Billable and non-billable hours

As a freelancer, you have surely felt frustration when you compile an invoice and realize it doesn’t cover the complete time spent on the client. “I definitely spent more than six hours on this,” you say to yourself.

Or the disappointment of spending half a day (or a full day) on non-billable yet essential tasks (accounting, marketing, proposals, discovery calls, etc.). These activities are an unavoidable part of freelancing, but they don’t belong on a client’s invoice.

Not to mention that out-of-town industry event. Two full working days that can not be billed to any client, even though the whole experience felt like work!

This is an especially significant problem for new freelancers who spend more time on non-billable tasks, such as marketing, seeking referrals, and working on spec. But veteran freelancers still struggle with non-billable hours as well. It becomes even more complex when you start factoring in vacation, retirement, sick days, and other necessities that freelancers often neglect. Who will pay for those hours?

The challenge here is that you have an obligation to only charge your clients for the hours you work on their projects. They don’t expect to pay for the time it takes you to create an invoice and reconcile your accounting, for instance. But that’s still work time you want to be compensated for.

You have an obligation to only charge your clients for the hours you work on their projects, but what about the non-billable hours? Click To Tweet

These unpaid worked hours are called non-billable hours, as opposed to billable hours that you charge for on your invoices. As you can imagine, juggling these two categories is tough. Ideally everything would be billable, but clients will not tolerate that.

In this article, we’d like to help you find the right balance. First, we’ll discuss the differences between billable and non-billable hours. Then we’ll give you some tips to reduce your billable hours so you get paid as much as possible.

What are Billable and Non-Billable Hours?

Before we talk about finding the balance between billable and non-billable hours, let’s make sure we’re using the right definitions.

Billable Hours

Billable hours are the hours you invest that are directly related to projects. They refer to the core activities of your work. These hours must be included in your invoice. Here are some examples of billable hours:

  • If you’re a web developer, the time you spend planning, designing, and coding the website are part of your billable hours. So are the revisions and changes your client asks for at the end.
  • If you are a tutor, the time you spend preparing lesson plans and instructing students are billable. This also includes time you spend organizing schedules with students/parents.
  • If you’re a podcast editor, the time you spend optimizing audio files is billable.

Billable hours are sometimes expressed as a percentage called your utilization rate. You should aim for an 80% utilization rate, meaning you bill for at least 80% of your time.

Non-Billable Hours

Non-billable work refers to the time spent on tasks that you can’t directly bill to clients. They’re still work, and they often take a lot of time, but it would be inappropriate to put them on an invoice. Here are some examples of non-billable hours:

  • Developing proposals and pitches
  • Taking training courses to improve your skills
  • Networking with people in your industry
  • Invoicing, processing payments, and other administrative tasks
  • Any work that is beyond the scope of the project
  • Fixing errors you made that the client isn’t responsible for

As you can see, billable hours can represent a lot of your time. Ideally, you should have more billable hours than non-billable hours, but it doesn’t always work out like that. Some weeks seem full of non-billable work.

Tips for Reducing Non-Billable Hours

Billable and non-billable hours

You’ll never eliminate non-billable work, but it’s important to reduce it as much as possible so you are adequately compensated for your labor. In some cases, you can change non-billable work to billable status. In other cases, you can use smart optimizations and automations to shrink your non-billable time. The following tips will help.

1. Determine what’s billable and what’s not

We explained the difference of billable vs. non-billable time above, but it’s not always so black-and-white. Sometimes you have to make a judgement call that affects how you bill your clients. So your first step is to determine what’s billable and what isn’t.

For instance, does driving to the client’s site count as billable time? What about a brief phone call? What happens if a client cancels a scheduled meeting? Do you charge for the time you could have spent doing something else? There are countless little situations like these where the distinction between billable and non-billable isn’t so clear.

Unfortunately, there’s no easy answer here. You will have to decide for yourself what you should charge for. Be sure to consider what is ethical, what your client will tolerate, and what other freelancers do in your industry.

Professional services (legal, accounting, consulting, etc.) are notorious for billing an hourly rate and charging for everything. High end lawyers have no problem adding your 30-second phone call to the log of charges. Some services, like reading an email or making a copy, have a flat fee regardless of time spent. This isn’t to say you should mirror your prices after these services, but the point is you have a lot of flexibility in terms of pricing.

Some freelancers, for example, add a flat administrative fee to each invoice. It might be $20, or 2%, or whatever seems reasonable. This transfers some of those non-billable hours to the billable column. Some clients are fine with this approach. Others object.

The important part, however, is to make sure your client is aware of these charges and how it will affect the bill. If you insist on billing for canceled meetings, for instance, that should be clear in the written contract with your client. Otherwise the relationship will be damaged when the client receives unexpected charges.

2. Use automatic time tracking software

Your next step is to track everything. You need data to understand just how much time you’re spending on unpaid work. The following tips on this list rely on this information.

When we say everything, we mean everything. Don’t just track the times you sit down for focused work. Track every single client request, late night email, and small “it will only take a minute” type of task. These can add up to hours over the course of the week.

Obviously that’s a lot of data tracking that can get in the way, so we recommend using an automated time tracking tool like Timing that captures everything you do on your computer. Timing’s smart timeline shows you exactly what you did at any given time, including which app, document or website you were using. There’s no need to start or stop any timers.

Billable and non-billable hours

Furthermore, you can sort your activities into categories based on your projects and/or clients. When you are ready to create an invoice for a client, simply refer to the totals in Timing’s reports.

3. Track the time you spend completing tasks on your phone

If you’re like most freelancers, you work on your phone quite a bit. You answer emails, text with clients, share documents, and take meetings. All of that is billable time, even though you aren’t sitting in front of your computer.

Unfortunately, this time is easy to neglect. A quick phone call in the car is work, but it wasn’t that much of a bother, so you neglect to track it later. The same goes for late night Slack responses, signing documents while you’re at a restaurant, or popping off a quick email while you watch your kid’s dance recital.

If you perform any work tasks on your phone, be sure to make a note so you can add that time to your billing later. An easy trick is to simply screenshot something that reminds you about the task (e.g. a picture of the Slack message you typed) so you can manually add it to your time tracking software later.

Speaking of manually adding tasks…

4. Manually add whatever you can’t track

Certain tasks won’t automatically appear in your time tracking software because you aren’t in front of your computer. Driving, visiting clients on location, business lunches, and similar activities are blind to your computer. Enter these tasks into your time tracking software manually to keep all of your time records in one place.

When you add these activities, I’ll be sure to include as much detail as possible, including the tools you used, the project you worked on, and the client you work for. These little details will keep your time tracking in order so that your reports are accurate.

Timing is a unique time tracking app in this regard because it will prompt you for details when you return to your desk. This way you’ll never forget to manually enter those untracked moments. (Pro tip: Use this reminder to manually add any tasks you completed on your phone as well.)

Billable and non-billable hours

5. Set clear rules on billable activities

Many of the activities you perform on your computer are always billable. Rather than try to categorize each instance as part of a client’s project, it helps to set up automatic rules that manage it for you so 1) you don’t have to spend time doing it manually, and 2) everything is tracked and billed appropriately.

For example, let’s say you are a wedding photographer touching up photos before sending them to a client. For the next week, everything you do in Photoshop should be billed to the Smith family. You could set up a rule in your time tracking app to automatically categorize all Photoshop work to the Smith folder. Then at the end of the project, a sophisticated report will tell you exactly how much time you spent.

In Timing, these types of categorization rules are easy to set up. You simply drag an activity to permanently assign it to a task. This will save you hours of manual categorization effort, not to mention all the time you’d normally spend starting and stopping manual timers.

Billable and non-billable hours

6. Review your reports regularly

Your time tracking reports are valuable tools that give you insight into how you are spending your time, what you are billing for, and whether you are profitable. This key information can have a big impact on your business, but only if you actually review it.

Choose an interval to look through your time tracking reports, perhaps every week or every month. Your goal is to discover if you are neglecting to bill for time that you should be paid for. Look for activities and tasks that haven’t been assigned to a client’s project. Make sure the total amount of working time in your reports equals the total amount of time you billed on your invoices.

If you find tasks that should be considered billable but were not counted as so, ask yourself two questions:

  1. Can these activities still be billed to a client? If they aren’t too old, add them to the client’s next invoice. If they are too old, it might be too late to request payment or fit them into an invoice. This is why you should review your reports weekly or at least before you send out your invoices.
  2. Why did I miss them the first time? It’s important to understand why those activities were never invoiced. Did you forget to assign them to a client’s project? Did they not seem like billable tasks originally?

We know this step doesn’t sound like much fun, but it’s a valuable part of reducing your non-billable hours. Even finding one hour that deserves to be on an invoice is worth the few minutes it takes to review your time tracking reports.

7. Optimize your non-billable hours

Billable and non-billable hours

Once you have eliminated as many non-billable hours as possible (by either turning them into billable hours or finding ways to avoid them), your next step is to optimize the ones you can not avoid. Look at the activities you perform during non-billable hours. Ask yourself how you can optimize them so they take up less time.

For instance, it’s nearly impossible to justify billing for the time it takes to create a pitch or a proposal for a client. If you try to sneak that cost into an invoice, your clients will surely object. But proposals can take up a lot of time, especially if you do them well.

It would be smart, in this case, to create some kind of template for similar proposals so you are not starting from scratch every time. You could even create a branded document with a consistent design that only requires you to fill in the details.

Accounting is another non-billable task that still takes up time, but you can’t avoid it. You can minimize this cost by using bookkeeping software that automatically compiles invoices, sends them to clients, and collects and tracks payment (some will even send automatic reminders).

In fact, there are probably countless everyday tasks that occupy your time that can be accomplished with a bit of automation, either by way of a new app or through clever Zapier integrations.

8. Just charge more

If you have reduced your non-billable hours as much as possible, your final step is to simply raise your prices. This isn’t ideal (because no clients want to see a big hourly figure), but it might be your only option if you exhausted all the other tips on this list.

How much should you raise your prices? Fortunately, this is an easy calculation. First, look through your time tracking software to determine how much time you spend on billable vs. non-billable hours. Then, divide your non-billable hours by your billable hours to determine the percentage you should raise your prices.

Price increase = non-billable hours / billable hours

For example, let’s say you spend, on average, 34 hours per week on billable hours and 6 hours per week performing non-billable work. 6 divided by 34 is 0.176, or about 18%. In this example, it would be smart to raise your prices by 18%. This would compensate you for the non-billable time.

Wrap Up

You’ll never eliminate all of your non-billable hours. Some tasks are part of your work, but can’t be reasonably billed to a client. That’s just an unavoidable part of freelancing.

But non-billable hours can be reduced as much as possible to ensure you are collecting as much revenue as possible for your time. Time tracking is a key component of this, obviously, because you need to know how your time was spent and which activities were billable or non-billable. Once you know how you’re spending your time, you can start taking steps to optimize it.

Use the tips we explained above to invoice your clients properly and get the compensation you deserve. Every minute you neglect to consider your non-billable time is a minute you might be leaving money on the table.

Ready to tackle your non-billable hours? It starts with time tracking. With Timing, you can stay on top of your time without timers. Just keep focusing on your work while Timing records your time automatically, then review your time when it is convenient for you. Start your free trial.