Want to know what should be counted as billable hours vs non-billable hours? Timekeeping is a scary affair for many lawyers, especially new ones. This is because billable hours vs non-billable hours isn’t something they teach in law schools.
The concept is simple enough – billable hours are the hours spent on tasks that can be directly invoiced to a client, while non-billable hours are spent on other activities, such as marketing or training.
However, things get complicated when you factor in expenses. Many lawyers don’t know how to account for them, and as a result, they end up over-billing or under-billing their clients.
This article will help you understand the difference between billable hours vs non-billable hours and expenses to stay on top of your timekeeping.
You want to make the most out of your working hours and reduce non-billable time. Using software like Clio will assist with time tracking, but you also need to think about things like workflow, billable rates, project planning, and reducing administrative tasks.
Billable hours law firm
As mentioned earlier, billable hours are the hours spent on tasks that can be directly invoiced to a client. This includes time spent on:
- Client meetings
- Conducting research
- Drafting documents
- Attending court hearings
- Essentially, any task that directly contributes to the outcome of a case is considered billable.
- On the other hand, non-billable tasks don’t directly contribute to the outcome of a case. These include:
- Administrative work
- Billing and accounting
- Research for personal development
For many lawyers, the line between billable and non-billable hours is blurry. For instance, you may spend an hour on the phone with a client but might only end up billing for 45 minutes.
This is because you need to account for time spent on activities such as:
- Answering questions
- Taking notes
- Returning phone calls
In such cases, it’s best to use your best judgement. If you think the client will be okay with a lower billing, then go ahead and reduce it. Otherwise, it’s best to bill for the full hour.
How to Calculate Billable Hours
Now that you know the difference between billable and non-billable hours, it’s time to learn how to calculate your billable hours. There are two ways to do this:
The Simple Method
The simple method is just that; simple. You need to add up all the time you’ve spent working on billable tasks and multiply it by your hourly rate.
For example, let’s say you’ve worked 10 hours on billable tasks this week, and your hourly rate is $200. This means your total billable amount for the week would be $2,000.
This is the approach that most lawyers take, as it’s easy and straightforward. However, it doesn’t account for the time you spend on non-billable tasks.
The Complex (Detailed) Method
The complex method is a bit more detailed and considers both billable and non-billable hours.
First, you need to calculate your total number of hours worked. To do this, add up all the time you’ve spent on billable tasks, and then add 10% to account for non-billable activities.
For example, let’s say you’ve worked 10 hours on billable tasks this week. This means your total number of hours worked would be 11 (10 + 10%).
Next, you need to calculate your utilization rate. This is the percentage of billable hours out of the total number of hours worked.
Billable Hours Vs. Non-billable
To do this, divide the number of billable hours by the total number of hours worked. In our example, this would be 10/11, or 90.9%.
Lastly, you need to multiply your utilization rate by your hourly rate. This will give you your billable amount for the week. In our example, this would be $200 x 90.9%, or $1,818.
While this method is more complex, it provides a more accurate picture of your billable hours.
You will need to think about how many hours are billable when doing revisions. Obviously, there will be some hours you can charge for, but if you do too many revisions, the client might get annoyed.
When working on a client’s project, you might want to think about offering flat-fee pricing. That is an easy way to get away from worrying about billable hours. You also don’t have to worry about billing rates anymore.
Factoring in law firms Expenses
In addition to hours, you also need to account for expenses when billing a client. These include:
- Travel costs
- Court fees
- Expert witness fees
- Photocopying and printing costs
- Software subscriptions
You can either bill your client for these expenses directly or include them in your hourly rate.
If you choose to bill for expenses separately, make sure you keep detailed records of all your expenses. This will help you avoid any disputes with your clients.
On the other hand, if you choose to include expenses in your hourly rate, be upfront about it. This way, your clients will know exactly what they’re paying for.
How to Calculate Your Total Revenue
Now that you know how to calculate billable hours and expenses, it’s time to put it all together and calculate your total revenue.
To do this, simply add up all the money you’ve earned from billable hours and expenses.
For example, let’s say you’ve worked ten hours at $200/hour, and have incurred $50 in expenses. This means your total revenue would be $2,050.
The easiest way that legal professionals can increase their total billable hours is to become more productive. You want to worry less about billable vs. non-billable hours and spend your time learning new skills as a lawyer.
Less time in internal meetings and doing edits, and more time enjoying your hobbies. At the end of the day, you want to be proud of your growth as a lawyer. Learning how to be more productive on future projects will leave you feeling more fulfilled.
One of the key things you need to do is avoid non-billable work. Reduce the amount of time you spend on getting new clients, and dealing with admin tasks. Try to outsource things like marketing to freelancers, or SEO companies.
If you can afford it, sign up for automation software. An example of this is software that can help you find case studies using AI.
Outsource tasks you are not good at to a team member. And in return, help them with tasks that you are best at. It’s all about time management.
Billable and non-billable hours are two crucial concepts to understand as a lawyer. The difference between the two can mean the difference between making money and losing money.
Avoid non-billable tasks
Knowing how to calculate billable hours is essential for ensuring that you make a profit on your work. Additionally, factoring in expenses is necessary to get an accurate picture of your total revenue.
Think about getting rid of billing rates and using a timesheet, and consider using time tracking software. Spreadsheets suck, and it’s not fun to track non-billable hours either. Spend your workday delivering value for clients.
By understanding these concepts, you can manage your law practice more effectively and ensure that you make a good living as a lawyer.