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Published:Mar 26, 2024

How to track billable hours effortlessly

If you’re a freelancer or a consultant, you know how important it is to track your billable hours. Billable hours are the time you spend working on a client’s project that you can charge for. Your billable hours directly affect your income and reputation.

But it’s not as simple as it sounds.

It involves considering factors like your rate, scope of work, and invoicing system. You also need to differentiate between billable and non-billable hours, which can be tricky.

Having a reliable system in place to track those hours makes the job far easier. It can help ensure accuracy and measures your personal productivity, making sure the effort you’re putting in is paying off.

What are billable hours?

A billable hour (or billable time) is the time you spend working on a client’s project that you can invoice. This includes time on tasks like coding, designing, writing, or any other work that contributes to the completion of a project.

Billable hours aren’t one-size-fits-all.  The type of freelancer or consultant you are, the nature of the project, and the agreed-upon rate all play a role in determining your billable time.

A clear (and ideally, written) agreement with your client about what does and does not fall under billable hours sets a solid foundation for everyone.

Why billable hours matter

Tracking billable hours provides a measure of productivity. By closely monitoring your billable time, you can better understand how you spend your time and identify areas for improvement.

Billable hours also directly impact your profitability. Accurately tracking billable hours ensures that all the work performed for a client is accounted for and invoiced. By eliminating discrepancies and underbilling, you capture the full value of your services, which means increased revenue for your business.

Lastly, billable time plays a role in client satisfaction. Transparently sharing your billable hours gives clients a clear understanding of where their money is going, which can build trust and foster long-term relationships.

Billable vs non-billable hours

So what makes up billable and non-billable hours? Non-billable hours are spent on activities that don’t directly relate to a client’s work. This might include time spent on administrative tasks, business development, or breaks. While these activities are essential for your business, they aren’t chargeable to a client.

It’s helpful to categorize your work day into these two types of tasks to manage your billable and non-billable hours effectively.

For instance, you might spend the morning on billable work, like designing a client’s website, and the afternoon on non-billable tasks, like replying to emails or working on your marketing strategy.

While non-billable hours are necessary to keep your business running, minimizing and optimizing these tasks as much as possible is important. Every hour spent on non-billable work is an hour you could have been earning revenue.

Two-column chart on light blue background with features of billable vs. non-billable hours

Here are five steps to implement to bill for your hours accurately.

A colorful circle diagram showing five steps to track billable hours accurately: set rate, set terms, invest in a tracker, account for subtasks, and create detailed invoices

Step 1: Set your rate

First, answer one key question: How much should you charge for your time?

To calculate your billing rate, you’ll want to consider your expenses, including rent or mortgage, utilities, groceries, and other day-to-day costs. And don’t forget about your desired profit margin. After all, you’re in this business to make money, right?

You’ll better understand your cost rate once you’ve added up your expenses. Then, it’s time to set your hourly rate. This rate should reflect your skills, experience, and market value. It’s all about balancing what you need to earn and what clients are willing to pay.

For example, let’s say you’re a freelance web developer who wants to charge $50 per hour for your services. Your cost rate is your total monthly expenses divided by the number of hours you work per month.

To calculate your cost rate, you first need to add up money going out each month:

  • Rent: $1200
  • Utilities: $350
  • Groceries: $300
  • Internet: $90
  • Software subscriptions: $125
  • Health insurance: $450
  • Gas: $120
  • Pets: $200
  • Funds set aside for savings: $500
  • Depending on where you live, you may need to account for taxes, services, and other government fees. We’re leaving that expense out for simplicity, but be sure to factor it in.

Your total monthly expenses are $3,335.

Now calculate the hours you work every month (or want to work). If you work 40 hours per week multiplied by four weeks, that’s 160 hours.

3335 / 160 = 20.84 (rounded to two decimal places).

Your cost rate at this point is $20.84 per hour. You must earn this minimum to cover your expenses and save money.

However, you also want to profit from your work, so you’ll need to add a profit margin to your cost rate. A common profit margin for freelancers is 20-30%. For this example, we’ll use 25% (or 0.25). You can multiply your cost rate by 1.25 to get your new hourly rate.

Your hourly rate would be $20.84 x 1.25 = $26.05.

how to calculate your hourly rate

For simplicity’s sake, let’s round up to $27/hour. Charging this rate should help you meet your living cost and make a profit. You can think about charging more if you have a lot of expertise and a strong portfolio. Consider your skills, background, and the going rate in your chosen market and field.

On the other hand, if you are new to the field and have less experience, you might want to charge less than $27 per hour to attract more clients and build your reputation (say $25/hour). Ultimately, it’s up to you to decide what your time is worth and what clients are willing to pay.

Step 2: Communicate clear terms with clients

Transparency is important in any working relationship, and it’s no different when it comes to chargeable time. Before diving into a project, ensure you have a clear agreement with your client. This agreement should cover your hourly rate, the invoicing schedule, payment terms, and the scope of work. Here’s a full breakdown of the essentials that any work agreement should include:

  • Your hourly rate: Ensure your rate is fair, competitive, and reflects your skills and experience.
  • The invoicing schedule: How often will you send invoices to your client? Will it be weekly, monthly, or after each milestone? Specify the frequency and the due date for each invoice.
  • The payment terms: How will your client pay you? Will it be by check, bank transfer, or online payment? Clarify the payment methods and the consequences of non-payment.
  • The scope of work: What are the deliverables and expectations for the project? What are the deadlines and the quality standards? How will you handle changes or revisions? Define the project’s scope and boundaries, and avoid scope creep.

To create and manage your agreements, you can use contract workflow tools like PandaDoc and DocuSign.

Step 3: Divide projects into subtasks

Successful project management starts by breaking the overall deliverable into subtasks — especially if you’re working on multiple projects simultaneously. Partitioning your workload allows you to track the time spent on each.

A robust tracking system should allow you to break down projects into subtasks and track multiple projects for each client. This level of granularity can help you understand where you spend your time and makes for more accurate client billing practices.

You should also record non-billable hours. This categorization helps in assessing productivity, profitability, and operational efficiency.

For instance, let’s say you are working on two projects for two different clients: A website redesign for Client A and a logo design for Client B.

Website redesign for Client A:

  •   Research and analysis
    • Gather client assets
    • Research market
    • Research competitors
    • Collect user data through analytics
  •   Wireframing and prototyping
  •   Coding and testing
    • Write code
    • Code review
    • Unit testing
    • Integration testing
  •   Deployment and maintenance

Logo design for Client B:

  •   Concept and sketching
    • Hand-draw initial designs.
    • Refine chosen sketches.
  •   Vectorizing and refining
    • Convert sketches to vector graphics.
    • Initial digital draft.
  •   Presentation and feedback
  •   Revision and delivery
    • Prepare final files (different formats/sizes).
    • Deliver to the client.

Having task management in place transforms large projects into manageable assignments. Using a time-tracking app will elevate your project management efficiency. This integration lets you meticulously monitor time spent on each subtask, project, and client, so you can know every minute is accounted for when you’re ready to invoice your client. Additionally, it offers insights into how your time is allocated, so you can identify areas for optimization.

Step 4: Invest in a reliable billable hours tracker

Now that you’ve set your rate, communicated expectations to the client, and broken your projects into tasks and subtasks, let’s talk about tracking your billable hours. More specifically, time-tracking apps that allow you to record your time on tasks accurately.

7pace Timetracker for monday.com is an easy-to-use, deeply integrated option that offers in-depth time tracking, reporting and insights in your monday.com boards.

Here’s how you do it:

On your monday.com interface, click on the Marketplace puzzle icon above:

on your monday.com interface, click on the Marketplace puzzle icon

Search for the app in the marketplace, then type 7pace in the search bar. It should return the result “7pace Timetracker for monday.com.”

Search for the app in the marketplace, then type 7pace in the search bar

Click on the app, then select Add to your account to get started:

7pace timetracker for monday.com page

Once you click the Install button, you’ll see a “Welcome to the app!” page.

a screenshot of welcome page once you click the install button of 7pace Timetracker for monday.com

At this stage, you have two options.

  1. You can directly set up the app to your workspace by clicking on “Add to workspace.”
  2. Use a pre-built template and then set up your space from there. Let’s click on “Add a template” for this instance:
Use a pre-built template

Let’s use the full template to take advantage of all the features the app has to offer. Once you have the template set up, you can click on each item and subitem, which will now have the 7pace time tracker option.

This lets you add time directly to items.

Once you have the template set up, you can click on each item and subitem.

If you open the parent item on monday.com, you can compare actual time versus estimated time. This allows you to check if the project is still on time or if the planned time was exceeded.

To view how you spent your week or month, navigate to the My time tab on the left side menu.

Navigate to the My time tab on the left side menu to view how you spent your week or month.

From here, you can simply drag and drop to create a placeholder, find the correct item or sub-item, and record the time.

You can simply drag and drop to create a placeholder, find the correct item or sub-item, and record the time.

You can click duplicate and copy the record to all other days using easy drag-and-drop functionality. This makes it quick and straightforward to fill out the whole week in just seconds.

You can click duplicate and copy the record to all other days using easy drag-and-drop functionality.

Each of these features serves a purpose.. They have many purposes and benefits, such as:

  1. Multiple users can record time on items where work is done quickly and easily.
  2. They can spot gaps using various calendar views and complete their whole week in just a few clicks.
  3. They can compare planned versus actual time to improve estimates.

As you accumulate billable hours, you’ll want to have a clear overview of how your team is performing and how projects are progressing. 7pace Timetracker for monday.com has granular reporting features that provide insights into your team’s time and budget.

Because 7pace is connected to your monday boards, you’ll have access to detailed reports that include many crucial data points that managers and other stakeholders can use to monitor project health. Some critical insights you can see in this report are:

  • Budget spent versus planned: How much of your budget you have spent on each item, subitem, and the entire project. You can compare the actual and planned costs and see if you are on track or over budget. This report also shows you the hourly rate and the billable amount for each item and subitem.
  • Cumulative budget spent: How your budget changes over time. You can see the cumulative amount of money you have spent each week and the total amount of money you have spent so far.
  • Billable hours spent: How much time you and your team have spent on each item, subitem, and project. You can see the actual and estimated hours and the variance between them. This report helps you measure the efficiency and the accuracy of your estimates.

If you notice one of your items has gone over budget and time, you can easily investigate the data by opening the item and checking who’s in charge of it. The 7pace All Time Records aggregates all the time entries for a project and puts them in one collective dashboard.

This can help you identify inefficiencies or areas where you can improve your team’s performance.

Some other time-tracking options on the market include Clockify, Harvest, and Toggl.

Step 5: Create detailed invoices

Once your tracking is complete, it’s time to generate your invoices. Using your invoicing system, create detailed invoices that clearly outline the work done, time spent, and amount due. This ensures you’re compensated accurately and maintains transparency with your clients.

Many invoicing software options can help you create professional and customized invoices, send them online, and accept payments from various methods. Some of the best invoicing software for freelancers and small businesses are:

  • FreshBooks: An all-in-one invoicing and accounting software that lets you create unlimited and customizable invoices, track payments and expenses, and manage projects and clients.
  • Zoho Invoice: Free invoicing software that lets you create unlimited invoices for up to five customers. You can also track time, expenses, and estimates and send invoices in multiple currencies and languages.
  • Square Invoices: Simple and secure invoicing software that lets you create and send invoices from anywhere. You can also accept payments in person, online, or over the phone and track the status of your invoices.

Determine what features you want in an invoicing software and how much you’re willing to pay. Check for platforms that integrate well with your current tech stack to find the choice that’s right for you.

Frequently asked questions

How do you calculate billable hours?

To calculate billable hours, multiply the number of hours spent on a client’s project by your hourly rate. For example, if you spent 10 hours on a project and your hourly rate is $50, your billable hours are 10 x $50 = $500.

What is a billing tracker?

A billing tracker is an app that helps you track the time spent on billable tasks and generate invoices for your client projects. It can be a manual method, such as a spreadsheet or a notebook, or a software solution, such as a billable hours tracker or time tracking software.

What percentage of hours should be billable?

The percentage of hours that should be billable depends on your goals, industry, and workload.

A common benchmark is to aim for 70% to 80% of billable hours, which means that for every 10 hours of work, seven to eight hours are billable, and two to three hours are non-billable.

What is the best way to track billable hours?

The best way to track billable hours is to use a billable hour tracker or time-tracking software that allows you to record time spent on tasks accurately, ideally with real-time tracking capabilities. This way, you can avoid the errors and inefficiencies of manual methods, such as forgetting, estimating, or rounding up time. You can also benefit from the features and functions of the software, such as project management, invoicing, reporting, etc.

Track your billable hours efficiently

Your billable hours tracking process is a crucial part of any freelancing or consulting business. Your billing process determines how much you earn, how efficient you are, and how satisfied your clients are.

Time-tracking software can help you automate and streamline this process. It can also provide valuable insights into profitability, productivity, and efficiency.

One of the best time-tracking software for freelancers and consultants is 7pace. It integrates seamlessly with monday.com and Azure DevOps, allowing you to track and manage time within the same platform where you manage your projects. It also offers comprehensive reporting and exporting features and unlimited usage for users, clients, projects, and items.

If you want to take your billable hour tracking process to the next level, give 7pace Timetracker for monday.com a try.

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