“Production (billable)” refers to the value of goods or services that are directly billable to a client or customer. It represents the work that a business can charge for, such as client meetings, document drafting, or project work, as opposed to non-billable tasks like general administration or marketing. Accurately tracking billable production is crucial for a service-based company to ensure profitability, as it forms the basis for invoicing and revenue generation.
Key aspects of billable production
- Distinction from total production: In some contexts, like dental practices, “billable production” is the amount a third-party payer (like an insurance company) will reimburse, which may be different from the practice’s own “total production” fee schedule.
- Calculation and tracking:
- Time-based billing: For services, it’s calculated by multiplying the time spent on billable tasks by an hourly rate.
- In-time tracking: Many professionals track their time in real-time to avoid forgetting billable hours, often using software.
- Task-based: Time is recorded for direct client services, which can include a variety of activities depending on the industry, such as project planning, research, or legal research.
- Billable vs. Non-billable:
- Billable: Activities that are directly related to a client’s project or case. Examples include meetings, creating deliverables, and research.
- Non-billable: Tasks that support the business but are not directly charged to a client. Examples include handling internal emails, marketing, and general administrative duties.
- Importance for profitability:
- Accurate tracking helps in accurate pricing, resource allocation, and strategic business decisions.
- For a firm to be profitable, it must have a high utilization rate, meaning a significant portion of total work hours are billable.
- Low billable hours can negatively impact employee performance reviews, salary increases, and job security