What counts as billable and what does not?
An hour is billable when it is spent on work inside the scope of a client engagement, whether the engagement is hourly, fixed-fee or retainer. On a retainer, hours inside the scope are billable even though they do not generate a separate invoice, because the fee covers them. Hours beyond the scope are billable in principle and become the servicing gap if never charged.
Non-billable time falls into a few categories, and it is worth tracking them separately rather than as one bucket. Business development on a prospect is an investment; internal meetings are overhead; rework caused by an agency error is a quality cost. Each has a different fix.
- Billable: client deliverables, client meetings, client reporting, approved revisions
- Non-billable, investment: proposals, pitches, discovery calls with prospects
- Non-billable, overhead: internal meetings, admin, timesheets, tool setup
- Non-billable, development: training, conferences, certifications
- Non-billable, quality: rework caused by agency error, unbilled fixes
- Non-billable, marketing: the agency's own content, website, social
What is a healthy split for an agency?
For delivery staff, 70 to 80% billable and 20 to 30% non-billable is the sustainable range. For account managers 55 to 70% billable. Agency-wide, once operations and leadership are included, 60 to 70% is a healthy figure. A delivery person below 60% billable for more than a quarter is either underemployed or misclassifying time.
Within the non-billable share, internal meetings should be under 8% of available hours and admin under 5%. Business development can run higher in a growth phase. A typical monthly breakdown for a specialist with 173.3 available hours:
- Billable client work: 125 hours (72%)
- Internal meetings: 12 hours (7%)
- Admin and timesheets: 7 hours (4%)
- Business development support: 10 hours (6%)
- Training: 6 hours (3%)
- Internal marketing and other: 13 hours (8%)
Why does the classification matter?
Every metric downstream depends on it. Utilization is billable hours over available hours. Realization compares invoiced revenue with billable hours at standard rate. Client profitability charges billable hours to the client at cost. If the team records internal time on client codes, all three metrics improve on paper while the agency's actual margin does not move.
It also sets the rate. A $150 blended rate at 65% utilization means each billable hour has to carry about 0.54 non-billable hours of salary as well as its own. If the true split is 55% billable, the same rate carries 0.82 non-billable hours and the margin the proposal assumed is gone.
Non-billable time is where the agency's future comes from, so the goal is to keep it in the right categories rather than to eliminate it. An agency at 85% billable with no time for proposals or training will have a pipeline problem within two quarters. Verbial records billable and non-billable time against separate categories and reports the split per person and department.
How should agencies track non-billable time?
Give non-billable work the same structure as client work: a handful of named categories, a code for each, and the same daily entry rule. Staff who are asked to log only billable hours will log only billable hours, and the non-billable remainder becomes invisible, which is how 100% utilization figures appear.
Review the non-billable split monthly. Growth in internal meetings is usually a management problem. Growth in rework is a quality problem. Growth in unclassified time means the categories need a refresh.
Worked example
A paid media specialist at a 12-person agency has 173.3 available hours in September. The approved timesheet shows 112 billable hours across four retainer clients, 14 hours of internal meetings, 9 hours of admin, 12 hours supporting two proposals, 6 hours of platform training, 8 hours of paid time off and 12.3 hours on the agency's own case studies. Billable share is 112 ÷ 173.3 × 100 = 64.6%. If PTO is removed from the denominator the figure is 112 ÷ 165.3 = 67.8%. At the $150 blended rate the 112 billable hours are worth $16,800. The specialist's loaded cost is about $7,500 per month, or $43.28 per available hour, so the 61.3 non-billable hours cost $2,653 that the billable hours must cover. Across the 10 delivery staff the agency has 1,733 available hours, of which 1,127 were billable (65.0%) and 606 non-billable, an absorbed cost of about $26,200 for the month.
Questions
Are client meetings billable?
Yes, when they are about the client's work and fall within the engagement. Status calls, briefings and review sessions are delivery time. Meetings about the client held internally, without the client present, are usually non-billable unless the scope explicitly includes internal review time.
Is time on a retainer billable if there is no invoice for the hours?
Yes. The retainer fee is the invoice. Hours inside the scope are billable work that the fee has already paid for, and they count toward utilization. Only hours beyond the scope that the agency chooses not to charge are lost, and those belong in the servicing gap.
Should agencies pay staff for non-billable time?
Salaried staff are paid for available hours, so non-billable time is already paid for. The question is whether the billing rate and utilization target were set with that in mind. An agency that prices as if 90% of paid time were billable will lose money at any realistic split.