What Are Billable and Non-Billable Hours?

What are billable hours?

Billable hours are time spent on activities the client agreed to pay for. Typical examples include producing deliverables, approved meetings, research, implementation, and revisions within the stated scope.

Classification should be decided by the engagement terms, not by a general assumption. Record the activity and result so a reviewer can see why the time belongs to the client.

• Work on agreed deliverables
• Approved client meetings
• Project-specific research
• Authorized revisions or support

What are non-billable hours?

Non-billable hours are work time not charged to a particular client. They often include marketing, accounting, professional development, general administration, and time spent fixing the business's own mistake.

Some non-billable work supports a client project indirectly. Track it to the project when useful, but mark it non-billable so it improves cost analysis without appearing on the invoice.

• Sales and proposal preparation
• General business administration
• Training not requested by a client
• Correction of avoidable internal errors

Classify ambiguous activities

Meetings, travel, communication, and revisions often create uncertainty. Resolve them in the proposal or contract by stating what is included, what is charged separately, and when approval is required.

When an unexpected activity arises, pause and discuss it before treating it as billable. Written approval protects the client from surprise and protects the business from performing unpaid extra work.

• Check the written scope first
• Apply the agreed billing policy
• Ask before exceeding included limits
• Document each approved exception

Use both totals to improve pricing

Divide project revenue by all delivery time, not only billed hours, to calculate an effective hourly rate. This shows whether coordination, revisions, or administration are reducing the value of the engagement.

Review patterns across similar projects. You may need clearer scope, a different rate, a separate fee for recurring work, or a more efficient process rather than simply trying to bill every internal activity.

• Measure total delivery time
• Calculate the effective hourly rate
• Identify repeated unpaid work
• Adjust scope, process, or price

Useful work is not always separately billable

Quoting, bookkeeping, learning, process improvement and maintaining client relationships can all support the business. They may not be chargeable to a particular customer, but their cost still needs to be supported by the business model.

Conversely, an activity connected to a client is not automatically billable. Meetings or revisions may be included in a fixed price, excluded by the agreement or treated differently depending on their cause. Start with the actual terms.

Define the denominator before comparing percentages

If you record 40 working hours in a week and 24 qualify for client billing under your method, the billable proportion is 60%. Excluding leave, training or other categories from the denominator produces a different measure.

Keep the definition consistent across periods. Someone responsible for sales and management may reasonably have a different time pattern from someone mainly delivering client work. A single percentage is not a complete measure of effort or contribution.

Let pricing account for necessary business time

If a simplified monthly revenue requirement is 20,000 and expected billable time is 100 hours, each billable hour needs to support 200 on that basis. Dividing by every hour spent at work may make a low rate look more sustainable than it is.

The calculation is a planning aid, not a complete price recommendation. Market conditions, skill, value and risk still matter. It also does not mean clients should receive separate charges for every internal inefficiency.

Investigate a change before reacting to it

A lower billable proportion could reflect fewer orders, a one-time project to improve the business, training, recruitment or excessive repeated administration. These situations call for different decisions.

Look at the activities behind the total. If repetitive entry or preventable rework takes a large amount of time, improving the process may help. If you are deliberately developing a new service, assess that effort against its intended outcome rather than treating all non-billable time as a problem.

Keep actual time distinct from pricing

A fixed-price project can involve substantial tracked time without a billable hourly total. You can still analyze effective revenue per hour internally. The client’s charge remains governed by the agreed fee and changes.

For hourly work, record the factual duration and apply the agreed billing rules. Avoid manipulating actual entries to create a target utilization figure; that makes the data less useful for both planning and customer communication.

End the week with two practical questions

Which necessary activities took more time than expected? Which repeated task could be reduced by one clear decision or better preparation? For example, a single scheduled feedback round may replace scattered revision messages.

The goal is to make work easier to plan and price. Leave room for administration, learning and sustainable working patterns instead of treating a theoretical 100% billable week as the only acceptable result.