Now that you know how much you benefit from keeping track of your time, you need to know exactly how to classify your time. For example, time you spend with customers must be differentiated from time spent writing blog posts or working on your business card design.
Billable versus non-billable time
The very first step to take on your road to time tracking mastery is determining what’s billable time versus what’s non-billable time. Billable time is what you bill a client. Non-billable time cannot be billed to clients, even though it may be required as part of completing a client’s project or task.
Basically, everything you do can be slotted into one of the three following categories:
- Billable: stuff you do specifically for your client as part of contractual agreement.
- Non-billable: stuff that’s common to all clients as part of doing business.
- Might be billable: depends on context in which work is performed.
For example, if you’re writing code for a client, the hour a month you spend creating the invoice is not billable. Installing an upgrade to your existing operating system, not billable. Installing a new compiler for client’s project: billable. Installing a new operating system expressly to support client: billable. Blog posting for yourself is non-billable, blog posting on client’s behalf is billable. Doing your own payroll, not billable. Subcontractor expenses, billable. Managing subcontractor expenses, not billable.
Fortunately, there are guidelines for how to charge to ensure your expenses, especially for management and administration, don’t bankrupt you. Federal guidelines are especially useful, because your mandated 8% profit is guaranteed… after a full accounting of all your expenses! Even if you’re not in the government contracting business, these guidelines are often explicit, and can help you determine how structure your non-billable work.
Tracking non-billable time is critical
Running at a profit demands that your revenue exceeds your total cost of doing business. The cost of doing business can be partitioned into:
- cost of goods sold; materials, labor, etc
- expenses associated with overhead such as rent, utilities, retirement funding, etc.
- expenses associated with managing the business: bookkeeping, payroll, paperwork of all kinds.
- costs associated with sales and marketing, etc. These are “branding” and PR types of expenses. For small businesses, especially in the information products business, sales and marketing could be rolled into costs of goods sold.
Tracking non-billable time associates tasks and activities with the cost of performing those tasks.
For non-billable time, you want to track overhead activities differently than general and administrative activities. It’s important to understand the difference because in some industries there’s tax ramifications associated with each expense category.
Stay tuned for the next installment, where we’ll determine whether you’re a time lumper or a time splitter.
