Analyzing the impact of non-billable time on overall billable utilization

While billable hours are undoubtedly crucial for professional services, the impact of non-billable time on overall billable utilization is often overlooked. In this blog post, we analyze the impact of non-billable time on the profitability of your professional services team, ways to optimize your billable utilization, and how Professional Service Automation (PSA) can help.

In this article, we cover the following:

1. What does non-billable time refer to?
2. Three indisputable benefits of tracking non-billable time
3. Five ways to minimize and manage non-billable hours
4. How PSA tools reduce the impact of non-billable time on project efficiency and profitability

What is non-billable time in professional services?

Billable time is the time spent on tasks directly tied to generating revenue from a client. This includes work that contributes to a specific project or service that the client is being billed for.

Non-billable time encompasses activities that don't directly lead to revenue generation. These tasks are important for the smooth operation and growth of your organization, even though they don't contribute directly to client billing.

Non-billable tasks in professional services often include:

1. Internal meetings essential for a client's project
2. Handling unexpected changes during a project
3. Internal compliance activities
4. Unplanned interactions with various stakeholders for updates, escalations, etc.
5. Education, training, and research (both internal and external)
6. Administrative tasks like invoicing, contract/proposal drafting, etc.

It's important to emphasize that non-billable time is not a waste; it's a necessary component for the overall functioning and growth of your organization.

Understanding the impact of non-billable time on billable utilization

While non-billable tasks form the foundation on which you build your professional services offering, they can impact your productivity and profitability. Here’s how.

1. Reduced billable utilization

When you're tied up with non-billable tasks, you have less time to focus on activities that generate revenue. This means you'll end up with fewer billable hours and less money coming in, resulting in a direct impact on revenue.

2. Revenue leakage

A study found that a significant 38% of potential billable revenue is being lost to untracked time spent on emails, meetings, and delays in the filling of timesheets.

When you don't accurately track and control non-billable tasks, you're basically losing out on money. It can also give a false impression of how much revenue you're actually generating, making it harder to assess your financial situation.

3. Poor resource management

If your team is spending too much time on non-billable tasks, it's a sign that your project planning and resource allocation might be off. When team members consistently spend a significant amount of their hours on non-billable work, it shows that the workload isn't balanced properly.

Why do professional service teams need to track non-billable time?

While most professional service organizations prioritize tracking billable hours to assess capacity utilization and profitability, this approach misses a critical piece of the puzzle. Tracking utilization while ignoring non-billable hours does not give you the complete picture to improve billable utilization. How your team spends non-billable time can reveal insights that unlock both tactical and strategic benefits.

Here are a few hard-to-ignore benefits of tracking non-billable time: 

1. It improves project planning and management in the short and long term

Teams often underestimate the time required for non-billable tasks such as administrative work, training, or attending meetings. As important as they are, it can be tempting not to track them due to their non-revenue-generating nature.
But in the context of professional services, when you track non-billable hours, you reduce busy work. Whether it is identifying areas that are draining your team’s time – such as searching for information, creating fresh documentation, internal and external update meetings, etc., tracking

Besides improving efficiency, tracking non-billable can help you plan and manage long-term growth initiatives, and measure progress towards them – at a business and individual resource level.

2. It improves clarity around job roles

Tracking non-billable time gives every team member a reason to think twice before diving into non-billable tasks. Knowing that their hours will be reviewed in calculating billable utilization serves as an incentive to delegate non-billable tasks to the right team member.

In that light, tracking non-billable time doesn't remain about just watching the clock, it's about playing to your strength to make smarter decisions. With roles clear and tasks better defined, you can ensure optimal billing and capacity utilization.

3. It can open up additional billability areas

It is only when you closely track non-billable time that you can uncover any "hidden billability". This hidden billability could come from  genuine billable work that may be slipping through the cracks. It’s easy to see how this can help bill your clients more accurately, to increase the total billable hours.

For instance, let’s say that your client requested numerous ad-hoc updates during the project, resulting in 20 additional non-billable hours for your team. This can open up a conversation about re-negotiating the contract with the client –and creating better future contracts for other clients. 

Even in cases where it may not be possible to bill clients for tasks, you can include a “non-billable time” section on your invoice. This will serve to highlight your commitment to the project – while also making it clear that you’re not charging them for it.

Lastly, tracking non-billable time will help you identify best-fit clients – by identifying clients or projects that need the least amount of non-billable tasks or time.

5 tried and trusted ways to manage and minimize non-billable time

To effectively manage non-billable time and its impact on billable utilization, you need to adopt a comprehensive approach that covers:

1. Data collection and categorization: Qualitative and quantitative analysis

Implement a system that captures the time spent on various activities and categorizes them as administrative tasks, business development, internal meetings, professional development, etc. Analyzing this data over time can help identify patterns and trends to understand or identify:

1. Specific periods when non-billable time spikes
2. Employees/roles disproportionately engaged in non-billable tasks, etc
3. Processes that have the most repetitive and manual tasks  
4. Project critical non-billable tasks

This can help understand the root causes of excessive non-billable time – be it process inefficiencies, delegation issues, poor time management, or the lack of adequate tools.

2. Leveraging automation: Simplifying manual tasks and automated time tracking

Automation can help reduce the time spent on necessary but repetitive tasks. These tasks typically include recording and transcribing calls, preparing meeting notes or action items, creating project documents and proposals, etc.

Another effective way to reduce non-billable time is using automation for time-tracking. Automated time-tracking can effectively eliminate the manual entry of billable and non-billable hours, thereby also minimizing the chances of errors or discrepancies in time tracking.

3. Clear task prioritization: Establishing guidelines for maximizing productivity

When faced with an array of tasks, it can be challenging to determine which tasks should take precedence. Establish clear guidelines for prioritizing tasks. Help employees distinguish between critical billable work and necessary non-billable activities. This ensures that non-billable time is used productively.

To begin with, it is essential to evaluate the importance and urgency of each task. You can do this using a priority matrix, or by assigning deadlines based on client requirements.

Apart from importance and urgency, it's also important to consider dependencies while prioritizing tasks. By identifying and highlighting task dependencies, you can ensure smooth workflow and prevent bottlenecks. This  approach eliminates unnecessary delays and helps maintain a consistent level of billable utilization.

Another aspect to include in task prioritization is the skill required for each task. By assigning tasks to individuals with the appropriate skills, businesses can maximize productivity and ensure that billable hours are utilized effectively.

4. Resource allocation optimization: Regularly reviewing resource allocation across projects

Reviewing resource allocation regularly allows you to: 

1. Ensure that employees are not disproportionately burdened with non-billable tasks, and 
2. Take corrective action at the right time

This also helps identify any bottlenecks or underutilized resources, and improves the assignment of resources to billable tasks. What you get, as a result, is a positive impact on overall productivity, profitability, and client satisfaction.

5. Client communication: Transparency and visibility via dedicated client access

Keeping clients updated often involves sharing project updates, discussing deliverables, and addressing any concerns or questions they may have. These are major contributors to non-billable time.

By leveraging automation to provide real-time updates, you can keep clients informed about the progress of their projects without having to spend time on manual updates. Besides saving time, this also helps clients remain well-informed and engaged throughout the process.

Additionally, dedicated client portals can significantly streamline communication and enhance collaboration. These portals serve as secure platforms where clients can access project-related information, documents, and updates in a centralized location. On one hand, this means that you as a professional service firm can reduce the time spent on manual communication and follow-ups. On the other, your clients will benefit from the convenience of accessing project details whenever they want, without having to rely on email exchanges or phone calls.

Equally importantly, communicate transparently with clients about the allocation of non-billable time. If non-billable tasks are necessary for project success, educate clients about their value and impact on the overall outcome.

How PSA tools can help minimize non-billable time

From project management to resource allocation and time tracking, professional services automation tools are your best when it comes to managing non-billable time and increasing overall efficiency. Let's take a closer look at how they do this. 

1. Efficient time tracking and reporting

PSA software offers robust time tracking capabilities that enable employees to easily their time on billable and non-billable hours. This data can be analyzed and used to identify areas of improvement, such as excessive time spent on administrative or non-productive activities.

PSA software provides organizations with access to comprehensive data and analytics on various aspects of their operations. By analyzing this data, organizations can identify patterns, trends, and areas for improvement. This data-driven approach enables organizations to make informed decisions to minimize non-billable time and improve overall utilization rates.

2. Improved resource utilization

PSA solutions can help you effectively allocate resources based on skills, availability, and project requirements -- thereby improving your resource utilization rate. By ensuring the right resources are assigned to the right tasks, organizations can minimize non-billable time caused by underutilized or improperly utilized resources. 

With real-time visibility into resource availability, project managers can make informed decisions to optimize resource utilization and reduce non-billable time.

3. Streamlined project management

PSA software offers robust project management capabilities, allowing teams to define project timelines, set milestones, and track progress. By providing a centralized platform for collaboration and task management, PSA solutions eliminate inefficiencies and minimize non-billable time caused by miscommunication or delays.

4. Seamless billing and invoicing

PSA software automates the billing process by integrating time-tracking data with invoicing. This eliminates manual errors and ensures that billable hours are accurately accounted for. By streamlining the billing process, organizations can reduce non-billable time spent on administrative tasks, find the optimum billing rate for the team, and improve cash flow.

Non-billable time: Frequently asked questions

1. What is non-billable utilization?

Non-billable utilization refers to the time or resources spent on tasks that cannot be directly billed to clients or customers. This could include activities such as internal meetings, training, administrative tasks, and even vacation time.

It is an essential metric for service-based organizations to track and manage as it impacts overall productivity and profitability. They can analyze non-billable utilization to identify inefficiencies and optimize resource allocation for improved performance.

2. How do you calculate non-billable utilization?

You can calculate non-billable utilization by dividing the total number of non-billable hours worked by the total number of available working hours, and expressing it as a percentage.

Non-billable utilization = (Number of non-billable hours/ Total available working hours)x 100

3. What is billable vs non-billable utilization?

Billable utilization refers to the time an employee spends on activities that directly generate revenue for a project, such as providing services, completing projects, or delivering products.

Non-billable utilization refers to the amount of time an employee spends on non-revenue-generating activities, such as administrative tasks, training, internal meetings, or non-client-related work.

4. How do you calculate billable utilization?

You can calculate billable utilization by dividing the total number of billable hours worked (by an employee or team) by the total number of available working hours.

Billable utilization = (Number of billable hours/ Total available working hours)x 100

This calculation helps assess how efficiently resources are being utilized and generates insights into project profitability and resource allocation.

Minimize non-billable busy work with Rocketlane’s PSA capabilities

With the help of Professional Service Automation (PSA) software like Rocketlane, you can minimize non-billable time, boost resource utilization, and increase overall efficiency. 

From efficient time tracking and resource optimization to automation for streamlined workflows to transparent project management, Rocketlane brings the best of professional services automation to every task, project, and client.

Here are the capabilities that make Rocketlane a great choice for improving billable utilization and minimizing non-billable hours. 

1. Templatization 

Rocketlane lets you templatize documents and proposals so you can save time and effort in creating project documents from scratch. Even better, you can create and store them all in one place – creating a centralized repository for all project-related documents. This eliminates the need for external storage solutions and enables version control, ensuring that everyone has access to the latest document versions.

2. Analytics, reporting, and business intelligence 

Rocketlane comes with detailed analytics, reporting, and data visualization capabilities that help you dynamically improve resource allocation, identify areas for improvement, and improve billability.

3. In-app communication and collaboration

With Rocketlane, you can collaborate live on tasks, project plans, and status updates, eliminating the need to switch between tabs or applications.  Another standout feature is its ability to ensure that your internal tasks, conversations, and comments remain private. This means that have private conversations, tasks, documents, updates, etc. for your internal team – within the context of the project, but hidden from the client. 

4. Dedicated client portals 

Rocketlane also allows you to create custom domains for each client. These portals serve as a central hub for project updates, escalations, and accessing relevant resources. This streamlines interactions and information exchange – while also keeping your clients accountable. 

You can even customize your customer portal with your logos and brand themes, to ensure a consistently on-brand experience for your clients.
Experience all the benefits of a modern PSA tool with Rocketlane to:

1. Find the right team members for each task and every project, 
2. Track project progress in real time, 
3. Minimize the time spent on non-billable tasks, and 
4. Accelerate project delivery and boost project efficiency

Schedule a demo or start your 14-day free trial of Rocketlane.