🕓 Non-Billable Hours as a Professional Services KPI

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📖 Definition

Non-billable hours represent the time employees spend on tasks and projects that cannot be directly billed to a client. These typically include internal activities such as:

  • Bench time (idle or waiting periods between client projects)
  • Training and professional development
  • Marketing and business development work
  • Internal meetings, administration, or R&D projects
  • Conferences and company events

In some firms, vacation time or paid leave is also counted as internal or non-billable time during capacity planning.

💡 According to Service Performance Insight (SPI): “A professional services firm should aim for a non-billable headcount of less than 30%.”

📈 Why Non-Billable Hours Are an Important Metric

Monitoring non-billable hours is critical to maintaining operational efficiency and profitability. This metric reveals how effectively your organization manages internal work and allocates available capacity.

While internal work can be valuable — supporting innovation, marketing, or employee growth — excessive non-billable time may indicate:

  • Inefficient resource planning
  • Low utilization rates
  • Project pipeline gaps (lack of client work)

Some firms allocate internal hours intentionally for knowledge development or service improvement, while others strive to minimize bench time entirely. In either case, tracking and managing internal time ensures that non-billable work contributes real value rather than hidden costs.

🧮 How to Calculate Non-Billable Hours

Non-billable hours should be tracked in the same time-tracking system used for billable hours — categorized under internal or non-client projects.

💡 Formula (Standard): Non-billable Hours = Total Tracked Hours − Billable Hours

If a consultant doesn’t log any non-billable time but is employed full-time, you can still estimate it using capacity data:

💡 Formula (Capacity-Based): Non-billable Hours = Capacity Hours − Tracked (Billable) Hours

This approach assumes that every full-time employee contributes to some internal activity during available hours, even if not logged directly.

💡 Example Calculation

An agency has:

  • 3 consultants
  • Monthly capacity: 504 hours
  • Tracked (billable) hours: 416 hours

Non-billable Hours = 504 − 416 = 88

✅ The agency recorded 88 non-billable hours this month.

These internal hours may include training, internal product development, or time spent waiting between client projects.

📏 How to Measure and Monitor Non-Billable Hours

To measure non-billable hours effectively, use time-tracking software that supports internal or “non-client” projects. This allows you to:

  • Track time without assigning it to an external client
  • Monitor internal initiatives (R&D, marketing, hiring, etc.)
  • Identify employees or teams with excessive non-billable time

Key Questions Non-Billable Hours Help Answer

  • How much time has this internal project taken over the year?
  • Which employees spend too much time on non-billable work?
  • What types of internal projects consume more time than planned?
  • How much bench time exists across the company?

Understanding these dynamics allows leadership to make data-driven staffing, training, and project-planning decisions.

📊 Non-Billable Hours in Metric AI

Metric AI gives full visibility into non-billable time by:

  • Aggregating time data from all tracking tools
  • Automatically distinguishing between billable and internal work
  • Allowing manual overrides if tracking categories differ
  • Showing segmentation by employee, client, project, department, and role

With the Hours View, Metric AI visualizes total internal vs. billable hours across any time period, helping agencies find the optimal balance between client delivery, innovation, and growth activities.

Billable Hours