Billable hours as Professional Services KPI
Definition, Calculation, Example

Why is billable hours important metric? How many working hours in 1 year? How to measure billable hours?
Billable hours are the consultant hours for which the client can be invoiced. In time and material projects, each hour is billed with the specific rate of the specialist. In fixed price projects, any specialist hours toward the project could be considered as billable, while the final hour rate will be calculated from the project cost divided by the number of billable hours.
The amount of billable hours for a selected period affects the revenue and profit of a consulting firm. Some companies consider it a risk-free approach to resell each hour of a professional to a client, while other companies prefer to charge a fixed fee per iteration, solution, or project.
This depends on the country and year amount of working days changed, so the annual amount of working hours also impacts billable hours. A quantity of billable hours depends on the company strategy, capacity, and utilization of professionals.
If an agency utilizes 100% of the working time of the consultant in a year (rare case), then there are no internal non-billable hours spent, and the formula to calculate working hours in 1 year will be:
$$ \underset { In\; 1\; year\; with\; 100\%\; utilization }{ Billable\; hours\; number } \; =\; \underset { In\; 1\; year }{ Working\; days } \; ×\; \underset { In\; 1\; day }{ Working\; hours } $$
Take a look at the detailed article from Yale Law School about billable hour practice.
Regarding third-party resources, 2,000 is average number of annual working hours in the USA. This is based on the assumption 1 year has 52 weeks (52 weeks × 40 working hours per week = 2,000). According to the calendar, there are 251 working days in 2018 and 2019 in the USA. This brings the total to 2,008 working hours yearly. The following is a calculation example:
$$ \underset { In\; 1\; year\; with\; 100\%\; utilization }{ Billable\; hours\; number } \; =\; 251\; ×\; 8\; =\; 2,008 $$
Precise measurement of working hours should be done with time tracking software with a start and stop a timer, like Toggl. Manual hours input through services like Harvest still offer good time accounting if people use it on a daily basis. In well-organized companies, even the CEO tracks time. Correct time tracking without big delays could be part of the quarterly employee evaluation practice. Personal scheduling and time tracking with a dedicated software program like Timely usually positively affect productivity.

Billable hours give you answers to the following important questions:
  • How does actual time match the planned time on a project?
  • How should we estimate a new similar project?
  • How many hours did we spend on this project?
  • Which projects received more contribution?
  • How does the logged time match assignments?

Metric.ai
collects information from any time tracker and segments it by office, client, project, department, role, and employee for any selected period.
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