Friday, April 29, 2016

New Video: Maximizing Billability

What is billability? How do you calculate it? More importantly, how do you maximize it? There are many types of labor within your business. Some are good and some are bad. To figure out the difference, you need to track it all very carefully.

Billability is the measure of hours billed. If you're break/fix this is pretty straight forward.

But with managed services, you have to track several different kinds of labor. But that I mean tracking the activities of you technicians. In a managed service business, billability refers to the labor is is productive in support of a managed service contract.

Basic types of labor include:
- Covered Labor
- Billable Labor
- Overhead Labor
- Rework
- Unproductive Labor

Covered labor means productive labor (not rework) that fulfills the promises of your flat fee contracts. Generally speaking this is "maintenance" and no additional invoice is sent.

Billable here means that this is work for which an additional invoice will be sent. Most commonly this will be project labor or adds/moves/changes.

Overhead labor refers to all the other legitimate time for which you will pay employees but not bill clients. This includes training, meetings, drive time, checking email, etc. There are things you just need to do to run a business.

Rework and Unproductive Labor should be VERY small or non-existent.

You can make an argument that overhead is necessary and is simply part of the cost or running a business - like paying the rent or electrical bill. You need to measure it and put limits on it. But you have to accept that overhead labor cannot be zero.

Rework and unproductive labor CAN be zero and should be as close to that as possible.

We all have perceptions about where these numbers are in our business. But most people are too optimistic and over-state the billability of themselves and their technicians. It is critical to measure this because labor is expensive!

If you get this wrong, then your time estimates will be wrong, your job estimates will be wrong, and you will make a lot less money. In fact, you might lose money if you don't know how much you're wasting.

Feedback welcome.


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