Figuring out how to bill your clients can be… tricky. Many of us are used to being paid by the hour or with a salary and not so much for our actual work. (Anyone who’s spent hours on Facebook at a boring job knows how true that statement is.)
But one of the beauties of being a freelancer is that, while the work ultimately belongs to the client, your time is yours. That means you have to decide up front how you’re going to be paid – and one option is charging by the billable hour.
What are billable hours?
Billable hours are the hours that a freelancer or consultant charges a client for their work. In other words, billable hours are the number of hours that a freelancer spends working on a project — including time spent working on a project, attending meetings, or performing administrative work related to the project — minus the amount of time spent on non-billable activities. Non-billable activities could include time spent on administrative work, unrelated phone calls or research, or anything else that doesn't directly contribute to the finished product.
For many freelancers, billable hours are one of the most important factors in determining how much they'll earn from a project. While billing by the hour may not be ideal for every situation, it can be a helpful way to price your services and ensure that you're fairly compensated for your time and effort.
Examples of billable tasks include:
- Meetings with the client or for the project
- Revisions to the project
- Any project planning
- Anything within the contracted scope of the project
What are non-billable hours?
Non-billable hours, on the other hand, are the hours that a freelancer works but does not bill their client for. These might include pitching new clients, educational programs for professional advancement, handling your accounting, or anything else that’s beyond the scope of the contracted project.
Non-billable hours are often considered part of the "hidden cost" of running a business, since they are not always immediately apparent to clients. Nevertheless, they are an important part of any freelancer's work process, and should be factored into their overall quotation.
Examples of non-billable tasks include:
- Pitching projects to new clients
- Administrative tasks related to your business, but not to the client’s project
- Advertising for your business
- Anything outside the project scope
- Scrolling social media
How do I track billable hours and non-billable hours?
When you're a freelancer, time is money. That's why it's important to keep track of both billable and non-billable hours.
There are a few different ways to track billable and non-billable hours. One popular method is to use time tracking software like Toggl or RescueTime. These time tracker apps allow you to start and stop a timer for each task you work on, making it easy to see how much time you've spent on billable and non-billable tasks and calculate your billable hours at the end of the day.
Another option is to use a spreadsheet or notebook to keep track of your hours. This can be more labor-intensive, but it can also be more flexible if you need to bill for partial hours or track multiple projects at once.
Once you've tracked your billable and non-billable hours, you'll need to decide how to bill for them. If you're billing hourly, simply include your total hours worked on your invoices. You may also want to include a breakdown of each billable task so that the client knows exactly where their money went. Be aware, though, that vague descriptions — like “research,” for example — might work against you rather than for you, so be as specific as possible if you’re providing an itemized bill.
If you're billing per project, you'll need to estimate the number of billable hours involved and include that information in your proposal or contract. Regardless of how you bill, keeping accurate records of your billable and non-billable hours will help ensure that you get paid for all the work you do.
How do freelancers fairly bill their hours?
When it comes to billable hours, there is no one-size-fits-all answer for freelancers. The amount of billable hours will vary depending on the nature of the work, the client's budget, and the freelancer's own schedules and availability. However, there are a few general guidelines that freelancers can follow to ensure that they are billing appropriately.
- First, billable hours should only be charged for the time you spent working on a client project. This includes time spent researching, writing, editing, and revising. Any time spent on administrative work not related to the client (such as setting up invoices or managing email correspondence) should be deducted from billable hours.
- Second, billable hours should be divided into manageable blocks. For example, rather than billing for an entire day of work, a freelancer could bill for four three-hour blocks. If you work for 30 minutes, you can bill for 0.5 hours. This allows the client to see exactly how much time is being devoted to the client project and prevents the freelancer from over charging.
- Finally, it is important to keep track of non-billable hours so that they can be deducted from the total number of billable hours at the end of the project. By following these guidelines, freelancers can ensure that they are billing appropriately for their services.
How do I maximize my billable hours?
As a freelancer, one of the most important things you can do is maximize the amount of time you spend on billable work. This means making your non-billable work as efficient as possible so you have more hours that can be billed for. You don’t want any time to go to waste. In other words, you want to maximize your utilization rate, which is a fancy way to say there are only so many hours in a year and therefore there is a limited amount of work you can actually produce. Of course, this can be easier said than done. Here are a few tips to help you make the most of your billable hours:
- First, track your hours carefully. Use a time tracking app or a simple spreadsheet to keep track of the start and end time of every client project you work on. This will give you a good idea of how many billable hours you're actually putting in each week.
- Avoid project creep. This is when a client keeps asking for more work beyond the scope of what was originally agreed upon. If you find yourself in this situation, have a conversation with your client about it. Scope creep usually happens when there's no clear definition of what the project entails. So, before starting any new client project, make sure you and your client are on the same page about what needs to be done and how many billable hours it will take.
- Don't be afraid to bill for related activities. If you spend an hour on the phone with a client or researching a project, that's still billable time. Make sure your clients know that they're being charged for your time, even if you're not actively working on their project at that moment.
By following these tips, you can make sure that you're maximizing your billable hours and making the most of your time as a freelancer.
Disadvantages of billable hours
While charging by the billable hour is a great system for some freelancers, it doesn’t fit every type or style of work. For example, say you’re a freelance writer. If you’re a speedy researcher and writer, then a task that takes you three hours might take another writer 12 hours.
Does that mean you should be compensated less for your work? Of course not! That’s why writers often charge by the word count or by piece rather than by billable hours: It makes more sense for the type of work and creates a very clear budget for the client.
Charging by billable hours also means you have to submit much more detailed and complicated invoices than if you charged another way, like per project. If your work is highly specific and specialized, then a clear, itemized invoice might be necessary. But it’s worth it to think hard about exactly the type of service you provide and decide whether a different system might be a better fit.