Billable vs non-billable hours: how MSPs can find balance

Posted:

01/02/2024

| By:

April Taylor

Understanding the nuance of billable vs. non-billable hours helps unlock greater revenue and build efficiency and trust. Billable hours are the hours your team spends on client-related work that can be directly invoiced; non-billable hours typically encompass internal tasks or activities that cannot be charged to clients.

A healthy billable to non-billable hours ratio is key to staying profitable. This ratio impacts your ability to generate consistent revenue and meet goals, allocate resources effectively, control overhead costs, and remain competitive.

Billable and non-billable hours for MSP clients

In your organizational workflow, the differentiation between billable vs. non-billable hours and the associated tasks often depends on whether the task directly contributes to client projects and generates revenue. If the work is an internal or administrative task, supporting the overall operations of your company, then it’s likely a non-billable hour. If it’s primarily focused on client work, it’s likely a billable hour.

What are billable hours? Here are some examples of billable tasks vs non-billable tasks to provide greater insight into the differences:

Billable hours include:

IT support for clients: Providing technical support, troubleshooting, or resolving client-specific issues and requests.
Project implementation: Planning, configuring, and deploying IT solutions tailored to your client’s needs—such as setting up a new network or migrating to cloud services.
Consulting and strategy: Offering strategic IT insights, conducting technology. assessments, or devising plans to enhance your client’s IT infrastructure.
Service-Level Agreements (SLAs): Fulfilling contractual commitments, such as regular system maintenance, software updates, or security monitoring as specified in your SLAs.

Non-billable hours include:

Employee training: Training staff on new technologies, best practices, or internal processes.
Internal meetings: Holding meetings to discuss non-client work, such as company strategy, review performance, or plan internal initiatives.
Research and development: Exploring and testing new technologies and software solutions that could benefit clients in the future.
Accounting and invoicing: Managing financial transactions, invoicing, and tracking expenses related to the overall business’s operations.
Office administration: Tasks, such as managing office supplies, maintaining equipment, or handling HR paperwork and responsibilities.

Balancing your billable vs. non-billable hours is crucial to ensure you can effectively meet client demands while simultaneously managing internal operations efficiently to maintain profitability and growth.

What is a normal billable hours ratio?

The ideal billable hours ratio for a typical MSP can vary, depending on a number of factors—such as the size of your organization, the types of services offered, and the business model.

In general, however, a common target is to aim for a billable-to-non-billable hour ratio of around 70 percent billable hours to 30 percent non-billable hours. In a nutshell, most MSPs should strive to keep at least 70 percent of your team’s time dedicated to billable client work.

Without a healthy balance of billable and non-billable hours, MSPs experience a number of negative consequences. These include reduced profitability due to excessive amounts of non-billable hours, resource misallocation, ineffective resource utilization, and increased overhead costs.

An unbalanced billable-to-non-billable hour ratio also leads to decreased client satisfaction. If your team is focused on a high proportion of non-billable work, it often results in delayed response times for client requests and projects, which can impact overall retention.

Most importantly, an excessive amount of non-billable hours hinders your company’s ability to reinvest in the business, expand services, or take on new clients—limiting your long-term growth potential. Accurate billable hours tracking is essential to make sure you not only have a proper ratio, but that you aren’t basing any decisions on bad data.

How to increase billable hours

Balancing the ratio of billable to non-billable hours is crucial for organizational profitability and sustainability. To increase your billable hours and achieve a healthy, self-sustaining ratio, MSPs should implement the following methods:

Effective time-tracking and reporting: Ensure that your organization has robust time-tracking systems in place to accurately capture how employees spend their time. Offer training to educate employees on how to record their work hours accurately and diligently to avoid time leaks.
Optimize service delivery: Streamline service delivery processes to improve overall efficiency and reduce time spent daily on non-billable tasks. Automation tools and standardized procedures are a helpful strategy for optimizing billable hours.
Staffing and development: Invest in the continuous training and development of your employees, making them more efficient and competent at completing tasks.
Effective resource allocation: Match the skills and expertise of your employees to the specific needs of a client project. This helps minimize resource mismatches and maximize billable hours and efficacy. To understand and better manage your resource utilization rates, check out our resource utilization calculator.
Reduce non-billable admin tasks: Admin tasks are often time-intensive but ideal candidates for automation. Consider automating repetitive tasks, such as billing, invoicing, or report generation to free up employee time. For tips on achieving next-level help desk efficiency, download our eBook, 5 Tips to Increase the Efficiency of Your Service here.
Implement project management tools: Implementing PSA software with project management and time tracking features can help you allocate resources effectively and identify areas where billable hours can be increased.
Monitor key performance indicators (KPIs): Monitor, track, and analyze set key performance indicators for billable vs. non-billable hours. This data can help you identify trends and areas for improvement.
Cross-train employees: When employees are cross-trained and can manage different tasks with ease, it streamlines resource allocation when necessary.
Outsource non-billable tasks: For some companies, outsourcing non-core and non-billable functions, such as IT support or admin work, to specialized service providers helps free up employee bandwidth and increase billable hours.

By implementing these strategies, you can work toward achieving a healthy and balanced billable-to-non billable hours ratio, ensuring optimal profitability and long-term sustainability.

Solutions to track and increase billable hours

For MSPs, tracking billable and non-billable hours is an essential practice—but increasing billable hours, is another critical goal to prioritize. And automation is one of the most effective routes toward effectively tracking and managing your teams' billibility and utilization.

ConnectWise PSA is an award-winning professional automation solution designed to centralize and streamline your end-to-end business operations. Out-of-the-box time tracking features allow techs to easily enter and track their billable time by client, project, and task, freeing up time to better serve your business and clients.

Start your free on-demand product demo today to see ConnectWise PSA in action.

How do billable hours impact a business's profitability?

Billable hours have a significant impact on a business’s profitability. By increasing billable hours, your organization can boost revenue generation, recover costs easier, allocate resources effectively, and elevate client relationships. Because billable hours are a fundamental driver of profitability for MSPs, effective management, tracking, and optimization of billable hours is critical to long-term business growth and success.

Are there any legal requirements regarding billable and nonbillable hours?

There are no specific legal requirements that dictate how MSPs should categorize billable vs. non-billable hours. However, businesses are generally required to comply with labor laws and regulations that govern employment practices—such as working hours, overtime, minimum wage, and record-keeping requirements. To ensure your organization maintains compliance, consult with legal counsel or labor experts.

What are some common examples of billable and nonbillable activities?

Some of the most common examples of billable hours include IT support for clients, project implementation, consulting and strategy, and working with Service-Level Agreements (SLAs). Examples of non-billable activities include employee training, internal meetings, research and development, accounting and invoicing, and office administration.

How can I increase my billable hours without sacrificing quality?

Increasing billable hours without sacrificing quality requires a strategic approach to improve efficiency and productivity. Consider streamlining current processes, using time-tracking and tools, focusing on effective task management. Remember that quality should always be a priority. While increasing billable hours is important for revenue generation, maintaining high-quality work is crucial for client satisfaction and long-term success.