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Sunday
Jan292017

Billable Expectations: 40 / 168 / 1,800

The following is an excerpt from an email I sent to DeveloperTown in April 2016. 

Let's start this discussion with some magic numbers. Most professional services firms run off of the same set of assumptions when it comes to billable resources.

Keep in mind, we're talking about billable hours. There are billable hours (we can charge out clients for that time) and there are non-billable hours (personal development, time off, team meetings, time spent moving houses, lunch with me even though it feels like work, etc). And some weeks, you don't always have line-of-sight on 40 billable hours. Ignore that complication for this discussion. This all assumes there's 40 billable hours of work available for you to do.  :)

40 billable hours in a week

The most basic magic number is the 40 hour work week. This one likely doesn't need much description for where it comes from. It's eight billable hours in a day, five billable days a week. If we were a staff aug firm like Anchor Point, the expectation would be 40 billable hours minimum - no exceptions. On the other side of that, we know of several consulting firms that do fixed monthly fees for their people where they bill out a "full time" resource with a 36 billable hours per week assumption. That four hours of slack provides a placeholder for company meetings, personal development, etc.

Here at DT we've been historically silent on defining a hard rule around 40 billable hours. We've always said that should be the target, but that you're mileage may vary based on the project, overall workload, etc. As a general rule, if you bill between 36 and 40 hours in a week, you're likely going to be okay. Over the long run, the expectation is that you should be averaging 40 billable hours a week - assuming you have productive work to do. If you don't have client work to do, escalate to your manager or to an engagement manager for any projects you're on.

What does a perfect week look like? It might look like this...

You should see a solid chunk of billable hours (north of 36 hrs), and a couple of line items related to the company or your team.

168 billable hours in a month

Most consulting companies estimate that there are 168 billable hours in a month for each billable person. There's some fuzzy math to get to that number. But most reasonable measures will get you to something close to that. A quick example:

  • 40 hrs per week x 52 weeks = 2,080 hrs in a year

  • now divide by 12 months to get 173 hrs per month

  • now give someone two weeks off (so [40x50]/12), and you get 167ish  

This is the first time you see an expectation of utilization come into play. Quick reminder: utilization is the percentage of billable hours for a person in a given period of time. While we ignore an expectation of utilization in the weekly number, 168 has an expectation of 97% utilization. Here you see the first baked in assumptions around time off, sick time, and slack.

This number can be a nice number to look at to see trends. In any given week someone might be sick, have something odd happen on a project, etc. However, when you zoom out and look at a month, you can see the trends. For example, last month no full time employee of DT logged less than 172 hours for the month. (Yea! Go DT!) However, there were only 10 people with more than 168 billable hours.

Again... not necessarily an issue. This isn't a hard and fast rule - it's just a heuristic. Some roles (like mine) aren't expected to be full time billable. Some people were between projects for a week or so. It's a useful number to watch at a macro level.

1,800 billable hours in a year

Most consulting firms estimate around a 90% utilization annually. That's around 1,872 hours annually, or about five weeks non-billable. Notice I didn't say five weeks of vacation. That might be the reason. It might also be that people are between projects or we assign people to non-billable work (like our very own DT website). It also includes holidays.

We're actually a bit more conservative here at DT. Given the nature of our projects, we've recognized that we actually tend to average more like an 86% utilization. Obviously we'd like to raise that up a bit over time, but it means we're averaging around 1,800 billable hours per year for each billable person. It's a great number to track at the firm level. And this means that there's a bunch of time "budgeted" for vacations, holidays, team events, people getting sick, and bench time between projects.  

 

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