Billable Hous vs Hours Worked

I have worked in several industries for the last 20 years. The best you can expect is 80% billable hours.

Anything below 50% is a sign that your targeted client base and your employees skill set doesn't match.

60 to 70% billable hours is the sweet spot you should strive for.

This keeps your pricing competitive, and helps to book your production time by better conversion rates.

If you have excessive capacity, you need to budget this resource wisely, by using it to develop methods that will reduce product/services cost by automization, reducing you need for excess labor or by creating new products/services that you can sell to reduce your open capacity.

"last year my crew billed 22% of the hours they worked"

unless you pay them $12 an hour and charge clients $150, I'd say that's bad.

Anything below 50% is a sign that your targeted client base and your employees skill set doesn't match.

Very true.

"last year my crew billed 22% of the hours they worked"
unless you pay them $12 an hour and charge clients $150, I'd say that's bad.

Or pay them in Jolt Cola and never-to-be-realized stock options.

22%?!?! How do you do it? How do they do it? (You are only counting production workers, right?)

Is this crew motivated? Do they have set goals each day, or can they milk a 2 hour job out to a week on the clock?
Is there something grossly wrong with the business model? Are you "afraid" to bid high because of competition? If so, are you certain of your competitors' actual prices?
Do you have "make-work" jobs lined up for when client work runs low? Do you give the option of clocking out early on days when the work runs out?
Flagging less than 70-80% of clock time on an ongoing basis may be a sign of too many workers. Know when to cut some loose; its hard but going bankrupt puts everyone in that boat.
I had a girlfriend who worked in a law office, and would help her add the attorney's time sheets each week. Some of these guys were amazingly productive, flagging 200-300 hours in a 168-hour week!

Ok, that's what I thought but glad to get some feedback to verify. In defense of their 22%, that time doesn't include any work we do in trade which we do a fair amount of, it doesn't incude any tech support time (I can't get my e-mail what do I do...), and part of last year I wasnt' selling enough projects for them. So yes, there was a lot of busy work adding new features to shopping cart systems, outbound e-mail newsletter systems, etc.

Amazingly, we are profitable at that 22% number... just would like it to be more so!

Any other comments?

How do you guys "track productivity"?

Consider flat rate billing for specific recurring services. There's likely a lot of services/actions this would apply to. After several years of experience you should have a good handle on this. Even larger, more complex tasks can often be broken down into steps that demonstrate redundant behavior and time consumption.

By establishing flat rate billing you are also informing your employees that you expect certain projects will be done within that time window. If you know you bill X hours for Y task then you know, if your employee is getting the job done (correctly), that you will cover your overhead and make a profit.

Remember the old saw: Work expands to fill the time alloted to it. Think how that might apply without breaking down tasks. If you think through the modular billing model you can see a lot of opportunity for information mining, controls, achieving efficiencies, allow for task transfer between employees, structuring production, setting reasonable client expectations, hitting targets, giving the client the satisfaction of 'seeing the pieces', facilitating new employee training, etc. I'm sure this is going on to some degree. It's a choice. "Laid back" has its limitations, as well as its benefits/rewards. Usually it's a matter of balance and it looks like you sense things may be out of balance. No more Mr. Nice Guy, eh? It's possible.

Some activities are more purely 'by the hour' and you know what they are. Still, in these situations you sit down with the client beforehand to explain 'the usual scenario' and 'the assumptions' - which you are best served by putting into writing AND, when it looks like the assumptions will not apply then you are best served by promptly sitting down with the client.

Mix the models and you will likely increase both your profitability and efficiency, in which case there's benefits for both you and the client.

Don't know about billable hours - but everywhere I've worked we tried to bill $100 for every $40 actually spent on labor (just the billable time).

22% is abysmal. We push for 65% at the very least, but strive for 85% (hopeful).

If your 22% included non-billable work, then it isn't really a fair comparison. It should be measured as a percentage of work done for clients.

Depending on your size and location of your workers, you can track productivity through your accounting program. QuickBooks Professional and Great Plains both have time tracking features available. Or if you are smaller and not all located in the same place, make a spreadsheet with defined Projects and Tasks they can select, field for details. Heck, if your developers aren't busy, you can have them develop a basic online tracking system...we did that once.

I'd say 22% is around the mark for the company I work for right now. It's nothing to do with developer skills! Our problem is the boss won't hire any sales/marketing people to bring work in.

Don't forget better employees will get more work done in less time - their salary should reflect this :-)

I've worked in various places, and I'd reckon 60-70% is about the usual. Obviously you'll never get 100% billable due to general office admin, not to mention the amount of training required to keep the team up to speed on development issues. In all the places I've worked billable hours seem directly proportional to the quality of the sales team.

Thanks for the feedback everyone. The last comment hits me where it hurts... I'm responsible for sales! ;-) but is probably very true. The good news is we are well ahead of last years percentages for January and February. My conclusions from these comments and others I've been getting...

#1 - (obviously) You have to have the sales to keep them busy.

#2 - Make sure your really analyzing production hours... not time they spend answering the phone and providing tech support. Perhaps someone else needs to be responsible for tech support issues

#3 - Hiring a project manager to interface with the client may be the smart approach... if the pm can free up 25 to 33% of the designer/developers time they can produce more and may pay for the pm's salary.

#4 - 60% to 70% is probably a good target once #1 through #3 are in place.

Any other suggestions, disagreements or comments?

From a designer's point of view...

#1 - (obviously) You have to have the sales to keep them busy.

#2 - Make sure your really analyzing production hours... not time they spend answering the phone and providing tech support. Perhaps someone else needs to be responsible for tech support issues

Freeing up admin time may or may not make someone more productive... Look at the "softer" issues like time of day worked, mood, stress, etc. (comfortable cows make more milk...). The question here is "now you have all this time, why aren't you more productive?" For myself, I find that I have about 4 hours of really productive/creative time each day. The rest is busywork/easy brain stuff (some billable, some not). How do I guage that? Just my experience. Your mileage may vary.

#3 - Hiring a project manager to interface with the client may be the smart approach... if the pm can free up 25 to 33% of the designer/developers time they can produce more and may pay for the pm's salary.

There are some admin issues a designer/developer can't shove off entirely onto a pm, specifically the stuff everone hates to do like keep accruate time records (maybe some software for this?), keep notes on status of project, etc. It's admin, but it's billable admin. One company I worked for would give the designers $1 each time they handed in their time cards.

Then there's communication... adding one more layer of communication between client and desr/devr (the pm) can complicate things. It should be a person who really understands what is going on and has been in the trenches.

Anybody else could muck it up.

It also depends on how well your desrs/devrs communicate with clients some do well, others should remain in their cubes, only brought out for a lineup.

#4 - 60% to 70% is probably a good target once #1 through #3 are in place.

I guess. Sounds like you have a pretty good reason for being in a lower target (trades). Also a company developing a product could have lower numbers too. No absolutes. It's good to have a goal to strive for, but make sure it's the right goal.

A tougher question to quantify is "are you getting the projects you want?"

We use BillingOrchard to track all of our billable hours. While it doesn't have a built in function to determine percent billed vs. worked, it does track all of our time, and we can run reports on the hours we worked on certain clients and projects per month, day, year, etc. So, if we see that a certain employee billed 1040 hours for the year through BillingOrchard and worked 2080, it's easy to figure out how profitable the employee is.

Re: bgirl's comment... "I have about 4 hours of really productive/creative time each day." If I was getting 4 hours out of 8 as billable productive time (50%) out of the staff I'd be a happy camper.

And to cdrinteractive... We've got a great system for time tracking. We built it in ColdFusion and it tracks not only total time but time per line item on the project and keeps clients abreast of what we are working on, how many hours into the project we are, etc. The staff uses it religiously without complaint so we know exactly how long each project takes. It was just when I compared to hours worked vs hours billed that I got concerned. The posts have confirmed we are a long ways from being efficient, and I need to take away their distractions (tech support issues, etc.) in order to make them more productive.

Thanks for everyones comments!