The billable hours in working time are the hours in which an employee has worked. However, there is a big difference to the productive hours in which an employee has worked. In this article, we explain the difference between billability and productivity.
Billable hours and productive hours
In a way, billability and productivity go hand in hand. They are a team that cannot always be separated. But when it is separated, the big difference between the two becomes apparent.
Billable hours are the hours that are invoiced to customers. In contrast, there are also non-billable hours, which are also part of working time but are not worked directly for a customer.
Let’s assume, for example, that you have a service company. You are given an assignment that you have to plan, conceptualize, organize and execute. These are all billable activities, as they are directly for the customer who placed the order.
However, if you have meetings in between, take care of administrative matters and write invoices, these are non-billable hours. This work is not directly for a customer. Accordingly, they are not paid, i.e. not invoiced.
Billable hours are therefore the hours worked for customers. However, the productive hours do not always correspond to the billable hours.
Let’s stay with our example: You have calculated that the order will be completed within 30 hours. These 30 hours are the billable hours for the customer.
However, it does take longer and it takes 40 hours to complete the job. These are productive hours. The order required 40 hours of productive work. However, only the 30 previously calculated hours are billable. The additional 10 hours must be renegotiated with the customer so that they also become billable hours.
Calculate billability and productivity
In order to balance billability and productivity in a company, a calculation is useful.
The billability can be easily determined by dividing the billable hours by the productive hours. It is also an important key figure to keep an eye on. If the billability is below 50 percent, there is usually too little money coming in from customers and there is a risk of insolvency in the long term.
Productivity is not so easy to determine. The calculation depends on the industry. It is easier in a production company than in a service company. In production, the number of units produced by the company can be divided by the number of employees to obtain the company’s productivity.
It is also possible to deduct the hours for meetings and business trips and all other non-billable hours from the annual working hours. This leaves the hours that theoretically remain for productivity.
But that is not very meaningful.
In order to keep an eye on both billability and productivity at all times, a modern working time recording system such as the timecard is ideal.
There is a function to divide orders into projects and tasks. This makes it possible to determine at any time how many working hours are billable and productive. The individual tasks can be defined directly as billable tasks. This guarantees clarity at all times.
The advantage of this is that you don’t have to do a lot of math. The total number of billable hours can be viewed directly for each project or employee. The same applies to non-billable hours.
Of course, it is also easy to see whether the billable hours have been exceeded by the productive hours or whether the calculation was correct. This means that it is always possible to react in good time if it becomes apparent that an order will take longer than planned.
Conclusion
Billability and productivity do not like to be separated, but when they are separated, there is usually a need for action. However, with good planning and insight, most mistakes can be corrected quickly and the billable hours correspond to the productive hours.
