Q: Can you explain what you mean by a billable hour and how this is tracked and factored into rates?
A: Lawyers must have coined this phrase and sometimes I feel like it’s their way of filling up available time. But, in our world, systems professionals have become extremely mindful of tracking, accounting for and then billing each and every hour (or increments of an hour) they spend working on a specific project or account. So, a billable hour is time that can be tracked to a specific client.
Generally, when I refer to billable hours, I’m speaking about the productivity of design and technical staff on a project, or in a service role. The goal is to meet or exceed the industry averages for how many hours you pay a person each day compared to the time you can bill a customer for the services you are providing. Companies that track billable hours use timesheets, job-costing software, handheld devices, or anything else they can find to help keep track of employees and assign their time to a job or service ticket.
Successful companies have figured out ways to do this with additional support staff for project inventory management, project meetings, documentation, submittals, CAD, etc. They also have scheduling programs that manage human resources allowing for productivity in excess of 90%. The industry average is closer to 78%. As you look at your own ratios, you will see that even getting to 80% is extremely challenging. Accounting for other activities like safety meetings, HR meetings, phone calls, call backs, research, calling the factory, drive time, training, etc. all become factors when setting goals and rates. When these things become unbillable time, you can quickly see why the percentage can’t be 100%.
Everyone calculates labor rates differently. Most have straight labor rates for service based on the technology type. Some factor in driving time, others don’t. Some charge 50% of the rate for drive time. However, the rates should at least take into account the average time spent preparing, getting to and from, waiting, client meetings, etc. Many companies set their service rates far higher than project billing rates because their productivity isn’t good. Others have figured out how to keep the service team more productive than the project team as there are less variables and unforeseen scheduling delays.
On the project work, it’s common to have four rates; installer, technician, lead technician and project manager. Each role carries its own rate and has its own productivity goals. Many of our members have achieved 90%+ productivity for the installers, but it goes down from there as the level of skills, training and responsibility goes up. The hourly rates may go up by $20 even if the wages are only $10 more; but, as we know, that is because the productivity ratios goes down. This is a hard concept for technicians to grasp.
My best advice for establishing rates and tracking billable hours is to compare your company’s productivity to others. We track this annually for you if you participate in the financial analysis surveys. One last thing: it’s always important to track warranty work separate from project time. I can explain that another time. –CW