For some businesses, billing clients is all down to keeping meticulous timesheets that itemise inputs as small as a five-minute phone call. You probably thought of law firms the moment you saw the word timesheets, as they are well known for itemising every single thing that can be charged back to the client.
But for many businesses, keeping timesheets is a logistical nightmare that requires a good deal of oversight. Lots of clients have told us how hard it is to get teams to adopt the reflex of logging their time, leaving managers chasing after certain employees on a near-constant basis. Despite all the tech solutions out there, none have truly solved this key issue. The other problem is that not all time logged is billable, meaning that time is spent recording information that isn’t actually useful to you.
An alternative to timesheets
One drawback I see in timesheets is accountability. Let’s say an employee records three hours of work for Client X on Monday. What does this actually achieve for you? Does this convert to three billable hours that the client is happy to pay for? You haven’t made the employee accountable for their output, only for filling out their timesheet.
Just because Clare spends 20 hours on a particular task does not mean the client will get billed for 20 hours of time. Hours get written off all the time because the client didn’t agree to pay for them beforehand, or the time was considered experimental, research, or work in progress. If Clare used a timesheet, she would look very productive on paper but this might not actually translate into financial value for the company.
To bill your client, you’d need a more accurate picture of what has been achieved and a timesheet is unlikely ever to do that for you. You need a completely different way of approaching billing. An alternative to the timesheet model that I find more and more compelling is the concept of ‘chargeable hours’ that are assigned to employees.
How to use chargeable hours
The way this works is simple. You measure jobs according to the amount of time that will be required to complete them. This is probably how you already quote for jobs, so there is no difference in the process so far. You may have a blended rate across your team and know that a project will take 8 hours from Anne and 7 hours from James and therefore the total time of 15 hours multiplied by your blended hourly rate will guide your overall price.
So now what you do is assign those 8 hours of work to Anne and 7 to James. Taking James as an example, he is responsible for delivering his chargeable hours and so the only thing you need to do as his supervisor is see if he has done so. He may have been quicker than 7 hours or it may have taken him longer, but this doesn’t really matter in the context of this single project. In one fell swoop, you have eliminated any admin or reporting around timesheets and cut straight to the root of the billable hours issue.
Building accountability into the system
Now, if it takes 28 hours for James to complete the 7 chargeable hours, this does have an impact on other work that he is responsible for. Depending on James’s responsibilities in the business, you will have set a realistic number of hours per day that James should be achieving in terms of chargeable work. The rest of the time he might be doing admin, overseeing colleagues, training, interacting with clients, etc. (we have done a breakdown of productivity levels and what might be a reasonable benchmark in this blog).
If James is responsible for delivering 4 chargeable hours per day, then that is how you have set your budget (in terms of time). When you know your team’s chargeable hour allocation, you can easily work out the amount of work you can produce in a year and its value in fees, which you can weigh against your costs to establish your projected profit. Running the numbers like this is very straightforward and it’s all much easier to manage than timesheets.
Let’s say that everyone is tasked with producing 4 chargeable hours of work a day. You may find that Anne manages to produce 6 chargeable hours a day, in which case you might want to have some kind of bonus scheme in place to reward her and any colleagues who do likewise.
Other employees may struggle to meet their quota and then you have the challenge of finding out why that is and seeing if there are ways to help them improve (with training, focus, motivation, etc.). If they still aren’t managing, you will be faced with having to demand better performance from them with a Performance Improvement Plan (PIP), which may include sanctions if they don’t do the actions necessary to improve.
Integrating chargeable hours into your processes
As you can see, there is job management involved in using chargeable hours and someone will have to check that the project, or project phase, is running smoothly and receiving the correct inputs. But this would be the case anyway, so there is no additional administration involved to use the chargeable hour system. Any well-run project would involve quoting, budgeting, and job/task management, so you are simply using what you would have done anyway to assess performance and profitability.
Measuring value and productivity
Chargeable hours allow you to see which employees stand out in bringing profit and value. It also means you don’t waste anyone’s time tracking work which is essential to running the business but doesn’t translate directly into revenue. You might need some help working out the financial projections, but I believe that once in place you will find this system easier to manage and much more transparent.