions exceeds what you do for other similar clients 
• Admin tasks extend the process by 5 hours.

Your project manager can then decide whether future business from the same client is sustainable. If it’s the latter, they could move towards more effective client management, contract renegotiation, or re-tacking the standard rate instead of a discount. Finally, if it’s not possible to protect a project’s economics, your project manager should rethink the relationship with the client-in-question. 

Determine Employee Productivity, Availability, & Boost Accountability

Compare billable and non-billable hours an employee puts in, and you can figure out how productive they are. If they spend more time doing non-billable activities, find out why. However, the skewed division could be because they handle only one project while other teammates are involved in several. Redistributing the workload to avoid overwhelming them can increase that employee’s availability. 

Time-tracking of both kinds of tasks—non-billable and otherwise—can also improve employee productivity. For instance, a firm saved $7-14k when it outsourced 30 hours of a resource to a tech consultant. The resource had a billing rate of $300-600 per hour, while the latter’s was $65 per hour. That’s a huge difference to the dotted line with just one resource!

Encourage transparency within your staff by time-tracking all hours, i.e., billable vs non billable hours. They’ll know how they are spending company time. As a result, you may see a boost in employee accountability. 

Improve Future Billing Estimates

Evaluate pre-existing data and separate non-billables from the billables. Then reduce the unnecessary ones and automate or look for ways to make the necessary ones more efficient. Once you do that, you’ll improve the accuracy of your project plans in the future. In other words, you’ll know exactly how long any project will take to complete.

Not to be missed: How Project Planning Ensures Better Resource Utilization

4 Tips for Tracking Non-Billable Hours

You know the billable hours best practices already. And now that you’ve decided tracking non-billables has merit, let’s see how you may go about it:

Establish Categories

Realizing the above benefits will only be possible with a meaningful categorization of the non-billable tasks. Therefore, we recommend tweaking Berg & Jackson’s methodology to suit your needs. It involves:

• Listing all recurring activities: Sit your team down for this task and draft a comprehensive list of all tasks besides the core work of the business.
• Match to label and connect: Throw similar items together to create the smallest possible number of high-level categories. For example, Office Management can refer to both restocking the stationery cupboard and managing databases.
• Strategize to simplify: Keep whittling the list down until you arrive at fewer than eight categories. Then, start with the most meaningful to prioritize.
• Refine and let evolve: If you don’t review the categories you’re left with, your list won’t reflect the changing dynamics of your growing business.

Find a Balance 

The breakdown for a resource working for most businesses takes the following shape:

• 6-8%- Off days, including public hols, vacations, and sick days
• 10%- Overhead and admin
• 80%- Billable work (1600 hours/year)

Walking the range between 60-80% of billable time is beneficial for most firms. So, time-tracking—both types-- helps you put a value next to your billables. In addition, you can use it to ensure the company’s billability isn’t low. Otherwise, you’ll see a steep decline in profit at fixed costs.

However, this doesn’t account for several spanner-in-the-works, aka, time spent on things, such as:

• Meeting additional client demands
• Growing the business
• Staff development

Moreover, the breakdown doesn’t allow for variation across resources, task specialization, and management layers. For instance, senior management should have lower billability targets. That’s because they’ll often be busy with the firm’s growth and client relationship. Likewise, how do you assign a target to the support staff? Your company’s niche and target audience will also affect the targets you pick. In short, you’d have to keep experimenting with different time-based revenue structures to hit that sweet spot. That will be your ideal balance.

Automate and Increase Efficiency of Non-Billable Processes

Admin work usually consists of repetitive tasks, such as email marketing, invoicing, and payroll. All companies must allocate a huge chunk of their time—close to 45%--to those even though they don’t directly contribute to the bottom line. Additionally, Accelo’s study shows firms lose around $50,000/year on answering emails—only emails! 

Since you cannot get rid of them, do one of the two things:

1. Automate repetitive tasks using low-cost tech and software
2. Increase efficiency by outsourcing essential but non-billables

Offloading those dreaded tasks frees up your time and the energy you’d expend on them. You’ve already seen the example above. Try the former for these:

• Scheduling
• App transfers
• Proofing and updating
• Data collection and management

Build a Healthier Company Culture

Finally, if you know where your organization stands regarding billable vs non-billable hours, you can use it to improve staff retention. First, demonstrate your firm derives value from both the amount of money they bring in through billable hours and the non-billable hours they put in. Then, retain the balance we mention above to build an enviable company culture.

How can you track non-billable hours accurately?

It’s possible to track non-billable hours if you do it in the right way. For instance, most firms that do monitor both types of activities do it with a timesheet. Sure, timesheets are visual tools ready for optimization. However, making and maintaining them are manual and time consuming tasks. Some businesses will pick templates to reduce the time spent making a timesheet. However, if you do that, you’ll still need to optimize it and spend more time maintaining it.

Not to be missed: Why You Should Switch From Manual Timesheets to Smart Time Tracking  

So, don’t add to the work you already have to do. Instead, improve productivity and tracking by choosing a time tracker like timegram. It has several useful features, including:

• Tracks everything automatically - no need to start/stop timers (finally!)
• Runs silently in the background so that it is not in-your-face
• Allows tracking time against tasks and projects so that you know exactly about your team’s performance 
• Automatically converts billable hours into invoices so that you can accurately bill your clients without a shred of discrepancy 

Conclusion

If you track only billable time, you only have your eye on recording immediate revenue. Instead of monitoring only part of your work, empower your team to be more efficient, profitable, and effective. Track your non-billable hours for a holistic oversight of all activity, task visibility, and high accountability. It’s doubly useful for smaller teams and SMBs with limited resources.