What is a billable hour?

A billable hour is an hour of work that you charge to a client, either directly at an hourly rate or as part of a fee that covers that work. It is the basic unit of a service business, and most pricing and capacity questions come back to it.

The definition

An hour is billable when three things are true. The work is for a specific client or project. It moves that client's work forward. And your agreement with the client lets you charge for it.

Everything else is non-billable. Non-billable time is not wasted. It includes selling, training, internal meetings, admin and any work you decided to absorb. It still has to be paid for, which is why billable hours carry the cost of the non-billable ones.

Three examples

Example 1: client work. A designer spends 3.5 hours revising a brand guide after the client's feedback. The work is for one client, it is part of the agreed scope and it can be invoiced. The 3.5 hours are billable.

Example 2: internal time. The whole team has a one-hour planning meeting about next month's workload. No client is named and nothing is delivered. It is non-billable. If part of the meeting covers one client's project, you can log that part against the client.

Example 3: work that depends on the agreement. A consultant writes a two-hour proposal for a prospect. Many firms treat that as non-billable selling time. Now say the prospect then books a paid four-hour discovery workshop with the same consultant. Those four hours are billable, because the client agreed to pay for them.

Hours do not change with the arrangement; the label does. The same hour of writing is billable under one agreement and not under another.

A weekly calculation

Say a designer works 40 hours in a week and logs them like this:

• Client work: 26 hours
• Internal meetings and admin: 8 hours
• Selling and proposals: 4 hours
• Training: 2 hours

The categories add up: 26 + 8 + 4 + 2 = 40.

Billable share is 26 / 40 = 65%.

If the standard rate is $85 per hour, the billable value of the week is 26 x $85 = $2,210. That is the most the week can produce at that rate, before any discounts or write-offs.

Fixed fees and billable hours

You can have billable hours on a fixed-fee project. The client does not pay per hour, but you still record the time spent on that client's work. The hours tell you what the project really cost and what rate it paid.

Divide the fee by the hours to see the effective rate. A $3,000 project that took 40 hours earned $3,000 / 40 = $75 per hour. If you quoted it as 30 hours at $100, the work took longer than planned and the rate is lower.

Common mistakes

• Reconstructing time at the end of the week. Memory misses small tasks, and the omissions leave billable time unrecorded.
• Rounding every entry up or down. Pick a rule, such as nearest quarter of an hour, and use it each time.
• Mixing worked hours and billed hours. They are different numbers. The difference between them is the subject of realization rate.
• Leaving out the small client tasks. A few quick replies and calls each day can add up to hours that nobody charged for.
• Setting no rule for what is billable. Decide in advance whether client calls, travel and project management count, and put it in the agreement.

Recording billable time

Record time as you work, against a client or project. If you use HireOrSell, time tracking includes billable and non-billable marking and ties into invoicing, and it is available on the Pro plan but not on the Free plan. Check the pricing page for current details.

Whatever tool you use, the habit matters more than the product. Start the day with the project list in front of you, and log after each task.

How it ties into setup

Clarity about billable hours starts when a project begins. If the scope, rates and what counts as billable are written down on day one, there is little to argue about later. The new project setup checklist includes the items to settle before work starts.

Next step

For one week, log every hour against either a client or one of three internal labels: admin, selling and training. At the end, calculate your billable share as billable hours divided by total hours worked.