Measuring Efficiency: Why Billable Hours Arent Enough
Billable hours are typically tracked by employees and reported to their managers, who use the information to bill clients and track their team’s productivity. Administrators of law firms should track both realization rates and utilization rate of employees. In addition, there should be a monthly report that makes a comparison between the billable hours that are recorded, and fees collected. In general, when lawyers have less than 100 percent of their billable hours, this could be an indicator of a problem. These issues could happen due errors in pricing systems, or due to duplicate work, and etc.
Therefore, consider tracking non-billable hours as well so you can identify and cut down the time you’re wasting. The type of tasks considered billable vary from one industry to another. Here’s a good example of billable hours from an accounting firm.
Billable hours, and ultimately utilisation rates, are measured by recording time in six-minute intervals, often onto a dashboard on a lawyer’s computer desktop. Was the time spent by the lawyer the result of an avoidable mistake? For example, if a file is inadvertently deleted by the lawyer while moving files on their hard drive, time spent recreating the file may not be billed to the client. In offices where several staff members track their time, you may to keep time tracking sheets near all of the telephones, the copy machine, and on everyone’s desk. This is not only an easy and convenient way to track time, but serves as a reminder to do so.
- If a consultant has a total of 2,500 billable hours, we’ll divide this number by 2,000 .
- Management consulting firms can accurately estimate theproject resource coststhat help their clients to finalize the overall budget.
- Download the billable hours’ template for Excel to record your hours worked and hourly pay rate for each client or project in a day.
- Multimedia Hub Listen to the Mind the Business podcast by QuickBooks and iHeart.
- It may be a little overwhelming at the beginning, but it will come easily once you make it a habit.
If your non-billable hours are disproportionately high, you will want to make improvements and change processes for next time. Even though non-billable work is not requested by a client, it is equally important to keep your business running smoothly. For example, employee development will contribute to the quality of different tasks, but can rarely be assigned to a single client’s project. Social activities may be important for team morale, but you cannot charge clients for these work hours.
In consulting firms, billable hours for employees are usually calculated by multiplying the number of hours worked by the employee’s rate. For example, if an employee works 40 hours weekly and is paid $75/hour, their total billable hour calculation would be 40 x $75/hour or $3000. Since the consulting firms focus on maximizing billable hours and revenue generation, consultants often deviate from the project and their career objectives. They are not given the opportunity to take up projects that can add value to their professional growth and development.
In 2017, their average utilization rate was 78.8%, but in 2018 – 79.3%. Aside from account managers, account coordinators also did well. When it comes to productivity levels in PR agencies, which is expressed by the utilization rate, it seems like productivity levels are still below perfect. For instance, the average utilization rate of presidents/CEOs of PR firms was 32.6% in 2017. While their utilization rate was 87.4% in 2017, their productivity reduced in 2018 – 85.4%.
Use Descriptive Language in Billing Descriptions
Well, today, we are living in the golden age of technology, and now technology has you back in every business operation. Keeping an eye on ‘how employees spend their work hours’ has always been a common practice. When the industrial revolution began, floor managers or supervisors were aligned to take care of managing & monitoring employee hours. Because of the cost difference, the first choice for any organization is always to use its internal workforce over a consulting resource.
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If you track time as it happens, you won’t overlook any billable time. It might seem silly in the moment to track a five-minute phone meeting or the two minutes it takes to send a work email. But all those small increments of billable time can add up to a significant number of billable hours over the span of an entire project. Track every minute you spend working on a client’s project to increase your billable hours. At the end of each billing cycle or when you complete a client’s project, review your time log and calculate your total billable hours for the project. Next, you’ll need to create a time log to track your billable hours by client.
Track Your Billable Hours by Project
You’ll also want to be sure and include payment terms, which you should have already agreed upon with your client. An employer usually pays for both working and non-working hours. Save the details of payment methods, currency, pay rates, etc., for future use if needed.
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However, the manual method is not the perfect solution to calculate billable hours. Next, you should keep track of the total hours spent on a project to report to the client and bill them for it. You should follow a specific, streamlined process to calculate every billable hour accurately.
Non-Billables Enable a Holistic Snapshot of Your Firm
When you review your and your team’s work weekly or monthly, you can pinpoint factors that need improving. A tool like Traqq makes this process even simpler, thanks to the detailed reports. At the end of the billing cycle, you can generate a report and export all your time entries to Excel, so you can make the appropriate adjustments. The last step is to create an invoice that you’ll send to your client. If you don’t have access to such a tool, you can use an invoice template or spreadsheet to create an invoice manually. The best approach to determine your rate is to set a target annual salary that you’d like to earn.
Of course, this is really just a distinction between legal and administrative tasks. An attorney would not bill a client for his or her time making copies, as that is an administrative task and does not require legal training or knowledge. However, drafting pleadings or conducting legal research generally does require legal training and/or knowledge, and can be considered billable activities. The amount charged to clients has to be adequate to cover the employee’s salary and other business expenses. Calculating an appropriate rate is essential, particularly for companies that depend on income from clients for most or all of theirrevenue.
Create a spreadsheet or start using time-tracking software
There are two billing methods in management consultancy, i.e., billable hour method or fixed-rate billing. Clockify is a time tracker and timesheet app that lets you track work hours across projects. As stated in an annual survey by PR merger and acquisition consultancy Gould+Partners, PR firms improved their average hourly rates in 2018, compared to 2017. If a consultant has a total of 2,500 billable hours, we’ll divide this number by 2,000 . For instance, if there are too many internal meetings, this can result in more non-billable hours. When making plans and estimates for the next project, you’ll need to identify the number of employees needed for that project.
Tracking billable hours is not just limited to an independent contractor, consultant, or freelancer. That’s why Time Doctor auto-generates detailed productivity reports to help you see where you’re spending your time. You can do this whenever you’ve completed a task or want to take a break. You can also assign tasks and projects to your employees or freelancers. Once you’ve decided the rates for your professional services, you have to determine when you want to issue invoices. You can easily set billable rates per project right inside of Toggl Track.
Some of the restaurant bookkeeping mentioned above are crucial for business success. Nonetheless, it is important to keep track of how many hours you and your team spend on these non-billable activities, as oftentimes they’re eating your profits. For example, if a lawyer has a total of 2,340 billable hours in a month, but he/she gets paid only for 1,755 hours, we’ll divide 1,755 by 2,340. 💡Another way to calculate billable hours is by using Clockify. This way, you need to mark all your billable and non-billable activities. The number of billable hours depends mostly on the type of industry.
Enabling tax and accounting professionals and businesses of all sizes drive productivity, navigate change, and deliver better outcomes. With workflows optimized by technology and guided by deep domain expertise, we help organizations grow, manage, and protect their businesses and their client’s businesses. Time-tracking software can be a lifesaver for consultants and sole proprietors who find themselves juggling multiple clients simultaneously. Not only does it make tracking time a lot easier, but it also can be eye-opening when you realize how much time you haven’t been billing. Immediately upon hanging up, she goes back to work on Client A’s project and only realizes an hour later that she didn’t record the call with Client B as billable time. And because so much time has elapsed, she has no idea how much time was spent on the phone with Client B since the call was on her office phone and not her cell phone.
The tool automatically records your work activities, including those conducted offline. You can then generate reports based on the period and data you want to analyze or view. By tracking billable hours, you understand how long tasks take to complete, which tasks take longer, and which ones require more resources. You’ll see which tasks require employees to work overtime and if more hours reflect on the profits. When employees’ are working non-billable hours, they lack the motivation to deliver. That’s why you need to track productivity and time spent on non-billable hours as well.
Luckily, these days there are lots of tools out there to make keeping on top of billable hours that little bit easier. Attorneys track billable time more than any other industry, and with good reason. Attorneys working in a law firm are required to work a minimum number of billable hours each year, with consequences such as termination a possibility if they don’t. And while there are several software available today, Time Doctor is the best tool for tracking and calculating billable hours. It offers advanced time tracking features for efficient and effortless payroll management. Tracking billable hours by project not only makes you more organized but also ensures that you know which client to invoice for work done.
Paycheck Calculator Paycheck calculator for hourly and salary employees. As the accounting profession changes, so must the metrics firms use to measure efficiency and productivity. Our solutions for regulated financial departments and institutions help customers meet their obligations to external regulators. We specialize in unifying and optimizing processes to deliver a real-time and accurate view of your financial position.
Do some research and make sure your target salary is in line with what other businesses offering similar services earn. Time is money—especially when it comes to how many billable hours in a year an attorney can accumulate. Tracking your billable hours is just one part of the equation. Tracking and recording that time, invoicing for that time, and determining the productivity of that time is far more challenging.
- When hours are tightly regimented, employees may feel pressured to continuously work long hours to maintain their positions.
- The tools and resources you need to get your new business idea off the ground.
- While the firm still has to pay the lawyer, if a client cannot be billed for the time, non-billable hours are actually costing the law firm money.
- Many of those services will be project-based and include kick-off meetings, project scoping, industry research, writing pitches, and other activities.
- You can limit the total hours you spend on administrative duties by utilizing automated solutions.
Billable hours for a particular client or project may also be pooled. That can enable more effective use of human resources and less expense to the client. For example, a project manager might have a rate of $1,000 a day but employees assigned lower rates may do much of the work for a given project. The client may be charged a combined rate based on the billable hours of all employees involved in the project. To make sure you don’t overlook any of your billable hours, track them in real time.
Sometimes, they are unavoidable and equally critical for your business to earn a profit, but you cannot bill clients for them. In numerous industries, companies charge their clients on an hourly basis, for the services they provide. If this applies to your business, it’s vital that you understand how to reduce non-billables.