Understanding your billable hours (and your real capacity...)
As a business owner and entrepreneur, every minute counts, and understanding your billable hours can significantly impact your bottom line.
But what are billable hours?
Specifically, they are the hours spent on activities that can be charged to the client.
The definition of billable work might vary depending on your industry, but it usually includes client meetings, documentation and research, client-related traveling, and all specific tasks that contribute to delivery. If you are a product business, they are the hours you spend specifically making your product.
Whereas your actual hours include all of your working hours. This includes time spent on the activities you need to perform in order to deliver your product or service.
Let’s take my business as an example; my billable hours are the hours I am actually working with clients. My actual hours include all the activities above which I need to do in order to bring in clients and deliver my service.
A good rule of thumb across most businesses and sectors is about a 50/50 split. That is to say that in a working week you are spending roughly 50% of your time on delivery (seeing clients/making products) and 50% on sales, marketing, and admin.
Billable hours and capacity
If, like me, you are a service business, and you believe that you can see clients 90% of the time, then you are kidding yourself because you will end up burnt out and exhausted. It also snags up the way you think about money and pricing because your business model is built on you thinking that you can billing your hourly rate 90% of the time, rather than 50%.
A further snag in your thinking is figuring that you are going to run at 100% capacity all through your working year.
Not only is this thinking unsustainable, because it is totally unachievable, it explains why you are never making the money you think you can, and thinking that you are the problem.
My dear business owner, it’s not you, it’s your business model.
So, here’s what you are going to do instead:
1. Make a list of all your personal outgoings – groceries, utilities, mortgage etc – all your monthly household expenses and add them up.
2. Do the same for your business expenses.
3. Next, work out exactly what your total weekly hours are. I don’t mean what you think you have available, but what is actually available to you to devote solely to your business.
4. Work out how many weeks a year you are able/want to work.
5. Divide this by 50% which gives you your weekly billable hours.
6. Divide that by 70% which is realistic booking availability throughout the year.
What you are left with is the total number of hours a week you have for seeing clients.
Now look at what your hourly rate is. That is the number that your actual revenue is built on. So, is it high enough to cover your outgoings and bring in the profits you want?
When I first did this exercise for my business it was scary (like really scary…) and explained a lot about why I was busy but never bringing in the money I actually needed to. You see I thought I had about 15 hours a week that was billable, but when I worked it out, it was more like 7.
When I had had a chance to calm down instead of throwing in the towel! I used it to recalibrate my business model so I could bring in the revenue I needed.
My thinking error around my billable hours had been affecting my not-fit-for-purpose business model.
It wasn’t me or my work that was at fault, it was my business model, and that is something I could work on.
Being honest about your billable hours Vs your actual hours is the first step to creating a business model that allows you to thrive not just survive.
Book a FREE 90 minute Coaching Call and let’s look at your business model.
