Billable vs Non-Billable Hours: What’s The Difference?

It’s 6 PM on a Wednesday, and Sarah stares at her manual timesheet with growing frustration. She delivered two client presentations, fixed a critical bug, and onboarded a new team member.

But her report shows that only 3 out of 9 worked hours are billable.

Where did the other 6 hours go? Team standup. Project planning. That “quick” client call that wasn’t in scope. Training the new developer. All necessary work, yet none of it translates to revenue.

This isn’t a time management issue, but a problem with differentiation between billable vs non-billable hours that costs your business thousands every month.

Let’s change that, shall we?

I’ll run you through everything you need to know to differentiate between billable vs non-billable hours, learn why tracking both matters, and discover strategies to maximize your profitability.

Key Takeways

• The difference between billable vs non-billable hours is that billable hours make you money (you charge clients for them), while non-billable hours keep your business running (but you can’t invoice for them).
• Aim for 60-80% billable hours per week – that’s the sweet spot for most service businesses.
• Misclassifying just 2 hours per week costs you -$14,400 a year per team member.
• Tracking both billable and non-billable tasks shows you where your time is really going.
• Manual time tracking? That’s how billable hours slip through the cracks. Automated time tracking can bump your billable hours up by 20-30% without working longer.
• To truly earn what you think you’re earning, your hourly rate needs to account for both billable and non-billable time.
• Smart strategies like task batching and automating busy work can dramatically boost your profits.

The Difference Between Billable and Non-Billable Hours (And The Grey Zone)

Think of it this way: Billable hours are the time you can directly charge clients for – that’s your immediate income. Non-billable hours, like marketing, training, planning, or improving your workflow, don’t bring in money right now, but they set you up for future earnings by helping you attract new clients or deliver better results.

And there is the grey zone – the tasks that are somewhere between billable and non billable hours and await labelling.

Let’s get into details.

What are billable hours?

Billable hours are the hours you spend working directly on tasks or projects for a client – the time you can legitimately charge for.

These hours generate direct revenue and form the foundation of income for service-based professionals and companies such as legal professionals, consultants, freelancers, agencies, and others who charge for their time and expertise based on an agreed hourly rate.

💡 Recommended article: What’s the difference between billable and actual hours?

Billable hours examples

Core billable tasks include:

• Client meetings and phone calls
• Project execution
• Research done for a specific client
• Revisions within the project scope
• Travel time for client meetings (when agreed upon)
• Problem-solving and troubleshooting for client issues
• Preparing presentations or proposals for existing clients
• Quality assurance and testing for client projects

Example: A consultant spends 2 hours analyzing a client’s marketing strategy and preparing recommendations. These 2 hours are billable because they’re direct client work with deliverable value. At $150/hour, this generates $300 in revenue.

What are non-billable hours?

Non-billable hours refer to the hours spent on activities that keep your business running but cannot be directly charged to a specific client or project. These hours don’t appear on any invoice.

Non-billable tasks represent business overhead, which must be absorbed by the business and factored into pricing. Employees cannot bill clients for non-billable hours, but the business still needs to pay them for those hours.

Non-billable work doesn’t make money right away, but it helps your business survive and grow. You need to balance both types of hours. Too much non-billable time hurts your profits. Too little stops your business from growing. If too much time is spent on non-billable tasks, the freelancer effectively works more for less pay, reducing overall earnings.

• Recommended article: What is billability?

Non-billable hours examples

Core non-billable tasks include:

• Business development and sales calls with potential clients
• Internal meetings and planning sessions
• Professional development, training, and learning new skills
• Administrative work (invoicing, timesheets, filing)
• Marketing and content creation (blog posts, social media)
• Tool setup and process optimization
• Employee training sessions
• Compliance and legal requirements
• Office maintenance and general overhead activities
• Internal research not tied to a specific client project
• Other internal processes

The grey zone: Tasks that challenge the billable vs. non-billable classification

Here’s where things get tricky – and why your team often doesn’t squeeze that many billable hours – some activities sit in a frustrating middle ground where classification isn’t straightforward. And these grey areas? They’re where most revenue leakage happens.

Consider these common scenarios:

• Initial client consultations: Is that first discovery call billable or just part of your sales process? It depends. If you’re providing strategic advice, it could be billable. If you’re just qualifying the lead, probably not.
• Project setup and planning: Setting up project management boards, creating timelines, and initial briefings—billable because it’s project-specific, or overhead because it’s “just admin”?
• Internal quality reviews: When your senior designer reviews junior work on a client project, is their time billable? What if they’re teaching best practices during the review?
• Tool configuration for clients: Installing and customizing software for a client sounds billable, but what if you’ll reuse that setup for future clients?
• Team collaboration on client projects: Three developers discussing the best approach to solve a client’s problem—all billable, partially billable, or non-billable “internal discussion”?

The truth is, there’s no universal answer. What matters is creating a clear policy before these situations arise, not making decisions on the fly. These will lead to inconsistent tracking and lost revenue.

💡 Pro Tip: Create a “classification cheat sheet” for your team. List common gray-area activities with clear guidelines on how to categorize them. Review and update it quarterly based on real scenarios.

Automate billable hours tracking with EARLY

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Why keeping track of both billable and non-billable work is key

Many professionals only track how many billable hours they put in, but this gives an incomplete picture of their business. Here’s why tracking both billable and non-billable work is essential:

Understanding true profitability

Analyzing time spent on billable versus non-billable work reveals the true profitability of a business. Tracking both billable and non-billable hours provides a clearer understanding of the true cost of providing a service.

Your billable rate must cover both billable work and non-billable overhead. If you charge $150/hour but work 40 hours with only 30 billable, your effective rate is $112.50/hour, not $150.

Identifying inefficiencies

Tracking non-billable hours helps identify inefficiencies and areas to streamline processes, which can lead to higher overall profits by reducing time spent on internal tasks. For freelancers, this practice is particularly valuable as it highlights areas where time can be better allocated, improving productivity and profitability.

Better resource management

Understanding time allocation helps businesses better manage their resources and consider adjusting rates for projects requiring excessive non-billable time.

When you can’t accurately track what’s billable and non-billable, you can’t measure your team’s real utilization. Your capacity planning suffers, and you might think your team is at 70% capacity when they’re actually at 50%.

Setting sustainable rates

To determine a sustainable hourly rate, you must factor in non-billable time. Without tracking both types of hours, you risk underpricing your services and working for less than you need (more on that below).

Building client trust

Providing a transparent breakdown of hours worked builds trust with clients and demonstrates service value. Clients appreciate knowing exactly what they’re paying for. This is specifically important for law firms tracking billable time. Detailed time tracking helps manage scope creep by providing evidence of work exceeding the original terms, ensuring fair compensation for additional efforts.

Calculating the real cost

Let’s look at the numbers. If you bill at $150/hour and misclassify just 2 hours per week as non-billable when they should be billable:

• $300 per week in lost revenue
• $1,200 per month
• $14,400 per year
• From just ONE team member

Multiply that across a team of 10, and you’re looking at $144,000 in lost annual revenue.

How many work hours should you bill?

If you’ve been wondering how many billable hours you should have, the “golden standard” is to bill around 60-80% of your work hours, with the remaining 20-40% going to non-billable time.

Industry benchmarks:

• Legal services: 75-90%
• Consulting/Professional Services: 70-85%
• Creative agencies: 65-80%
• Software development: 60-75%

Your utilization rate is calculated as: Billable hours ÷ Total Hours × 100

For example, if Sarah worked 9 hours but only 3 were billable, her utilization rate is 33% (3 ÷ 9 × 100). That’s catastrophically low for any service business.

A consistent 75% utilization rate means billing 30 out of 40 hours each week. At $150/hour, that’s $4,500 in weekly revenue per team member.

💡 Pro tip: Rather than chasing an arbitrary percentage, focus on optimizing the value and efficiency of both billable and non-billable activities.

Recommended article: How to calculate work hours

How to track billable hours

You can track billable hours and calculate them in two ways – in an automatic or in a manual way:

• To calculate billable hours automatically, use a billable hours tracking software like EARLY that records all your work hours (no manual input needed). By applying pre-selected settings and your hourly rates, it calculates total billable hours for your project or client.
• To calculate billable hours manually, use a billable hour chart – ready timesheet templates that you can print or use on your computer:
  • Daily billable hours template
  • Weekly billable hours template
  • Monthly billable hours template

Learn how an agency increased their revenue by 25% by billing their time with EARLY

Why tracking billable and non-billable hours should be automated

Manual time tracking creates more headaches than it solves. Here’s why time tracking automation is a game-changer:

Save time on admin stuff

Time tracking software cuts way down on administrative tasks, which means more time for billable work. Automating the boring stuff can seriously reduce non-billable time.

Get accurate data

Automatic time tracking tool runs in the background while you work. No more guessing or estimating from memory. Every task gets recorded exactly when it happens.

No more confusion about categories

Tools like EARLY let you tag things as billable or non-billable with one click. The software learns your patterns and can even auto-categorize similar tasks next time.

See your numbers in real-time

Automated time tracking process will show you your utilization rate, total billable hours, revenue, and trends instantly. No waiting until the end of the month to see if you’re on track.

Never forget to log time

Automated time tracking tool sends you gentle reminders when you forget to track time, so no billable hour slips through the cracks. This alone can save you thousands a year.

Recommended article: What is Block Billing?

Start tracking billable hours in the 100% automated way. Forget about manual timesheets.

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How to factor in non-billable time in your billable hourly rate

To set a realistic hourly rate, you need to account for the time you don’t get paid for – admin, marketing, planning, training, or finding new clients. Here’s how:

1. Estimate your total working hours: for example, 40 hours per week.
2. Determine how many hours of those are billable: say, 30 hours on client work.
3. Set your income goal: for instance, €1,200 per week.
4. Divide your income goal by your billable hours to find your true hourly rate (€1,200 ÷ 30 = €40/hour).

If you had calculated your rate based on total hours (40), you’d have charged only €30/hour – earning 25% less for the same workload.

Factoring in non-billable time ensures your hourly rate reflects the real effort it takes to run your business, not just the hours you can invoice.

Learn more about how to calculate billable hourly rates.

How to maximize billable hours

You know the difference between billable and non-billable hours. You understand why tracking matters. Now let’s get to the good stuff – ways for increasing billable hours and making more money.

Here’s the thing: maximizing billable hours isn’t about working longer or harder. It’s about working smarter, protecting your time, and making sure every hour counts. These strategies will help you increase your billable percentage without burning out.

• Track time in real-time, not later: Use automated time tracking software like EARLY to capture your activity as you work – logging time at the end of the day can lead to lost or forgotten billable hours.
• Set clear boundaries with clients: Define the project scope from day one, use the 3-question rule (“Is this in scope? Can we bill for it? How long will it take?”), and issue change orders for extra work.
• Block your calendar strategically: Reserve mornings for deep client work, group admin tasks into set time blocks, and create dedicated windows for client calls to stay in control of your day. Learn more about time blocking.
• Reduce context switching: Batch similar tasks together to stay in flow and avoid the productivity drain caused by constantly shifting between unrelated activities. Learn more about context switching.
• Audit where your time actually goes: Run a two-week time audit to uncover hidden time wasters and identify which non-billable activities can be reduced or restructured as billable services. Learn how to run a time audit.
• Delegate or automate non-billable work: List repetitive tasks or support tasks and hand them off to others – or use automation to free up more time for revenue-generating work.
• Learn to say no (or charge more): Decline low-value projects that eat into your time, or raise your rates to ensure every project contributes meaningfully to your bottom line.
• Minimize meetings and make them count: Keep meetings short, focused, and purposeful — use clear agendas and experiment with “no-meeting days” to reclaim more billable time.
• Set weekly billable hour targets: Define clear goals (e.g., 30 billable hours out of 40), track progress daily, and adjust workloads to maintain consistent, sustainable utilization.

The bottom line

Your time tracking isn’t broken, but your classification system is. And every day you delay fixing it, you’re essentially writing a check to your competition.

Sarah’s story isn’t unique. It’s happening in thousands of service businesses right now. The difference is whether you’ll do something about it or keep wondering where the billable hours went.

The tools are available. The frameworks are proven. The only question left is: will you still be stressed about utilization rates six months from now, or will you be celebrating your highest-revenue quarter yet?

Your timesheet is waiting. But this time, you know exactly how to fill it.

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