Help me understand billable hour expectations for people other than lawyers....
October 24, 2007 7:48 PM   Subscribe

Help me with Web / IT consulting and billable time. Consulting firms make their money on billable hours - what percentage of a 40 hour work week needs to be billable for different roles within the company?

I work for what I'll call for neutrality's sake a "web shop", though it fancies itself a consulting firm as we do things by the billable hour. I've worked in the industry before, but I really don't know what sorts of things are "relatively standard / commonplace" in the industry.

My google-fu almost exclusively finds me stuff on lawyers, so here comes my request for help...

We have developers, designers and project managers, each of which have their own billable hour expectation (much like I understand lawyers do). I'm trying to understand what expectations are reasonable while still maintaining profitability, so I want to know the following:

- What is a reasonable billable hour expectation in a 40 hour work week for a developer? A designer? A project manager?

- In a project estimated at say 100 hours of billable work by the designers and developers combined, how much project management time do typically add? Fixed amounts? A percentage? We have a standard - I'm curious if it's in line with yours.

- What sorts of things do you consider billable beyond development, design, and "obvious" project management stuff like creating documentation, requirements gathering, etc. Do you bill for internal but unplanned conversations about client work (i.e. a 5 minute catchup between the PM and a developer). Do you bill for estimates of additional work, even if the client elects not to go through with the work? Do you bill for every email and phone call you spend time reading/responding to from a client?

- What sorts of things are definitely nonbillable in your company, or just your mind?
posted by twiggy to Work & Money (7 answers total) 7 users marked this as a favorite
I know that working for a smallish consulting company, developers like me are expected to keep their billable time at 90% as an absolute minimum. My boss, a program manager, has a 50% requirement.

Absolutely everything that has to do with a given contract is billable, though we really don't track any more granularly than by the hour - the scale of our projects is such that we spend weeks or months at a time on each one, though. Dunno if practices are different on smaller-scale projects.
posted by Tomorrowful at 8:17 PM on October 24, 2007

What is a reasonable billable hour expectation

I think the question is, what's a reasonable non-billable hour expectation? Consultants should be billing as many hours as they can while still meeting the non-billable requirements of their jobs -- but those requirements will vary from firm to firm.

how much project management time do typically add

The only way you can arrive at a standard formula for this is if your projects are of a consistent level of logistical complexity. That hasn't been my experience -- some projects involve juggling lots of stakeholders, workstreams, and team members, and some projects, uh, don't.

What sorts of things do you consider billable

Every consulting firm I've worked for bills every activity that can be traced back to a particular client project, in quarter-hour increments.

What sorts of things are definitely nonbillable

Again, any work that can't be attributed to accomplishing a particular task for a particular client.
posted by jjg at 10:44 PM on October 24, 2007

Rates like these are only meaningful in the aggregate -- to compare the utilization of staff in the Paris office against the staff in the Madrid office of a large firm.

A small firm that starts setting billable utilization targets by rank sets up incentives to avoid challenging projects as much or more as it sets up incentives to stop goofing off and be productive. I saw this happen in a management consulting company and there was open rebellion -- partners told senior management to go fuck themselves and the effort was dropped.
posted by gum at 11:29 PM on October 24, 2007

Response by poster: I know that working for a smallish consulting company, developers like me are expected to keep their billable time at 90% as an absolute minimum. My boss, a program manager, has a 50% requirement.

Wow - at least 90%? That's 36 out of 40 hours as a bare minimum. Do you never have company meetings, department meetings, etc? No training either? Just curious since all companies are different. At a bare minimum I lose about 3 hours a week just to meetings that aren't client related.
posted by twiggy at 12:02 AM on October 25, 2007

First off, measures of utilization do not generally include company-mandated meetings or PTO (training varies from place to place). Hours of company meetings a week seems excessive.

Every consulting job I've had has had 80-85% quarterly utilization in the job description, with the intent being that consultants can be fired for cause if they repeatedly turn down assignments. I've never known this to actually happen, but it does make for a nice, quantitative measure for legal purposes.

The best structure I've worked under was a three-tiered monthly commission plan for developers. If you were at 85%, you were paid very well, and every billable hour after that was rewarded handsomely. The catch was that your work was warrantied for six months, so, if the customer was not happy, you would have to spend nonbillable time to make them happy or, if you were not available, someone else would do the warranty work as billable time and your commission would be debooked. This structure kept utilization very high (~95%), warranty claims low, attracted the best consultants, and provided appropriate flexibility. You could have work-life balance at 85% or be a raging workaholic at 150% while keeping the same job.

The same company did not do commissions for PMs, but required them to bill 50%, with 20% of all engagement time assigned to PMs, and that was a disaster. Customers, rightly, dislike paying premium rates for project managers, so the PMs antagonized customers. What usually ended up happening is that most PM tasks (schedules, requirements, docs) would get done by the developers, since customers would not argue about that time, and the 20% PM time would get used by the lead developer. Having a PM is invaluable at times, though. Based on that experience, I think PMs should be nonbillable and compensated based on customer satisfaction and/or team billings. If a customer wants to pay for PM time, allow for that, but fold PM time into developer rates as the standard.

On the question of what is and isn't billable time: any moment you are thinking about a customer or have time specifically dedicated to a customer (i.e., you've scheduled a week for the customer but they're not ready to go) is potentially billable. Whether it's actually billable depends on your agreement with the customer and perhaps some fuzziness -- a billable hour is really a unit of work, not of time, so billing for clock time may not be possible if not enough work is done during that time.
posted by backupjesus at 4:18 AM on October 25, 2007

In the company I work for, 85% is the stated minimum.

Most of the developers, though, are realistically expected to bill at about 120%.

Most work is done on customer site, so travel time is also billed.
posted by blue_wardrobe at 10:04 AM on October 25, 2007

depends on culture you want, and what you need to do break even.

85% is pretty standard. Everyone should be billable except admin, help desk and new business. Their overhead should be covered in rates.

However, it's up to you decide what 85% entails. If you're more interested in a 'lifestyle' company, you might want to pay people less, but have a higher NB rate for r&d, family leave, etc. If you're all profit, then 85% includes PTO and staff meetings.

Generally, PM takes up 20% + of a project (depending on neediness of the client), but ymmv, and if a team is huge, add more.

Everything humanly possible is billable to a client - emails, thinking about a problem meetings, hallway conversations [that would be an informal meeting] phone calls, and production. We use 15 minute increments, which makes it easy. It may seem draconian, but when you're at work, you could be doing something else besides talking about that documentation - that's just the fact of work for hire.

Whatever you do, have strict guidelines on how to bill, so everyone will comply. Young companies have a problem with this, especially - it's not people don't care about billing, it's just that they're confused, and tend to err on the side of the client.

Also, make it clear to the client what they're billed for, so there's less dispute. Many clients think travel, postage, and overhead is your problem - it certainly isn't.

NB - staff meetings, training [unless a client wants you do use something you normally don't], reception, etc
posted by beezy at 10:29 AM on October 25, 2007

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