How to Track Billable Hours Accurately
by Qismat Riaz on December 23, 2022
How to Track Billable Hours Accurately
If you’re charging clients by the hour, tracking your billable hours accurately is non-negotiable. This goes for freelancers, small businesses, and enterprise organizations alike.
Unfortunately, billable hours can easily slip through the cracks. 15 minutes here, 20 minutes there, all that fragmented, untracked time adds up.
And one of the biggest time-tracking sins of them all is guesstimating hours after the project is over. The worst.
When left up to chance– i.e. manual entry and guesstimating– you aren’t tracking billable hours accurately. Ipso facto, you’re probably getting paid less to do more work.
Whether you’re a solopreneur or an owner/manager of a large service business, you need to make sure you’re getting paid for the work that’s put in.
By simply tracking your billable hours accurately, you can solve the problem. We’ll discuss the following topics that can help you grasp what’s needed to get a good system in place so that you never miss another billable hour again:
- What are billable hours?
- Billable vs non-billable time
- Why it’s essential to track your billable hours accurately
- How to track billable hours in 5 steps
- What’s the easiest way to track billable hours accurately?
- Billable Hours Software
What are billable hours?
Billable hours are the time spent working on a project or service that can be charged to the client, according to a predetermined hourly rate. Usually, any time spent working on tasks directly related to the project or services is included in billable hours.
Billable hours examples include:
- Project planning
- Necessary research
- In-person and online meetings
- Reading and responding to emails related to the project
- Specific tasks to complete the project or service
- Time spent catering to customer requests
- Any work included in the project scope/contract
Billable hours will be charged to the client as specified in the project contract or service agreement.
Billable hours include any client-related tasks that are tracked by the hour. Businesses may specify an hourly rate for all services, or there may be multiple roles with different rates. For example, you may have a service agreement in place where the hourly rate is constant. In another instance, let’s say you’re a digital marketing firm, your billable hours might include the time spent on the project by your graphic designer, your web designer, and your content team at different rates for each.
Regardless of how it’s broken down or what space your business is in, your billable hours will include all the time spent servicing clients.
Billable vs non-billable time
Not all work done by consultancy firms and other service businesses is considered billable time. Non-billable time includes any work hours that cannot be related directly to the completion of the project or servicing the client.
Anything that’s primarily internal and does not contribute to the execution of the project or service is non-billable. Here are some examples of non-billable time:
- Internal admin like invoicing (you can’t charge the client for the time it takes you to invoice them)
- Team Building and other networking unrelated to the client
- Meetings and research before the contract is signed
- Marketing for your business
- Work on new proposals and pitches
- Work beyond the scope of the project, as outlined in the contract
- Education for skills/knowledge that goes beyond the client or project
- Repairing errors made on your own account
Determining whether or not your time is billable is relatively cut and dry: anything directly related to the project counts, whereas anything unrelated does not. That said, sometimes consultants and small businesses may have to stop a minute and think about whether or not they can bill for the work they’re doing.
Does the work advance the project forward? If yes, that’s billable time.
Does the work fall under the scope of the project? If yes, that’s billable time.
Do the work service the client’s needs and requests? If yes, that’s billable time.
On the flip side–
Is the work related to internal admin like invoicing? That’s non-billable time.
Is the work outside the scope of the project? That’s non-billable time.
Is the work not beneficial or unrelated to the client’s needs? That’s non-billable time.
By asking yourself these questions, you should be able to easily figure out what constitutes billable versus non-billable time.
Why it’s essential to track your billable hours accurately
Obviously, tracking your billable hours accurately is the best way to get paid accurately. That way, no hours are left unaccounted for and you can maximize your project profitability.
Accurate time tracking and billing are also critical to maintaining trust with the client– no one wants to be charged for time and not have a clear idea as to where that time went.
Beyond the basics of getting paid for your work and keeping your client happy, tracking your billable hours accurately can help you in other ways. For example, you’ll be able to quote clients more effectively in the future. With data from your billable hours, you can gain major insights into both your team’s productivity and the profitability of your projects.
How to track billable hours in 5 steps
To track your billable hours– the time you can charge the client by the hour for your services– you need to have a consistent system in place. Let’s say you have a new client from whom you’ve earned a contract for a project. Here’s how you would move forward to track billable hours accurately from the jump.
1. Select your resources and hourly rate(s)
Before work starts on the project, the client will agree on the hourly rate. Make sure that the hourly rate you offer both reflects value for the customer and will positively impact the profitability of the project. Who will be working on the project? What are the different roles and rates? Set up your people and your hourly rate(s) accordingly.
2. Set up a billing schedule
Get on a regular billing schedule with the client. This can be handled in many different ways, depending on both the needs of your business and what the client wants. It’s recommended for small businesses and solopreneurs to get on a bimonthly or monthly billing cycle to keep cash flow healthy. Whatever you choose for your billing schedule, stick to it. Keeping your invoice management on point is better for the customer, who will know exactly what to expect with no surprises. It’s also better for your business, as you can more easily get paid correctly and on time.
3. Set up a time log for the project/contract
There needs to be a place where all the billable hours live. A place where you can easily see all the hours that have been logged to this specific project/contract. You’ll need to set up a time log for the new project. You can do this yourself with a spreadsheet or this will be automatically generated for you if you’re using project management software.
4. Track your billable hours with an integrated time tracker
The contract is in place. Your people and your hourly rate(s) are squared away. You’ve set up your billing parameters. Now, you’re ready to track time on the project. Make sure everyone on the project is using the same time tracker to avoid confusion. Also, you’ll want your time tracker to integrate with your project management software. This is one of the easiest and most impactful ways you can track all your billable hours accurately. That’s because all the hours logged can automatically connect to the right project when your time tracker connects with your project management. Of all our tips on tracking billable hours, this has got to be the most crucial. Don’t forget!
5. Calculate total billable hours and invoice
When it’s time to invoice the client, which will depend on the invoicing schedule you set up, you’ll need to calculate the total hours to be billed. This will live in the time log that you’ve created. Or your time log will have been provided by your project management software or time tracker. Generate an invoice from the total hours billed by your team multiplied by your hourly rate(s). Send it to the client ASAP or have it sent automatically with an automated invoicing tool.
What’s the easiest way to track billable hours accurately?
Anyone can track their billable hours by following the 5 steps above. If you want to be more accurate and make it easier, we suggest automating the process at various stages. For example, billable hours software will automatically generate an invoice for you when it’s due with the correct amount of hours that have been tracked by your team within the software. That way, all the information related to your billable hours stays in the same place. Errors are less common, and when they do happen, you can spot them quickly.
Billable Hours Software
With PSOhub, billable hours are tracked for you with included invoice management. Once your contract is entered in PSOhub, you can select your resources and get started on tracking time toward the project straight away.
And because PSOhub is an all-in-one project management, you can have it manage all your invoices, too. PSOhub removes the admin drain– aka non-billable time– from projects with automation, so you and your team can get back to what you do best.