2 minutes read

If you employ people to provide services to customers, it’s vital to manage the hours invoiced to customers compared to those you pay to staff.  Reason being the differential is potential lost income to your business and precious profit.

It may seem like a ‘no brainer’ to say that it’s vital to sell as many hours as you can, to ensure you’re making profit from the people employed to deliver services.

What is not so easy though, is to measure exactly how much time is being charged to jobs and how many hours are being invoiced to customers.

What typically happens, is that we get focused on managing everything and trying to do the best possible job for customers.

What we also need to know is where potential unbillable hours are going … and how we can create a situation to bill more of them.

The diagram above shows:

  1. Standard hours (typically 38 hours per week) that you pay staff.
  2. Hours per employee that gets charged onto jobs
  3. Hours per employee that gets invoiced to customers

The differential between these falls into many categories under the heading of ‘Unbillable hours’.

There’s a whole raft of things people can spend time doing that can’t be billed to customers.  The challenge is to minimize them, where billable staff are concerned.

firstly you need a system to keep track of hours spent on jobs and invoiced.  Then you are in a position to measure productivity and take action where it falls below expectations.

Below is a typical graphical report we provide to clients showing a comparison of

  • Hours invoiced
  • Hours booked to jobs
  • Budgeted hours
  • Break-even hours

This report shows that for an eighteen week period the hours booked on jobs, exceeded the hours invoiced for ten of those weeks.  This means the business was paying for hours it didn’t invoice. As mentioned above this differential is potential lost income and profit.

Before you encounter this situation, what is also useful to know is ‘What If’ your staff utilization rate and/or recovery rate falls – what would be the impact on profit?

‘To learn more on this subject watch a recording of our webinar – click here

By Sue Hirst Co-Founder CFO On-Call

Sue was managing an accounting practice when she co-founded the business in 1991. She has expertise in financial management, product and service development and human resource management.

Sue is passionate about explaining accounting concepts in clear English so business owners can make sense of their own numbers.