Billable vs non-billable hours, explained

What counts as billable

Billable hours are the time a client pays for, directly or through a fixed price: feature development, design, QA, the project management you put in the scope. Simple rule: if the work moves forward the result the client signed up for, it's billable. Everything else, however necessary, doesn't reach the client's invoice.

What's non-billable (but still costs money)

Non-billable time isn't useless — the studio can't run without it. The client just doesn't pay for it; you do, through salary:

• Internal meetings, hiring, admin tasks
• Sales, proposals and estimates
• Training, R&D and tooling setup
• Vacation, holidays and sick days

The mistake is treating these hours as 'lost'. They're part of the cost of every billable hour; the only questions are how many there are and whether they've slipped out of control.

Example: one developer's week

Take an ordinary 40-hour week for one developer and break down how many hours actually went to the client and how many to everything else.

Plug it in: 30 ÷ 40 × 100 = 75%. The same 75% over a year turns ~2,080 calendar hours into about 1,500 billable ones — exactly the number you should divide an employee's annual cost by, not the calendar hours.

Add a week of training or a gap between projects and billable hours drop, utilization dips, and the hourly cost rises on its own. That's why it's worth looking at this ratio regularly, not once a year.

Why the ratio decides everything

This ratio is the lever that quietly moves your whole economics. The salary is fixed, but if over a year an employee billed not 1,500 hours but only 1,300, that same salary has to be recovered over fewer hours — and the real hourly cost of each hour rises. So utilization shouldn't be guessed — it should be measured: it directly sets the minimum rate you can afford.

Do the math: on an annual cost of $84,000 per person, 1,500 billable hours give $56 an hour, while 1,300 give about $65. That's +16% on cost without a single change to salary — and your margin on every project shrinks by exactly the same amount.

A healthy target for most studios is 70–85% billable hours, not 100%: time for training, sales and the team's recovery is needed too.

What quietly drags utilization down

Utilization drops not from laziness but from processes nobody counts:

• Bench time between projects — the person is on salary, but there's no client work for them right now.
• Free fixes and tweaks beyond the agreed scope that never make it onto an invoice.
• Bloated calls and meetings a short message could have replaced.
• Pre-sales and estimates done by a billable developer instead of a salesperson.

On its own each looks minor, but together they easily eat 5–10 points of utilization — and that's a direct hit to margin on every project.

How to measure this without surveillance

To split hours into billable and non-billable you don't need screenshots or click counters — you need a simple log of where the time went. The team tags hours by task, and you see the billable share and cost per project without turning work into surveillance. That's time tracking without surveillance, not watching every click. How it works in the product is on the features page.