When it comes to scheduling, freelancing is a double edged sword.
On the one hand, you can schedule your time however you want; you’re your own boss, and you don’t need anyone’s permission to start work at 1am and keep going until 9am if that’s when you’re at your best.
On the other hand, you don’t have the luxury of knowing how many hours you’ll be working each week. Depending on how business is going, you could have a lot less or a lot more work on your plate than you planned for.
But even if you set a strict schedule of exactly 40 hours of work each week, you still might not know how many hours you’ll actually get paid for.
That’s where the concept of billable vs. non-billable hours comes into play. As a freelancer, you’re likely going to end up doing quite a bit of work that you’ll never get paid for — those are your non-billable hours. In this guide, we’re going to explain what exactly that means and how you can take them into account so you can schedule your time effectively.
What Are Billable Hours? What Are Non-Billable Hours?
The term “billable hours” refers to the number of hours that you can bill for. In other words, it means the amount of time you spend directly working on client projects. Your billable tasks are essentially your revenue generating activities.
If you’re not a freelancer, you might find it redundant to specify “billable” hours — shouldn’t you get paid for all the hours you work?
Not necessarily. If you’re an employee, all the time you spend on the job is (supposedly) directly contributing to the job you were hired for — you get paid a salary or a wage. But if you’re a freelancer, you run your own business, and that means that you have to take care of marketing, invoicing, sales, accounting, and all sorts of other tasks that you wouldn’t expect your clients to pay for. After all, why would the business that hired you to design its logo pay for the time you spent cold emailing other prospects?
The time you spend working on developing your business is referred to as “non-billable hours.” That’s because even though the work is important, there’s no one you can bill for it. You can think of your non-billable hours as the time you spend making sure your business runs smoothly so that you can continue to rack up billable hours.
As a freelancer, it’s important to strike a balance between billable and non-billable hours. Even though it may seem tempting to fill up your scheduling with as many billable hours as possible, if you don’t spend enough time moving your business forward, you’re likely to have problems in the long run.
As we continue to dive into this topic, it’s good to keep in mind that these terms don’t necessarily need to apply only to hours — the concepts can be used even if you charge by the project, by the word, by the minute of finished video, etc. Really, these terms are used to determine how much time you’re getting paid for out of all your working hours. So, even if you charge per word, but you estimate that you worked for five hours, you can count those as billable hours, even though you’re not charging an hourly rate.
In other words, you can conceptualize this as billable work vs. non-billable work as well. Depending on what field you work in and what your profession is, you may even use other terms entirely. For example, lawyers, law firms, and legal professionals tend to use the term “billable hours,” but marketing agencies are more likely to refer to “utilization rates.”
Now that we’ve got a basic understanding under our belts, let’s look at some examples of each.
Examples of Billable Tasks
Billable activities include any work done on a client’s assignment, such as:
- Planning out a project (outlining, sketching, etc.)
- Conducting research for a client project
- Developing a project’s timeline
- Completing revisions
- Meeting with your client (only if you’ve already specified you charge for this)
- Conducting interviews
- Responding to client emails
If you’re unsure whether your work is billable, you can run a quick test: if you were your client, would you reasonably expect to pay for that work? While there may be some gray areas, this should give you a pretty clear indication overall.
Examples of Non-Billable Tasks
Non-billable time includes any work that isn’t done for a specific client but for the development of your business as a whole. Examples include:
- Reaching out to new clients
- Developing pitches for new work
- Developing advertising initatives
- Taking professional development courses
- Attending networking events
- Any work that is beyond the scope of the contract
- Preparing and sending invoices, filing tax returns, and any other administrative tasks
You can run the same litmus test to check if your work is non-billable. You can also ask an additional question: was this task done for a specific client or was it done for my business as a whole? If it’s the latter, then it’s non-billable work.
How to Keep Track of Billable and Non-Billable Hours
Tracking Billable Hours
You can keep a record of your hours by using a time tracking app. These apps function just like a traditional punch-clock: you set up a project in the app, press a button when you’re starting your work, and then press it again when you’re finished. The app will automatically add up all the time you spent on that project and tell you what your billable hours are.
Keep in mind that, depending on the app, it may not have an option to view your total billable hours, i.e. the time you spent on all client work during a specific period of time. So, if you worked on multiple projects during the same time period, you may need to add up the times manually. Knowing your total billable hours overall won’t come in handy for invoicing, but it’s good to know so you can evaluate how efficiently you are running your business.
If you charge per hour, you’re probably already doing this, and you probably already have a pretty good idea of what your billable vs non-billable time breakdown looks like. However, if you bill per project, per word, or using some other metric, you may not have a particularly good idea of how much time you spend on billable tasks each week. To get the most accurate picture of your work schedule, you should still use a time tracking app. However, since you’re not actually charging for that time, you can afford to be a little less accurate — just check the clock when you’re starting and finishing your work to get a rough estimate. Then, write it down in a time log, such as a notebook or spreadsheet.
Tracking Non-Billable Hours
You don’t necessarily need laserlike precision when tracking non-billable hours — just note the general time when you start and finish work tasks. Then, write down the amount of time spent in a time log. The more accurate you can be, the better, but you don’t need to get it down to the minute.
Of course, you’ll get the most accurate picture by using a time tracking app, but it’s not strictly necessary in the same way it is if you charge per hour. After all, these records are just for your own use and to get a better idea of how you’re spending your time — you’re not going to charge anyone for them.
You can note the time you spent on each work task in a spreadsheet, journal, or however you prefer to keep track of your work. Generally, time tracking apps will make this a little easier since they automatically note down the time when you hit the stop button.
How Many Billable Hours Should You Have?
There’s no easy answer to this question. It depends entirely on your own personal goals, your business goals, your business model, and to some extent the economic climate. The number of billable hours a full-time freelancer and someone who views freelancing as a side gig should have will be totally different.
The only hard and fast rule you should keep in mind is that you’ll want your billable hours to be as high as possible, but they shouldn’t be 100% of your time — even with steady clients that provide recurring work, you still need time to invoice and complete other administrative work.
For more guidance, you can look to a helpful document that The Yale Law School Career Development Office wrote up on billable hours. Although it’s directed specifically at lawyers, some of its key takeaways can apply to freelancers as well.
If you were working full-time as a lawyer, you could expect to be at work for about 2,400 hours per year and bill for around 1,800 of those. Expressed as a percentage, that’s 75% of your total hours. Since lawyers have pretty busy schedules, it’s reasonable to extrapolate these numbers to freelancers, keeping in mind that they won’t translate directly.
Now, this doesn’t mean that you should aim to bill for only 75% of your total hours, but you can use this as a general guide. The higher your percentage, the better (to a point), but if you’re billing for 75+%, you’re likely on the right track.
With that percentage in mind, you can set your billable hours targets. So, if you want to work a 40-hour week, try to get at least 30 billable hours in. If you want to work a 20-hour week, aim for at least 15 billable hours per week.
It’s also worth keeping in mind that as a freelancer, your workload will fluctuate, and you’ll generally want to schedule a few weeks of vacation, so it’s often a better idea to look at the larger picture. Even if some weeks don’t hit that 75% target, you’ll want your average number of billable hours to be around there.
Key Takeaways: Billable vs. Non-Billable Hours
Unlike employees, freelancers are essentially entrepreneurs. That means that you need to allot time for revenue generation and business development.
Billable hours refers to the amount of time you spend on client work that you plan to charge for. Non-billable hours refers to time you spend developing your business. To run a successful freelance business, you need to have both.
If you’re unsure what percentage of your total hours you should bill for, you can use 75+% billable hours as a general rule of thumb.