Let’s talk about non-billable hours.
Whether you’re a law firm or a consultancy where hours are billed to clients, you know how these sneaky hours can drain profits without you realizing it.
We’re not talking about the essential work that adds value, but rather those hours spent on tasks that don’t generate revenue directly.
In this blog, we’re diving into what non-billable hours are, why they’re costing you, and how to manage them effectively.
By the end, you’ll have actionable insights to help keep non-productive tasks from overtaking your team’s time – and, more importantly, your profits.
Non-Billable Hours: The Hidden Costs
What is a non-billable hour? In simplest terms, non-billable hours are time spent on tasks that don’t directly generate revenue.
Unlike billable hours, which are typically the time you charge clients for, hours you cannot bill include activities that don’t lead directly to client billing.
They might include attending internal meetings, administrative work, training sessions, or responding to internal emails. While these activities are necessary, they’re not time you can charge a client for.
Some common examples of these hours:
- Team brainstorming sessions
- Organizing documents
- Checking emails
- Administrative duties like invoicing
Have you ever considered how much time your team spends on non-billable tasks, like internal meetings or scheduling?
Closer Look: Breaking Down Billable vs. Non-Billable Hours
So what’s the difference between billable and non-billable hours?
Billable hours are chargeable to clients – they bring direct revenue. Think consulting sessions, legal advice, design work for clients, or project management billed at an hourly rate.
Non-billable hours, on the other hand, are essential but don’t bring direct income.
Interestingly, this divide isn’t exclusive to one industry.
From law and consulting to creative agencies, nearly every field that deals with clients on a project basis has to deal with the ratio of billable to non-billable hours.
The trick is balancing the two to keep your business both efficient and profitable.
Real Costs: Time is Money
You might think, “So what if my team spends some time on non-billable tasks?”
But the hidden cost is real.
In fact, a 2023 report from Clio showed that law firms lose almost half their working hours to non-billable tasks like admin and business development cutting that by just a quarter; the financial impact would be substantial!
These hours accumulate into lost profit – time is money, after all!
According to another study by Legal Trends, the average attorney logs just 2.5 hours of billable work in an 8-hour workday, which translates to 68% of their time being spent on non-billable activities.
That’s a huge productivity gap.
Think about this: if a team member has to work 45 hours to achieve 40 billable hours, what could they accomplish if non-productive tasks were minimized? You’d see not only increased productivity but also less burnout.
Are Non-Billable Hours Paid?
This is a common question: Do you get paid for non-billable hours?
The answer varies by industry and business model. In salaried roles, these hours are part of the job description. But in roles with billable hour targets (like law or consulting), there’s a clear emphasis on keeping tasks that you can’t bill to a minimum.
Some firms classify qualified non-billable hours – work that’s essential to business development but still indirect, like networking or client outreach – as partially creditable toward performance goals.
In the long run, though, managing hours effectively benefits both individual contributors and the business as a whole.
Why Non-Billable Hours Matter to Your Profitability?
Non-billable hours may seem like a harmless part of the job, but when left unchecked, they can damage your bottom line in surprising ways.
These tasks are often overlooked because they’re not visible on invoices.
However, the more time employees spend on non-billable work, the slimmer your profit margins get.
According to 2022 data from Clockify, consulting and legal firms with a high percentage of non-billable time saw profit margins 10-20% lower than those with a stronger billable focus. For a growing company, shifting time from non-billable to billable work can be a quick way to improve financial performance.
Even a modest 5% increase in billable hours can result in a significant revenue boost.
In the legal sector, non-billable hours law practices are particularly crucial. Tasks like research, admin, and case prep may not always qualify as billable, yet they’re essential. Lawyers face pressure to meet billable hour targets, which has led many firms to reconsider their approach to non-billable work.
For instance, many firms now offer creatable non-billable hours for activities like community service or client development, which are vital to the firm’s growth.
This shift acknowledges that some activities that you cannot bill still add long-term value, even if they’re not directly chargeable.
Strategies for Managing Non-Billable Hours
Reducing non-billable hours isn’t about pushing your team to work harder but helping them work smarter. Let’s explore effective strategies that can help you minimize the impact of non-billable time on your bottom line.
#1 Legal workflow automation
Legal workflow process automation refers to making the latest technology and tools work for you instead of working manually on administrative routine tasks.
Consider one real-world example: Since legal teams are the service providers, they are incessantly dealing with incoming requests. These requests or cases are from within the organization and clients. For instance:
- I’m in the early stages of a new business idea. Can you set up an NDA and review this invention disclosure?
- I have a contract draft for a new partnership. Can you finalize it ASAP?
- We’re expanding our product range. What are the potential legal risks and requirements?
Now, every single request the legal department receives is important and a priority. So, where do they start? How do they get ahead of hundreds and thousands of cases pouring in?
In-house legal teams are struggling to complete each task cost-effectively, time efficiently, and satisfactorily.
So, the viable option that legal teams are now adopting is prioritizing workplace automation tools, artificial intelligence (AI), or legal technology and replacing manual intervention in work wherever possible.
For instance, Admin tasks are among the most common non-billable activities. Automate scheduling, report generation, and client communication. Use automation software to handle routine reminders and notifications.
#2 Audit and Track Activities That You Cannot Bill
Understand all the aspects where time is spent. Use tracking tools to log and analyze hours. This isn’t just about recording; it’s about identifying patterns.
A mid-sized consulting firm discovered that their weekly internal meetings took up 10% of their team’s time. They streamlined meetings, cutting time by 50% and reallocating that time to client work.
#3 Create Defined Categories of Non-Billable Work
Not all non-billable work is equal. Divide tasks into categories like “necessary,” “developmental,” and “excessive.” Necessary tasks, like compliance, are non-negotiable, while developmental tasks (like training) are valuable but can be streamlined.
For example, some companies distinguish between “internal admin” (necessary but minimal) and “client prep” (qualified non-billable hours that indirectly support client work).
#4 Set Goals for Billable Hour Targets
Instead of only tracking hours, set team goals for billable hour ratios. For instance, many firms aim for a billable-to-non-billable ratio of 70/30. Anything more unbalanced is a red flag. Setting goals with a tool like IP Assist keeps everyone on track without the hassle of manual tracking.
#5 Use Technology For Document Drafting, Legal Research, Review, and Communication
Platforms like IP Assist can consolidate communication, task management, and document storage. Reducing back-and-forth emails and locating everything in one place can cut down hours of wasted time.
IP Assist by InspireIP
Best for Case Management, Documentation Automation, and Legal Research
Purpose-built for legal teams, IP Assist is different from general workflow platforms.
Tools like Zapier and Wakado indeed have a heavy collection of features for workflow automation.
But what’s also true is that legal processes are quite different from other business processes and require more specificity.
Instead of automation between systems, legal automation requires congruence between people–legal teams, clients, stakeholders, outside counsels, and more.
Designed by an Executive Director of Patent Development and Innovation, InspireIP takes care of case management and documentation automation swiftly and efficiently.
Whether it’s gathering requests from clients over different systems, kickstarting IP management, getting more invention disclosures, or running innovation challenges, you get it all in one single platform.
And you could need a document or a particular information years down the line, you won’t have to comb through conversations in emails, chat spaces, or physical documents. It’s all safe in a centralized repository.
#6 Optimize Meetings
Establish ground rules for meetings: agenda-driven, short, and limited in frequency. This prevents meetings from becoming a productivity drain. Many firms now use a “10-minute huddle” system – a quick daily check-in instead of lengthy weekly meetings.
Getting Ahead of Non-Billable Hours: Tips for Teams and Leaders
If you’re managing a team, balancing time is a team effort. Here are some additional ways to keep your team productive without burnout:
- Encourage a Healthy Work Balance: Avoid the pitfall of over-emphasizing billable work to the point of burnout. Instead, set realistic expectations and create a supportive culture that recognizes the importance of non-billable but necessary work.
- Streamline Onboarding and Training: These hours often pile up during onboarding and training. Use standardized processes, video tutorials, and knowledge-sharing platforms to streamline these activities.
- Embed Non-Billable Work into Client Value: Find ways to make such tasks valuable to clients. For instance, instead of a purely internal brainstorming session, include clients in some parts of the process for added value and engagement.
- Regular Check-Ins and Adjustments: Every quarter, check the hours logged and assess if processes need updating. Reducing non-billable hours should be an ongoing priority rather than a one-time fix.
Final Thoughts: A Smarter Approach to Time Management
The goal isn’t to eliminate these hours altogether – that’s neither realistic nor beneficial.
Instead, it’s about creating a structured, efficient way to handle these hours so they don’t detract from profitability.
Steps, like streamlining invention disclosures, reducing meeting times or optimizing task tracking, can result in significant gains over time.
With a proactive approach to non-billable work, you’re not just protecting your profit margins; you’re also creating a healthier, more focused team. So start by auditing your team’s time, set realistic goals, and make sure the work you do is aligned with long-term value.
