Last year our twenty consultants recorded 9.120 non-billable hours.
Plus we always have “billable work” that is actually not billed to the client for different reasons.
The question is: how much money we left on the table? A lot, I’d say.
Still, when we went into details, we learned some lessons. Here is how you can better manage your billable time.
1. Define the Exact Scope of Your Work.
A comprehensive agreement with the client is the first step.
To avoid any misunderstanding when it comes to billing, you need to define the activities that go into billable time well in advance
In this way, you create more awareness of what client gets from your service.
Of course, the scope of work should be defined through the letter of engagement or the contract.
2. Specify What is Not Included in the Scope, too.
Even though you have defined the activities within the scope, the clients will sometimes simply assume that „similar“ work falls within the definition of the scope of work.
For example, we do tax returns for a company, as defined in the contract with the client.
However, certain clients’ employees should pay a personal tax on extra income. This is a separate job, but from the client’s point of view, their understanding is that it falls within the scope of work, even though it relates to the personal tax of individual employees. And the client’s opinion should always be respected, right?
Therefore, we have introduced the practice of decisively specifying the activities that don’t fall into the scope of work to avoid any misunderstanding and potential free work.
This way, the client is aware of what they need to pay, and we don’t waste our time debating them. Meanwhile, we are also maintaining a good business relationship with them.
3. Define When Your Service Ends.
It used to happen to us to do work for a client for a flat fee.
Of course, once we deliver the service to the client (i.e. due diligence), it’s perfectly normal for the client to have questions.
Yet, if these questions go on and on, our actual billable rate on that project will drop.
That is why you should clearly define when the service ends. This is especially important when you’re engaged on a specific project, and you’re not insured by invoicing every billable minute to the client.
Based on my experience, it’s a good practice to define what our scope of work after project delivery entails. For example – 2 meetings, 5 phone calls, etc.
This way you’ll also be achieving a psychological effect, as the client will perceive that there are certain limitations in the use of services.
You should also agree with the client that all new engagements should be considered new ones.
4. Make Sure that the Client Understands What You Do for Them
Things written on paper are one thing, the client’s understanding of what you actually do for them is something completely different. Many clients will sign the contract without even looking at your scope of work, even if it’s clearly stated.
That is why it is important to make sure that the client understands the final output of the service entails.
In this way, we ensure that our billable work is invoiced in the expected volume.
5. Increase Transparency in Time Billing
The clients like seeing what you’ve done for them. this is especially important if you are dealing with billable rate-based projects.
Therefore, it is always good to create an evidence of the time billed, which you deliver to the client.
We recommend that each invoice should contain an appendix with a task list and billable hours.
6. Use an Easy System to Track Billable Hours
To achieve billable hours optimization, your team must track them per project using a time tracking tool. Hence, it is recommended to introduce a simple system to track billable and non-billable hours.
With excellent time reporting you will be able to:
- Get a clear view of all billable tasks and hours for the client
- Keep track of how much the service costs you
- Track gross profit for each project
- Send the client a transparent record of billable hours
- Notice the tasks that are taking more time than planned
7. Avoid Free Consultations as Much as Possible.
The practice of giving free advice in anticipation of future benefits isn’t good.
It’s a great way to increase tour non-billable hours! And the working hours are limited, aren’t they?
Of course, if it lends certainty that you’ll establish a good deal, and with a qualified client, it’s entirely different.
You must not lose one thing out of your sight.
Your time costs.
Here is how to measure your investment of free non-billable time:
By tracking the time we spend on free advice, after a certain time, we can determine ROI on this kind of investment.
For example, after 6 months, you can extract the data from the system regarding the time you haven’t charged for (free advice) and the later income from those clients.
When you compare the total income with the total time (non-billable + billable), you’ll be able to determine whether a client has a satisfactory return or not.
8. Listen to Your Clients More.
Only by understanding the problems and challenges your clients face you can create space for more billable hours.
The clients are often not even aware of their problems. Hence, if we understand their business well, we can build an awareness of the client’s pains.
9. Invest in a System for Qualifying New Clients.
You probably have clients you spend a lot of time on, and still, generate a relatively small income.
That is why it’s important to assess the billing experience you can expect with new engagements in advance.
When you receive an inquiry from a new client, you can get reports from the time tracking system for similar engagements in the past.
10. Target Team Billability Utilization
Each employee should have their targeted time utilization. The utilization is usually calculated as the ratio of billable and total working hours. Tracking the hours in the system automatically creates a utilization report.
If you achieve a utilization of 65 to 75% at the company level, your utilization level is good.
The utilization also depends on the employee’s position in the company.
Seniors usually have the highest utilization (+70%), since they are most engaged in projects.
On the other hand, managers and directors spend a lot of time on, for example, the implementation of the company’s strategy. Hence, it’s not great for them to have a high billable utilization level.
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