learn stage 3 8 min read

Billable vs Non-Billable Hours Explained: Utilisation Rates and Agency Benchmarks

Last reviewed: 2026-05-23 8 min read

Every agency, consultancy, and freelancer has two types of work hours: hours that generate revenue and hours that don’t. Understanding the split — and systematically improving it — is the highest-leverage financial action available to most service businesses.

The definitions

Billable hours: time worked on client projects that you invoice, or time that you intend to invoice. Examples: writing copy for Client A, developing features for Client B’s app, designing a website for Client C.

Non-billable hours: time worked that doesn’t generate direct client revenue. Examples: internal team meetings, business development/sales calls, bookkeeping, training, project management overhead not included in the project scope, pitching for new work.

Utilisation rate: the metric that connects them

Utilisation rate = (Billable hours / Total available hours) × 100

If you work 40 hours and bill 28 of them: utilisation = 70%.

This is the primary profitability metric for any time-based service business. It directly determines:

Your effective hourly rate (revenue ÷ total hours worked, including non-billable)
Your capacity to take on new work
Your profit margin per engagement

Why your effective hourly rate is lower than your billing rate

A common mistake: calculating profitability by billing rate without accounting for non-billable time.

Example:

You bill £100/hour
You work 40 hours/week, 50 weeks = 2,000 hours/year
You bill 60% of those hours = 1,200 billable hours at £100/hour
Revenue: £120,000/year

Your effective hourly rate is £120,000 / 2,000 hours = £60/hour — not £100/hour. The 40% non-billable time effectively halves your rate.

This is why a freelancer billing £100/hour at 60% utilisation earns roughly the same as an employee paid £50–£60/hour with benefits. The comparison is: their rate × utilisation, not just their rate.

Industry benchmarks

Industry	Target utilisation	Concerning (below)
Management consulting	75–80%	Below 65%
Digital/creative agency	65–75%	Below 55%
Software consultancy	70–80%	Below 60%
Freelance (solo, no team overhead)	65–75%	Below 55%
Legal (billable hours model)	75–90%	Below 65%
Architecture/engineering	65–75%	Below 55%

These are targets, not typical actuals. Most agencies without time tracking systems are running 10–20 points below their target utilisation because non-billable time is invisible.

Where billable time leaks

1. Scope creep that isn’t captured. You do an extra round of revisions that’s technically outside scope, or answer client questions that constitute consulting. These hours are done, not billed, and disappear from your utilisation without trace. Tracking every hour (including “out-of-scope” work) is the first step to either billing it or having a scope conversation.

2. Project management overhead. Most agency projects include 10–20% project management time. If your project management is not included in the project scope and invoiced, it’s non-billable overhead. Solution: either include PM in your project scope/rate, or treat it as overhead and price it into your rates.

3. Internal meetings. Team standups, retrospectives, and internal planning meetings are non-billable. For a 15-person agency averaging 5 hours/week in internal meetings, that’s 75 hours/week of non-billable time = ~45% of a full-time hire’s capacity consumed by meetings.

4. Unbilled small tasks. Responding to a 20-minute client email about a completed project. Fixing a minor bug after launch. These feel too small to invoice. Tracked over a month, they often total 5–10 hours. At £100/hour, that’s £500–£1,000 of unrecovered revenue per month.

5. Pitch work. Creating proposals and credentials for prospective clients is a high-cost non-billable activity. The industry standard is to recover pitch costs in the margin of won projects — which only works if you’re tracking how much pitch work costs you.

How time tracking tools handle billable vs non-billable

All major time tracking tools allow you to mark projects or tasks as billable or non-billable. The billable/non-billable flag then feeds into reports:

Harvest — native billable/non-billable toggle per project and task; utilisation report is automatic
Toggl Track — billable flag per project; utilisation visible in Premium reports
Clockify — billable/non-billable per project; utilisation report in paid plans
Hubstaff — billable tracking with payroll integration
Timely — billable flag per project; automatic categorisation of AI-suggested entries

Practical steps to improve utilisation

Step 1: Track everything for 30 days. Don’t change behaviour. Just capture where time goes, including all non-billable activities.

Step 2: Identify your current utilisation. Billable hours ÷ total hours. Most service businesses discover they’re 10–20% lower than they thought.

Step 3: Identify the top 3 non-billable time categories. Often: internal meetings, pitch work, and unbilled small client tasks.

Step 4: Decide which non-billable time to reduce vs price in. Internal meetings may be reduceable. Pitch work is unavoidable but priceable into win rates. PM overhead is priceable into project scope.

Step 5: Set a utilisation target and track weekly. A 10-point improvement in utilisation is worth meaningful money. At £100/hour and 40 hours/week: 65% → 75% = 4 extra billable hours/week = £20,000+/year for a solo consultant.