How to Calculate Billable Hours

As a freelancer, team member or a business owner, accurately tracking and calculating billable hours is essential for getting paid fairly for the work you do. But without a clear system in place, calculating billable hours can feel like a guessing game, leaving you at risk of undercharging clients, missing billable time altogether or having a chaotic workflow.

Knowing how to calculate billable hours efficiently can help you invoice clients accurately, manage your or your team's workload, and increase your overall profitability and productivity.

Let's explore a simple billable hours formula that will make the billing process way smoother and accurate.

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Understanding Billable vs Non-Billable Hours

Let's imagine a freelance designer working on a project for a client. They want to have control over their time so they use a time tracking app.

What should they track? Obviously, the time they spend on the project, such as design, wireframing, prototyping, etc. But is every task they do on the project billable?

Not really. For example they might spend time reading emails, checking Slack, or creating an invoice fo the client. So it obviously depends on what you agree with your client, however in most cases not 100% of the workload for the project is billable.

What might be billable?

• Project-specific tasks: Such as design, development, content creation, or any service tied to the project’s deliverables.
• Client meetings: Any time spent discussing project requirements, providing updates, or planning next steps.
• Revisions and feedback: If it falls within the agreed project scope, time spent on revisions or implementing client feedback counts as billable time.

What might not be billable?

• Management tasks: Activities like responding to emails, managing invoices, and scheduling are essential but usually non-billable.
• Client Communication Outside Agreed Meetings: While meetings may be billable, extended back-and-forth emails, unscheduled calls, or follow-ups to clarify project details may fall outside billable hours.
• File Management and Handover Prep: Organizing files, creating final deliverable packages, or uploading to client platforms can take extra time.

What is and is not billable is often up to you and the client, and what you agree on within the project scope.

Why distinguish between billable and non-billable hours?

If you want to make the most out of your time and calculate your billable hours accurately, you need to understand how much time you are spending on billable and non-billable tasks. By tracking billable hours separately, you can better manage your workload, set more accurate rates, and improve your profitability.

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Simple Formula to Calculate Billable Hours

Calculating billable hours is not complicated. By following a few straightforward steps, you can accurately track and invoice clients for the time you spend on their projects. Here’s a simple formula to use:

Our example designer has worked for 40 hours on the project and he spent 5 hours on non-billable tasks. So he will bill us for 35 hours.

Total time (40 hours) - Non-billable time (5 hours) = 35 billable hours

Tips for tracking billable hours accurately

To track billable hours accurately, we have following tips for you:

1. Use a time tracking tool: A time tracking app can help you record your time accurately, provide detailed reports and analytics per project / client / task or even per team member.
2. Have clear boundaries: Define what is billable and what is not with your client upfront. Clear agreement avoids any confusion and ensures you are both on the same page.
3. Break Down Projects into Smaller Tasks: Don't track time for the entire project at once, but rather break it down into smaller tasks and track time for each task separately. This way you can see how much time you spend on each task and adjust your rates accordingly. It helps you improve your productivity project by project.
4. Review your time: Don't procrastinate on reviewing your time, rather do it regularly. You can quickly catch things slowing you or your team down and adjust your workflow.
5. Separate non-billable tasks: If you have non-billable tasks that you need to do, create a separate task for it. This way you can see how much time you spend on non-billable tasks and adjust your workflow accordingly.

Simple invoice breakdown

A clear invoice shows your clients exactly what they’re paying for, makes you more transparent and helps building trust.

Example invoice with transparent breakdown:

Summary - Make every hour count

If you are similar to us, the time matters the most. We believe that every hour should be used wisely and that's why we are always looking for ways to improve our productivity.

Time tracking should not be boring and controlling, but rather helpful and full of insights and feedback.

We've used a lot of time tracking tools over the years, but none of them checked all the boxes for us. So we are building our own. You can check the progress here.