How to Manage Non-Billable Hours & Profit More

Have you ever wondered why your business isn’t seeing higher profits, even though you’re constantly on top of all your tasks? You manage client communication, prospect and pitch new clients, handle invoices, and take care of everything else—but the revenue remains stagnant. If this sounds familiar, if I were you, I’d blame it on the non-billable hours.

Allow me to explain.

Your business activities are, most likely, oriented towards achieving your clients’ goals.

You do everything in your power to deliver quality work to them, ensuring you see genuine smiles on clients’ faces.

But not all the tasks you (and your team) handle contribute to creating deliverables. For example, preparing proposals, contracts, or even invoices aren't tasks tied to client satisfaction. They're admin activities that you, as a business owner, are expected to complete to keep your business running smoothly.

And if you think about it, you wouldn’t bill your client for preparing a proposal/contract or an invoice, would you? Or maybe you would?

Whatever the answer, it’s essential to distinguish billable vs. non-billable hours. Failing to do so can lead to inaccurate invoicing and, ultimately, a loss of profits.

Not convinced? I’ll explain everything as we go.

So, in this article, we’ll help you understand the difference between billable and non-billable hours, as well as ways to optimize your non-billable hours and ensure your business generates more profit.

Let’s dive in.

Billable vs. non-billable hours: a quick breakdown

The main difference between these two types of hours is hidden in the following: billable hours are those spent working on client projects (and the ones you invoice to clients), while non-billable hours are not.

Billable hours

No matter if you work on a flat fee or charge an hourly rate, chances are that billable tasks are outlined in a contract between you and each client.

Clients usually ask you to estimate how much time you’ll spend on a project before signing a contract so they know the budget they need to allocate. Understandably, it’s up to you to give them a fair price and deliver within the allotted timeframe.

Non-billable hours

The easiest way to describe these hours is to say that they include activities you do for your own business benefit so your company can continue to grow.

Now, because these hours are not billed to clients, they count as business development expenses. And because they count as costs, you need to track them so you can make informed decisions about automating your operations to increase profitability.

And here’s a quick non-billable hours rate formula to give you a perspective on how these hours are calculated:

Is there a way to find a balance between billable and non-billable hours?

Billable and non-billable hours are like two peas in a pot; they both play a vital role in keeping your business running smoothly.

That's precisely why you should find a balance between these two. You can do so by calculating the utilization rate.

We covered everything related to utilization rate in one of our recent articles. If you don’t want to jump between the posts, the key takeaway is that this rate depends on the amount of non-billable work: the higher your utilization rate, the less non-billable activities are being performed and vice versa.

Now, for a typical company, the utilization rate falls between 60% and 80% because of paid time off and sick days. This means up to 80% of your time should be spent on billable work, while the remaining 20% can be non-billable.

But if we are talking realistically, the 60%- 80% range is just that: a range that varies between industries. That's why I recommend you not hold on to these numbers but define and track your non-billable activities so you can better understand your billable time. Here's how.

Well, the math is rather simple: your total hours consist of billable and non-billable time.

If you only track billable hours, you don't have full insight into how much of your time is going to non-billable activities. By tracking non-billables, you can calculate the ratio of billable to non-billable hours, giving you a clearer understanding of how efficiently you're using your time.

And that's when you get a billable utilization rate that consists of billable hours divided by total work time. This calculation will help you understand whether you're billing less than originally thought and your next steps: reduce non-billable time or adjust your rates to account for non-billable work.

How to reduce non-billable hours

Understanding how non-billable hours impact your profitability is the first step. Now, let’s dive into four practical ways to keep those hours in check.

#1 Track non-billable hours

Here’s a shocking fact: according to Affinity Live, many companies miss out on about 700 billable hours each year simply because employees don’t track their time correctly for emails or meetings.

Crazy, huh?

Not really. The logic is there: if you don’t track your time properly, you won’t know how you spend it. And if you don’t know where your time goes, you don’t know where your money goes. As simple as that.

So, introducing a time tracking tool is a must.

But not just any tool. I recommend one that won’t disrupt your work and will make time tracking seamless.

A tool that won’t leave you or your team having to stay late after work to calculate all the hours and update information in Excel spreadsheets.

A tool like Memtime.

Memtime is an automated time tracker used by IT companies, digital agencies, and law firms among others. The emphasis here is on “automated”. Because with Memtime you don’t need a tutorial on how to use the tool; you just open it and it starts tracking time for you. Our app will capture your activity in programs, files, documents, and browsers 24/7.

Here’s what Memtime can do for you:

From all the aforementioned, it’s safe to say that Memtime can help you track billable and non-billable hours and ensure you measure non-billable activities quickly so you can decide how you want to handle them.

If Memtime sounds right up your alley, check out our 2-week free trial. You won’t be auto-charged when the trial period ends, as no credit card is required; you can sign up with just your email.

Still not convinced you should track non-billable hours?

Here are multiple reasons to start tracking your time and non-billable hours:

#2 Standardize non-billable hours

The second step should motivate you to interpret internal business processes as expenses and move you toward standardization.

Why?

Because lack of rules一in this case standardization一leads to confusion and inconsistency. If you or your employees acted based on your own interpretations of non-billable hours, it would lead to inefficiency and conflict with clients.

Here’s how you can standardize non-billable hours:

• Create a document that clearly defines billable and non-billable hours.
• Add instructions to help you (or your employees) categorize potential tasks into these categories.
• Add instructions on how to record and report on hours.
• Share the document with your clients so they are aware of how they are billed.

#3 Outsource non-billable tasks

According to Consultancy, managers and leaders spend 19% of their working days on admin tasks.

To put things in perspective, managers who worked 7.5 hours daily spent almost an hour and a half (1.425 hours, to be exact) working on admin tasks. Now, multiply that number by 5 working days and you get 7.125 non-billable hours, meaning that almost one working day gets lost every week on non-billable hours. That’s a lot of hours!

That’s why I recommend you outsource the non-billable hours that don’t require being immersed in your brand and business to perform. That way, you won’t be using internal resources and will save time and money.

Losing time on bookkeeping? Hire a bookkeeping company!

Tired of sending cold pitches to potential clients? Hire a talented outbound sales professional, a persuasive communicator, to do that for you.

#4 Automate non-billable tasks

Once you discover which activities can be outsourced (even delegated), the only thing left to do to minimize non-billable hours is to automate those non-client activities.

Here are a few examples of tasks that can be automated and ways to do so:

Wrapping it up

If you want to optimize your business time and resources, you need to make a clear difference between billable and non-billable hours.

And by tracking non-billable hours like administrative tasks, client acquisition, and internal meetings, you’ll be able to make smarter decisions, improve efficiency, and ultimately increase your profitability.

In the end I just want to say: track smarter (with Memtime), work more efficiently, and you’ll see a profit increase. Good luck!