Whether you’re billing by hour or by project, it’s essential to understand the structure of your team’s working hours in revenue terms. This is not only required when you’re actively working on optimization of your business processes: collecting and analyzing this data on a regular basis helps reveal and eliminate possible process flaws as early as possible.
In the fields where clients are billed on hourly basis, such as law, consultancy, or advertising, understanding how efficiently the team is using their work time has direct effect on the company’s revenue. Incorporating collection and analysis of this data in the work process often turns out to be vital for service companies.
Even where billing process is not centered around spent time, analyzing the efficiency of billable time usage helps a lot with achieving better profitability. It’s not uncommon that basic work gets done, but the team could obviously get more value of its time and efforts. Knowing what work does produce value (monetary or otherwise) and what doesn’t, allows managers and business owners to reconfigure work processes to be more efficient.
The easiest way to obtain profitability data is to measure time spent on work and categorize it depending on how it is used for billing. This way, managers can analyze how profitable their teams’ projects are and see what can be done to improve the time-revenue proportion.
Let’s take a look at work time structure and see what portions of it should be taken into account when analyzing its efficiency.
Billable Time
Billable time is the part of work time that brings revenue to the company. It is allocated to specific projects and customers and (usually) divided by tasks performed within a project. This part of work time is usually logged for billing purposes, but it’s also worth using it for work efficiency and profitability analysis.
For analyzing how efficiently billable hours are used, it’s important to record all time you spend on the project. It’s not uncommon for employees to omit time spent on sorting their inbox, doing research etc., but this leads to inaccurate data on efficiency and profitability of project works.
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Non-Billable Time
Non-billable time usually includes administrative and organizational works. This time is not associated with work for a client or specific assignments within a project, but it is necessary for running general processes, maintaining records in order, etc. So it’s not something that brings revenue to the company: rather, it is a significant part of operational costs. That’s why, keeping records of non-billable time is essential for understanding the resulting profit.
Unassigned Time
The term “unassigned time” is used for work hours that are neither billable nor non-billable. For example, it applies to the cases when an employee is waiting for a task to be assigned to them. They don’t bring direct profit or any benefit to the company, but still need to be reported, because they help reveal organizational flaws and find out where and how processes can be improved.
Utilization Rate
Understanding the actual proportion between billable hours and non-billable parts of work time is a must. This proportion is called utilization rate and is used for revenue analysis. Calculating it and comparing its values for different periods is the most common method for increasing company’s profit related to billable working hours.
Best Practices for Achieving Accuracy of Work Time Data
Ensuring accuracy of collected data is crucial for getting the actual picture of how efficiently billable time is used. There are various practices that help achieve more accurate timekeeping data. They are simple enough, but require consistency, so implementing them in your daily routine and sticking to them is the key idea.
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Log time every day
The sooner you log your time, the more accurate it is. So develop the habit of logging time at the end of each day, and help your team members develop it. You can implement this as a mandatory step of your work routine, or use it as a ritual at the end of the workday. The idea is to record time as soon as possible before the actual figures get forgotten.
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Review missing time regularly
Even if the majority of your team members are logging their time regularly, most likely there are those who tend to forget about doing timesheets on time. To prevent it, review timesheets weekly or bi-weekly, and remind the employees to submit them. If your timekeeping tool allows to set up automatic reminders on unsubmitted time, you can save your time at this step.
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Lock timesheets on a regular basis
Locking timesheets not only prevents employees from making changes to already submitted time – it also works as a motivator to do timesheets sooner. Lock your team’s time weekly, monthly, etc., depending on your billing intervals, and inform your team members on the deadlines. Once the time is locked, use the data for billing, reporting, and analytics.
To make these essential habits your daily routine, you may want to implement a time tracker like actiTIME – time tracking software that keeps track of your billable hours. Log time manually using a timesheet or start a timer right in your browser or the mobile app. Review your time tracking data in a few clicks, including billable and non-billable amounts, overtime and leave time. Lock timesheets to make sure that previous time logs will remain unchanged.
Summary
Ensuring effective usage of billable time is not possible without keeping track of where the work time goes. Collect timekeeping data, run reports on efficiency and profitability, and analyze the dynamics to get the full picture. On the basis of the dynamics data, it’s easier to forecast profitability figures and take the right steps to increase work efficiency.
