What is billable vs non-billable utilization?
What is a billable utilization example? Billable utilization percentage can be calculated by dividing total productive hours by total available hours, then multiplied by 100. For example, if an employee's productive and billable time in a 40-hour week is 26 hours, the employee utilization rate is 65% ((26/40) x 100).
The 80% represents an enterprise's optimal utilization to meet its target profit margin, which would then be compared to its capacity utilization to determine if any operational improvements are necessary.
Measuring billable utilization is critical for any services business, as it reveals how well you are managing resources and where there is room for improvement or opportunity to increase profitability.
These expenses may include airfare, hotel accommodations, meals, transportation, and other expenses that are directly related to the work being performed for the client. Non-billable travel expenses, on the other hand, are expenses that are not reimbursable by the client or customer.
By tracking billable hours, agencies can accurately assess the value they provide to clients and ensure that their efforts are appropriately compensated. On the other hand, utilization encompasses the broader picture of how employees allocate their time between billable and non-billable activities.
Non-billable hours are any that are spent on administrative or overhead projects that are not directly related to client service. For example, sending emails to clients would count as billable time. However, upgrading your email software wouldn't count as directly servicing those accounts.
Non-billable utilization refers to the amount of time an employee spends on non-revenue-generating activities, such as administrative tasks, training, internal meetings, or non-client-related work.
Non-billable expenses refer to expenses that won't be charged directly to clients over the course of completing a project. Common examples of non-billable expenses can include office supplies, rent, utilities, software subscriptions, and salaries for employees who are not directly involved in billable work.
The five identified types of utilization are as follows: activatable relief seekers, active relief seekers, active relaxation seekers, passive problem-solving seekers, and passive relief seekers.
How do you calculate billable utilization?
The billable utilization formula explained
The basic formula is Total billable hours ÷ Total available working hours x 100. To unpack this, let's take an example of a developer who works eight hours a day, five days a week. Their availability is set to 40 hours per week.
The actual target billable utilization rate can vary depending on the industry, the type of services provided, and the specific goals of the firm. However, a common industry benchmark for billable utilization rate in professional services firms is around 70-75%.
Billable hours directly contribute to the agency's revenue stream - the more hours billed, the more revenue the firm generates. Increasing utilization rates means that employees are spending more time on revenue-generating activities, resulting in increased profitability.
Using no more than 30% of your credit limits is a guideline — and using less is better for your score.
While a good utilization rate is often considered to be above 65%, and the perfect one - above 75%, there is not a single number that would fit all the industries. The exact desired utilization rate depends on different factors - here are a few of them.
Billable – the amount will be included in the invoice. Non-Billable – the amount will not be included or appear on the invoice. It is in the background for reporting purposes. No Charge – will show on an invoice, but with a zero dollar amount (it will appear as 'No Charge' written next to the entry).
Non-Billable codes are used to capture and document activities that are not claimable to Medi- Cal. Certain activities are non-reimbursable procedures while certain service locations may block services from being claimed.
A billable expense is an expense you incur on your customer's behalf when you perform a work for them. You can easily record and track billable expenses so your customer can reimburse them when they receive their invoice.
By definition, billable utilization shows the ratio of hours spent on commercial activities to all the hours available in team member's schedule. It is typically expressed as a percentage.
Planned utilization measures the time your resources spend working that can be billed to a client. Actual utilization, then, is a view into how much work a particular resource has scheduled, both in the past and future.
What is the difference between utilization and utilization?
Utilization and utilisation are both English terms. Utilization is predominantly used in 🇺🇸 American (US) English ( en-US ) while utilisation is predominantly used in 🇬🇧 British English (used in UK/AU/NZ) ( en-GB ).
Some examples of non-billable work hours are things such as team meetings, staff development/training, or networking and attending conferences. These are items which would raise the eyebrows of any client when appearing in their invoice, as they are not specifically for that client.
So, in addition to the tuition, fees, and room/board charges (also known as “billable costs”), an estimate is made of how much you'll be paying for books and supplies, travel, and general living expenses (also known as “non-billable” costs, meaning they don't appear your bill).
Billable – amount will be included in the invoice. Non-billable – amount will not be included or appear on the invoice. No Charge – will show on an invoice, but with a zero dollar amount (it will appear as 'no charge' written next to the time entry).
For example– An employee has 20 billable hours for one week, in addition to 5 hours spent working on internal admin tasks. The total availability for the week was 30 hours. The employee utilization rate is 83.3% or 25/30 x 100%. The billable utilization rate is 66.7% or 20/30 x 100%.
