I came to write this article after discussing billable hours and utilisation with a client.
Key to profitability is to reduce non-billable time spent on a client – over-servicing, over-delivering, poor scoping etc. My client got on board and started scrutinising the reasons for non-billable time – and he discovered an unexpected bonus.
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So, lets jump in. What are non-billable hours, how do you spot them? Why are they damaging? What opportunities can you grasp once you understand where your non-billable time is being spent?
There are still lots of people-based businesses who fail to get their teams to use timesheets.
If you can hang on in there despite my dropping the ‘t’ word so early on, then I promise this is a useful.
There are lots of reasons businesses don’t adopted timesheets (FYI – I’m yet to find one which holds up as a viable enough not to). But there are always businesses who are at at a point of evolution whereby they don’t see them working, or they worry teams will see it as a ‘big brother’ exercise… or, quite simply they’ve tried to implement them before without much luck.
I insist that the businesses I work with use timesheets, and I try to explain the importance in purely beneficial business terms.
Essentially, timesheets highlight the three types of work happening within your business:
- Work billed to clients (billable time)
- Work for clients but not billed (non-billable time)
- Work on the business that isn’t client related (non-client work)
It stands to reason that in people-based businesses, your people are your only resource – their time, and how they spend it, directly impacts your bottom line. The spot you’re losing pure profit are those hours spent doing non-billable work for clients.
Although not a perfect measurement – timesheets are the single best way to start understanding where you’re over delivering for clients (that’s the non-billable hours part).
Side note: sometimes over-delivery is described as over-servicing, but it’s important to understand it’s only over-servicing if you client sees and recognises the value. For every hour of non-billable time your client doesn’t see as valuable – it’s over-delivery, and that’s where you’re removing profit from your business.
Once you start measuring where your teams time is being spent, the first thing to do is to understand why the non-billable hours are happening.
There are a few classic reasons over-delivery happens:
- Demanding clients
- Poor processes
- Feeling unable to say ‘no’
- Not following processes that do exist
- Misestimating your SLA/SOW
As a people-based business, your aim is to make the gap between your SOW / SLA and your client expectations as small as possible.
So what can you do to minimise the non-billable client hours?
- Implement team training – create and embed processes
- Identify pushy clients – train your project managers on how to communicate well with demanding clients
- Choose better clients who want to work collaboratively
- Build better scopes of work – the clearer the better for both your team and the client
The impact of identifying non-billable clients
- You’ll make more profit
- You’ll have happier client who are not over or under serviced
- You’ll have the opportunity to really talk to your clients about their problems – this begets new opportunities
The non-billable hours bonus
My client soon realised how worthwhile understanding non-billable time was when they began spotting all sorts of opportunities to sell more services and/or exposed issues with the way they run accounts by increasing he scrutiny on this very key metric.
Give it a try.
Andy.