What Are Billable Hours for a Service Business?

What are billable hours?

In a service business, billable hours are the hours you spend on tasks directly related to a specific job. 

Billable hours are usually included under “labor” on your invoices and only cover the time you spend working for the client. 

Even if you don’t bill your clients hourly, it’s still important to consider billable hours when setting your service prices to ensure you cover your overhead costs and markup and hit your desired profit margin.

Billable vs. non-billable hours

Where billable hours are made up of the tasks directly related to a job, non-billable hours aren’t associated with a specific client. Instead, they’re the hours you spend on tasks to keep your business running. 

Non-billable activities are things like: 

• Small administrative tasks, like responding to emails and phone calls
• Driving to and from job sites
• Internal meetings
• Filing general paperwork, like quotes or invoices
• Planning for future projects
• Hiring or training employees and subcontractors
• Generating leads

In some cases, what counts as a billable hour can change. For example, non-billable hours, like driving to a client’s home, can count as billable hours if the location is outside of your service area. Of if you need to do an hour-long phone consultation with an interior designer during a renovation project. 

While many billable hours take place in a client’s home or at a job site,  it’s also possible for billable hours to happen at your office, in your vehicle, or at a supplier. Like when you’re putting together a plan for a renovation.

How to calculate billable hours

To calculate your billable hours, you need to do more than just guesstimate how much time you spend on client-related work. Follow these steps to get started. 

1. Set an hourly rate

Depending on the pricing strategy you have in place, you may have already determined an hourly rate for your services. 

But if not, you’ll need to set one now. This involves calculating your business expenses, researching competitor pricing, setting a profit margin and markup, and making adjustments based on your target customers and growth goals. 

FREE TOOL: Service price calculator

2. Track your billable hours

Start by tracking both your billable hours and non billable activities separately at the beginning of each job. This will make it easier to only include billable hours on your client’s invoice. 

When it comes to how to track billable hours, you have two options. You can use a timesheet, like Microsoft Excel or Google Sheets, to do it manually, or you can use time-tracking software like Jobber. 

FREE TOOL:Timesheet template

If you regularly have a team spread out over multiple job sites, using service tracking software like Jobber allows your employees to create and maintain accurate, up-to-date timesheets for each job. 

Using GPS data, Jobber can even send a reminder to start tracking time when a team member arrives at the job site to prevent them from forgetting to log their hours. 

That takes a lot of administrative work off your plate when it comes to overseeing payroll and creating invoices. 

The benefits of tracking billable hours

Tracking billable hours is beneficial to you, your clients, and your team members. Staying on top of the hours you can (and can’t) bill to clients helps to: 

1. Create accurate invoices

Tracking the hours you spend working for each client keeps your invoices accurate, consistent, and transparent. 

Instead of guesstimating how much time you spend on a job, track time to keep precise records ensures you always bill clients fairly and don’t over- or undercharge for your services. 

2. Keep profit stable

Tracking billable hours shows you which jobs are the most profitable and where you may need to adjust pricing. This helps you to focus on what brings in the most money and ensures you’re able to meet your profit margins consistently, keeping cash flow steady.

3. Improve time management

Time management is hard, especially when you have employees and subcontractors to oversee. Using time tracking to stay on top of employee billable hours increases efficiency by ensuring your team members are only at a job site for as long as they need to be. 

It can also be helpful when the scope for a job goes beyond your initial quote since you can use time tracking to see how much overtime you put in. 

4. Set flat rates

Sometimes it makes sense to charge a flat rate for a service. But if you don’t know how many billable hours go into a standard job, it will be hard to set a profitable billing rate. 

Tracking billable hours shows you exactly how much time it takes to complete specific jobs, allowing you to expand your service offerings with packages and tiers like good, better, best pricing. 

5. Make tax time easier

Knowing what your billable hours are makes tax time a lot easier. Documenting them beforehand ensures you have accurate records of your income and payroll when it comes time to file. 

READ MORE: 30 small business tax deductions to save money when filing

6. Build trust

Keeping track of the time you spend working for a client demonstrates that you care about accuracy, efficiency, and the client’s budget. This builds trust and positions you as an honest, accountable, and professional service provider the client will want to work with again.

Why are billable hours important?

Billable hours make up the bread and butter of your service business. They’re what your profit is based on, helping you to pay employees, cover operating expenses, and keep your business running. 

Tracking billable tasks is essential to your growth because it plays a major role in setting and meeting your goals. But staying on top of billable hours can be tricky without software to help you. 

Especially if you have multiple team members to oversee. Use time-tracking software like Jobber to ensure your billable hours are always accurate, up-to-date, and consistent.