⏱️ Billable Hours as a Professional Services KPI

image

📖 Definition

Billable Hours represent the total number of hours worked by consultants that can be invoiced to clients.

  • In Time & Material (T&M) projects — each hour is billed according to the specialist’s hourly rate.
  • In Fixed-Price projects — all hours worked on the project are still considered billable, though the effective hourly rate is derived from: Project Cost ÷ Total Billable Hours

Essentially, billable hours show how much client-facing work has been performed — the foundation of most professional service revenue.

📈 Why Billable Hours Are an Important Metric

Billable hours are one of the most direct drivers of revenue and profit for consulting and service-based organizations.

  • More billable hours → higher invoiced revenue
  • Fewer billable hours → lower utilization and reduced profitability

While some firms prefer a risk-free approach (charging per hour), others move toward fixed-fee or outcome-based pricing.

Either way, billable hours remain a core productivity indicator and help measure how effectively your team’s time is converted into client value.

🧮 How to Calculate Billable Hours

The number of billable hours in a period depends on:

  • Working days per year (varies by country and calendar)
  • Standard weekly working hours
  • Employee utilization rate
  • Company strategy (internal vs. client projects)

If an agency utilized 100% of consultants’ time (which is rare), the annual working hours would be calculated as:

💡 Formula: Billable Hours (per year) = Working Weeks × Hours per Week

For example, in the U.S.:

52 weeks × 40 hours = 2,080 total working hours per year

However, this represents theoretical maximum capacity — actual billable hours are lower due to internal activities, meetings, and non-billable work.

📚 For a detailed breakdown of billable hour practices, see Yale Law School’s article on the subject.

💡 Example Calculation

According to standard U.S. working schedules:

  • 1 year = 52 weeks
  • 40 hours per week
  • 251 working days (2024-2025 average)
  • Total ≈ 2,080 working hours per year

If a consultant is billable 75% of the time, the annual billable hours are:

2,080 × 0.75 = 1,560 billable hours per year

Employee TurnoverNon-Billable Hours