Balancing billable and non-billable hours is a constant challenge for agencies, consultants, and contractors. Understanding billability—and tracking it accurately—is the key to turning all your working hours into revenue.
Some portion of your organization's work will always be non-billable. Internal meetings, business development, and employee training don't generate direct revenue, but they're essential to winning and retaining clients. The question isn't how to eliminate non-billable work. It's how to charge enough for your billable hours to cover the true cost of running your business.
You can use a billing rate calculator to figure out what to charge for your work. But without first understanding how many hours you spend on billable and non-billable activities, you're missing opportunities to improve profitability.
This guide covers what billability means, how to calculate it, the difference between billability and utilization, and how tracking all your time helps professional services firms protect margins and recover lost revenue.
What is billability?
Billability refers to the percentage of total available working hours that can be billed to clients. It's a key metric for professional services firms because it measures how much of your team's time generates direct revenue.
Billable hours are the hours of work you can charge directly to a specific client. Working on client projects, communicating with clients, and revising deliverables are all billable activities.
Non-billable hours, on the other hand, are spent on activities that benefit your organization broadly—not just one client. Internal meetings, marketing projects, administrative tasks, and employee training are typically non-billable.
How to calculate billability
To calculate billability, divide billable hours by total hours worked, then multiply by 100:
Billability rate = (Billable hours ÷ Total hours worked) × 100
For example, if an employee works 40 hours in a week and 30 of those hours are billable to clients, their billability rate is 75%:
(30 ÷ 40) × 100 = 75% billability
This formula provides insights into how much time your team spends on revenue-generating activities versus internal work. Tracking billability helps you identify areas of improvement and make informed decisions about pricing, staffing, and resource allocation.
Billability vs utilization: What's the difference?
Understanding billability and utilization is essential because these metrics measure different things—and both matter for profitability.
Billability focuses on what percentage of hours worked can be billed to clients. It only counts revenue-generating work.
Utilization rate measures what percentage of total available hours an employee actually works. It encompasses both billable and non-billable activities.
Here's the key difference: An employee with high utilization but low billability is busy—but not generating revenue. They might be stuck in internal meetings or administrative tasks rather than client-facing work.
Billable utilization combines both concepts: the percentage of total available hours spent on billable work. This metric gives you the clearest picture of how effectively your team converts available time into revenue.
For service businesses, monitoring billability and utilization together reveals whether productivity and profitability are aligned—or whether busy teams are actually underperforming on revenue generation.
The importance of billability for professional services
For agencies, consultancies, and other professional services firms, billability is more than a number—it's a leading indicator of financial health.
According to ClickTime research, only 47% of organizations can effectively forecast future project costs. Without accurate time tracking, finance leaders struggle to understand true project profitability or set billing rates that actually protect margins.
High billability matters because it directly impacts:
- Revenue generation: More billable hours means more revenue from the same headcount
- Pricing accuracy: Understanding billability helps you set rates that cover all costs
- Resource management: Billability data reveals who has capacity for more client work
- Client satisfaction: Teams with balanced workloads deliver better work
Why you should track non-billable hours too
When you only get paid for billable time, you might wonder why you should track non-billable hours at all.
Tracking all your employees' time helps you see the full picture of how hours are spent. Without knowing where all your team's time goes, you miss critical data that reveals the true cost of serving each client.
Think of non-billable time as an investment in your organization's future. You won't get paid directly for business development, training, or process improvement—but these efforts help you win clients, develop talent, and increase profitability over time.
Set profitable billing rates by understanding true costs
If you want to get paid for both billable and non-billable hours, you need to charge enough to cover both types of work. And to do that, you need to understand how much time you spend on each.
Karriem Kanston, founder of Kanston Development, a management consulting firm, says: "Many organizations only look at the time employees spend working on a project for a client. They forget about the costs and time it takes to prepare for client meetings, work, and deliverables."
When this happens, companies charge their hourly rate without accounting for the non-billable prep work. "The reason you can't make a profit," Kanston explains, "is that your billable hour cost is $50, and you're charging $50 to your client. You're only breaking even."
Brian Dechesare, founder of Breaking Into Wall Street, breaks down the math: "If you measure a billable hour at $200, it looks lucrative. If it took you 15 hours of preparation to earn that $200, you've made just over $13 per hour."
Without tracking billable and non-billable hours together, you can't understand the real value of your time—and your billing rates won't protect your margins.
Identify less profitable clients
Tracking all your time reveals which clients require more non-billable hours from your team. This shows up in several ways:
- Extensive contract negotiations
- Out-of-scope requests (for retainer-based work)
- Excessive hand-holding and client meetings
Bryce Welker, CPA and CEO of CPA Exam Guy, points out that client work "is the sum total of your billable and non-billable work that constitutes the cost of a project." His advice: consider your opportunity cost. If you're constantly stuck in non-billable meetings with one client, that's time you can't spend on client work that actually generates revenue.
When you understand your ratio of billable to non-billable time for each account, you can make data-driven decisions about pricing, contract terms, or whether a client relationship is worth maintaining.
Improve inefficient processes
Beyond billing accurately and managing client relationships, you can reduce the amount of non-billable work your team does. When you understand how much time goes to non-billable activities, you can identify areas where you could work more efficiently.
Alex Williams, CFO at FindThisBest LLC, says: "Once we started tracking our non-billable hours, we found out that 30% of our time went into unproductive meetings that could've been an email. We reduced our meeting time limit to 15 minutes, and this allowed us to focus on pitching and acquiring new clientele."
The result? "By reducing our inefficient non-billable hours, we were able to increase our billable hours."
According to McKinsey research, 45% of the activities people are paid to do could be automated. Using time tracking software and automation to handle repetitive tasks frees your team to spend more time on higher-value, billable work.
Set reasonable utilization rate targets
It's one thing to track utilization. It's another to know how much billable time each employee should be working.
Your employee utilization rate is the percentage of time that any employee or department is billable. Executives typically have a lower utilization rate than junior employees who focus primarily on client projects.
Every industry has different benchmarks. For professional services—where most organizations run on a billable hours model—a good target utilization rate is around 85%. For IT service providers, an 80% organization-wide rate makes you an industry leader.
Once you know your benchmark, you can set appropriate goals for your team. These targets make it easier to evaluate performance in terms of revenue generation—and coach your team toward higher billability.
Maximize each employee's contributions
When you track time, you know not only how much each employee is working—you know what they're working on. This data helps you maximize every team member's contribution.
First, you can assign work based on strengths. No two employees work at the same speed on the same tasks. When you track billable and non-billable time, you understand all the activities an employee works on and can assign them to work where they're most efficient.
Second, you can price projects accurately. Whether you're doing a rebrand, consulting on a product launch, or designing a logo, tracking time reveals how long similar projects typically take—and what they actually cost.
Third, you get a realistic view of capacity. When managers understand that employees can't work at 100% billable utilization, they're less likely to overbook teams or cause burnout.
Boost employee engagement and prevent burnout
Tracking non-billable hours helps you avoid burning out your employees by revealing their actual hours spent working—not just hours billed to clients.
Jillian Plank, CPA at Spring Accounting, points out: "If a project is under-staffed or priced too low because of insufficient time tracking data, employees might get overscheduled. This can lead to employee burnout, missed deadlines, unhappy clients, and an endless cycle of not being able to analyze what went wrong."
When you include non-billable activities like prep work or team meetings in your workload planning, you avoid overloading everyone's to-do lists—helping employees stay engaged and productive.
Mariah Althoff, CEO of MariahAlthoff.com, says tracking time helps her employees "stay in their zones of genius and take on more clients." By understanding where her team does their most valuable work, her business has become more profitable, and team members are "more focused and engaged in the tasks they enjoy most."
Evaluate employee performance objectively
Engaged employees often contribute to company growth through non-billable activities—mentoring, process improvement, business development. Without tracking this time, their efforts go unrecognized.
Eboni Moss, CPA and owner of The Master Resource, LLC, emphasizes the importance of "tracking, acknowledging, and rewarding the time employees dedicate to making their workplace a better organization."
"When review time comes around," Moss says, "leadership will not have a true picture of the contributions an employee is making. This affects compensation, recognition, and promotions." Employees whose hard work goes unrewarded will either disengage or leave for organizations that value their efforts.
Tracking all hours—billable or non-billable—gives you objective data for performance evaluations and helps you retain top performers.
Demonstrate value to your clients
Although you only charge for billable tasks, non-billable activities are often what makes your work exceptional.
Robert Brandl, founder of Website Tool Tester, points out that "these activities are what makes you stand out from your competition." To produce quality work, you have to spend time on non-billable tasks:
- Searching for and hiring talented people
- Training employees and expanding their skill sets
- Documenting and improving processes
Grant Aldrich, founder and CEO of Online Degree, suggests including non-billable work on invoices (free of charge): "Clients love to feel like they're getting something for a better value. Including both billable and non-billable hours helps build stronger relationships with clients."
When clients understand all the work that goes into their projects, they appreciate the value you provide—and they're more likely to pay premium rates.
Build the foundation for future growth
In the pursuit of higher billability, it's easy to forget that growing your business is the most direct path to increased profitability. You can build capacity to take on more clients or develop skills that justify higher billing rates.
Non-billable activities that drive future revenue generation include:
- Building relationships and making new contacts
- Strengthening your team through hiring and training
- Developing your brand and thought leadership
- Improving proposal quality
- Learning in-demand skills
While you want to optimize billability, not all non-billable hours are equal. Eliminating tedious administrative tasks is valuable. Eliminating time for skill development or business development will hurt your organization long-term.
When you track non-billable hours by category, you can strike the right balance between billable client work and the investments that drive growth.
How to improve billability with the right tools
Improving billability starts with accurate time tracking. You need visibility into where every hour goes—both billable and non-billable—to make informed decisions about pricing, staffing, and process improvement.
ClickTime's time tracking software makes it straightforward for employees to track time throughout the workday, giving you a complete picture of workloads. Automated reminders reduce the time managers spend chasing incomplete timesheets. And custom reporting helps you pull the data you need to understand the true value of every employee's time.
For professional services firms, this means finance-ready data that shows exactly how billability translates to revenue—and where you have opportunities to recover hours that would otherwise go unbilled.
Book a meeting with a ClickTime expert to see how labor cost visibility can help you make all your hours more profitable.
