A billable hour is an hour spent on client work that your agreement lets you charge for, either at an hourly rate or against a fixed fee. In a service business, billable hours are the stock you sell: the hours that do not become billable are paid for out of the ones that do.
Below: what counts as billable, how to calculate billable hours and billable utilization, a worked example with write-offs, where billable time leaks and how to protect it. For the rate itself, see utilization rate; for what an hour costs you, cost rate.
Billable and non-billable hours
| Usually billable | Usually non-billable |
|---|---|
| Design, writing, development and analysis for a client | Internal meetings, admin and planning |
| Client meetings and calls within the agreed scope | Sales, proposals and pitches |
| Agreed revisions and approved change requests | Training, hiring and internal tools |
| Travel, if the agreement says so | Fixing your own mistakes |
The agreement decides, not the task. The same client call can be billable on a time-and-materials project and part of a fixed fee on another. Mark billable at the task, so people do not have to decide every time they record an hour.
How to calculate billable hours
Billable hours = hours recorded on billable client tasks in the period
From there, three ratios tell you how well those hours turn into revenue:
- Billable utilization = billable hours ÷ paid hours. How much of the time you pay for is sold.
- Realization = invoiced hours ÷ billable hours. How much of the billable time reaches an invoice.
- Effective rate = invoiced amount ÷ billable hours. What an hour of billable work actually earns.
A worked example
A designer is paid for 168 hours in a month. One day is leave, 24 hours go to internal meetings and admin, 24 to non-billable work such as a pitch, and 112 hours are recorded on billable client tasks. The agreed rate is 60 an hour. At month end, 12 hours are written off: a revision the client disputed and time over an estimate that was never raised as a change.
| Measure | Calculation | Result |
|---|---|---|
| Billable hours | recorded on billable tasks | 112 |
| Billable utilization | 112 ÷ 168 | 67% |
| Invoiced hours | 112 − 12 | 100 |
| Realization | 100 ÷ 112 | 89% |
| Invoiced amount | 100 × 60 | 6,000 |
| Effective rate | 6,000 ÷ 112 | 53.57 |
The rate card says 60; the work earned about 54. The 12 written-off hours were real work, done and paid for, that never reached an invoice. The figures illustrate the method; the utilization rate calculator runs the same arithmetic for your team.
Where billable time leaks
- Hours never recorded. Time filled in from memory on Friday is lower than time recorded on the day. See unlogged hours.
- Extra work without a decision. Small requests accepted without a change to price or scope. See scope creep.
- Write-offs at invoice time. Hours cut because nobody can explain them to the client.
- Estimates that were never checked. Fixed prices set from memory instead of from the hours similar projects took.
- Internal time that grows unnoticed. Meetings and admin that nobody measures.
How to protect billable hours
- Record time daily, against the task. A timer on the task beats a timesheet reconstructed at the end of the week.
- Decide billable at the task. Set it when the task is created, from the agreement.
- Review before invoicing. A manager approves the week’s hours while the work is fresh, not at month end.
- Turn extra work into change requests with a price before anyone starts.
- Look at write-offs every month. The same client or the same kind of task behind them is a pricing problem, not a people problem.
- Plan capacity. Billable hours cannot grow if people are fully booked on the wrong work. See capacity planning.
How PLYNTUM helps, and what it does not do
In PLYNTUM people record time against tasks on every plan, with a manual timer or a timesheet. From Core, managers approve timesheets, which locks each week, billable rates apply to the logged hours, and every logged hour counts as project cost, so you can see utilization and profit per project. Invoices and receivables sit on the same client.
From Core, PLYNTUM drafts an invoice from approved, billable hours at the billable rates set in PLYNTUM; it does not issue or send the invoice for you, and unapproved hours are not billed. It has no background timer or activity tracking. See time tracking and time and billing software.
