How can professional service companies benefit from time and client tracking?
Time and client tracking are becoming some of the most prominent practices in business. Implementing them the proper way can help service companies track their current and historic progress. It can also provide information that allows higher-ups to make informed decisions about the companies next steps, ranging from small adjustments to solving underlying problems on the company level.
Time Analytics assesses professional service firm progress by calculating key performance indicators. KPIs are quantitative measurements for different aspects of all businesses. Analyzing them can help the management resolve problems and make positive changes to the way their teams function combined with profit and loss accounts. The changes can be conducted through identifying top and low performers both among employees and clients, reducing the need for overtime by redistributing tasks, reconfiguring the workflow, and in many more ways.
Another benefit of time tracking is evening out the playing field among your staff, as the practice makes the work they do transparent. No one will feel under-appreciated or left out, and their efforts will be more even and in accordance with their capabilities.
Which elements of your work can you track?
Time tracking per employee
Time tracking per employee brings many benefits. It is one of the most important elements of time tracking. The positive influence it brings includes:
- Understanding your employees’ work rhythm and knowing whether they are using the entirety of their work time
- An insight into their effectiveness
- Identifying unproductive behaviors and most common distractors
- Discovering who are the top performers and slackers within your teams
- Tracking overtime, vacation, sick time, and other important indicators
- Time utilization overview
Time tracking per task
This practice shows both the current and historical state of your business as well as potential changes you can make to improve. Additionally, understanding the time a specific task takes to complete will help you assess the time your future projects will take.
Tracking time per task can also point out organizational oversights you’ve made, as well as problems with task delegation. Finally, you will be able to see whether a certain type of task takes up too much time and effort and should be outsourced.
Time tracking per client
Knowing the ins and outs of your company’s workflow and task structure is very important. However, it isn’t enough to reach your full potential. Your profit and success don’t depend exclusively on your own work. Each professional service company depends on its collaboration with its clients. Hence, understanding them and their demands can help you improve the way you conduct your business.
Client Tracking brings answers to the following questions:
- What profit is coming from which client?
- Who are the top and low-performing clients you take on?
- Should your company change contractual terms, fees, or the cooperation model you’re currently using?
- Should you terminate your collaboration with the lowest-performing clients?
- Which changes should you make in the future offers?
Tracking time per project or service line
This type of time tracking will give you an accurate insight into the efficiency and profitability of your business on a project level. It is important to know what profit margin is coming from your primary services, and how much you’re making from other services. It is also important to know the percentage of non-billable hours and the tasks that take them up. Finally, you’ll be able to differentiate the time going into all these types of tasks.
The basics of time tracking
Convenient time tracking
The simplicity of time tracking systems is one of the most important qualities companies striving to measure productivity accurately should look for. There are many time tracking software solutions out there, and their complexity varies immensely. The time tracking process varies from starting an automatic timer to filling timesheets to complex platforms that offer a great amount of data.
The simplest solutions include an easy clock-in/clock-out system, which only offers the most basic date. On the other hand, complex platforms can take a lot of time to complete the timesheet tracking process. Additionally, these more sophisticated systems can be cumbersome to set up initially as they require specific customization on the team or even individual level.
You should look for a solution that is both simple to use and still give you enough data to propel your business forward.
How intensely should you track?
As we have mentioned, there are many ways to track time. The process can vary from simply counting the time tasks take to intense monitoring that includes mouse and keyboard activity tracking, logging the websites and applications employees use, as well as taking screenshots of their computers.
The latter option indicates distrust and a high level of micromanagement. It is difficult to achieve a positive work environment in these circumstances. Additionally, the screenshot method opposes the GDPR in some countries. In other words, a trust-based solution may not be as precise, but it will give you accurate insights without implying you need to monitor your employees’ every move.
Defining billable rates
Determining the planned and realistic billable rates is a crucial part of remaining profitable. The planned billable rate is the one you calculate before you start working on the project. In contrast, you can only calculate the realistic billable rate is only possible once the project is finished and invoiced. Comparing these two values gives you the profitability data you need.
Time tracking software can account for an employee’s default billable rate while they’re tracking time dedicated to a specific project. Additionally, you can authorize the employees to enter their rates into the system too. Finally, there is the option of using a billable hours chart, which will simplify the process as well.
After the project is completed, you can calculate the realistic billable rate. This is done by dividing the total profit coming from a project by the real billable hours per employee invested in that project.
Managing cost rates
Cost rates contain the employee billable rates, which are based on employee salaries and direct expenses, and the hourly rate based on general expenses. Time tracking software can automatically account for the defined cost rates and calculate the cost prices per client or project.
A high-quality timesheet is a feature any time tracking tool for professional service businesses should have. Some countries made this document a mandatory addition to the payroll as well.
Professional services timesheet is crucial when it comes to confirming work hours, tracking breaks, overtime, different types of leaves, and other factors. You don’t have to create a timesheet from scratch, as there are many timesheet templates and models available online. Yet, make sure your full-time equivalent timesheet contains the following elements:
- Activities performed per client
- Performed work details
- The total sum of spent hours
- Form of billable vs non-billable hours
- Billing rate per hour
Time tracking and observations
You can only reach time tracking’s full potential if you utilize the data you collect. Otherwise, you can only monitor your employees, which isn’t the main purpose of these platforms. Receiving and analyzing detailed high-quality reports with time audit process leads to better business decisions in the long term.
Time analytics offers a comprehensible dashboard and detailed analytics per employee, task, project or service line, and client. It shows real-time data and accumulative reports and covers billable hours and non-billable hours, as well as total work hours, expenses, etc.
Invoicing and time tracking
Time tracking systems can help you avoid misunderstandings and miscalculations when it comes to billing your clients. Your invoices will be transparent, itemized, and based on data coming from timesheets and overviews of data the system has accumulated.
Tracking costs is necessary to calculate profitability and efficiency indicators by individual clients or projects. You can’t come to these values if you don’t track costs per work hour.
How to track costs per client and project
A time and expense tracking platform should account for the price of a work hour. The calculation should include all direct and indirect costs and allocate them per project automatically. The platform will determine the cost rates for each employee. This rate is the sum of the pay rate and the overhead cost rate.
You can calculate the pay rate by dividing the total gross salary by the average monthly number of working hours. So, if the total gross salary is $1500 and the number of hours is 150, you’ll end up with a pay rate of $10. However, you need to include the overhead rate into the calculation for a more accurate expense estimate.
The total overhead expenses include office space lease, office material, utilities, phone and utility bills, etc. you should add these costs up and divide the sum by the number of employees and the number of monthly work hours. So, if the total monthly overhead expenses come up to $7500, and the company has 10 employees, the monthly expenses per employee will be $750. Now, divide that number by the number of work hours (150), and you’ll come up with the hourly overhead rate of $5.
Now you can add these two values and calculate the total hourly cost rate. In this case, it is $15. You can enter this rate into the program, and it will allocate the costs automatically. The allocation is based on the clients and projects the employee is spending their time on based on professional services timesheet data.
Now you can see how much every action, project, and client costs your firm. The calculation is done through the platform, as well as the allocation.
A list of essential KPIs that professional service firms should track
The average billable rate at the company level
This KPI represents the average amount your company makes for the service you provide to your clients. It is important to compare it to the planned (expected) billable rate. This is a good way to track expected profit and make sure you are staying on the planned path.
Billable rate on the employee level
This metric is important if you want to know who your top performers are and assess your workforce accurately. It indicates the money you receive from a client for a specific employee.
Tracking the monthly realistic billable rate and comparing it to the total cost rate is important to make sure you’re remaining profitable.
Costs per project and/or client
This indicator illustrates the total expenses your company allocates to a specific project or client. Client tracking is necessary for determining this value, as you need to know how much time each project/client took up to calculate expenses. Then, expenses data will enable you you know how much profit each client is making you.
An additional benefit of time tracking per project and client tracking is that it will enable you to budget your costs and revenue more accurately for the next budgeting cycle.
Time utilization shows how many of the total work hours are taken up by billable or non-billable hours. This way, the management can know how much time their employees invest into making the company money, and how much are the non-billable activities taking up.
Billable rate on the project or service line level
This KPI is valuable as it shows whether your profits are making your company a profit or not. Understanding this will make defining rates for future projects simpler.
It is calculated by dividing the total revenue you got from a project or service line by the total number of hours your employees invested in that project.
Billable rate on the client level
This metric informs you about the average billing rate coming from each of your clients. You can calculate it by dividing the total income coming from a client by the number of hours invested into the said client.
Billing rate utilization
This indicator represents the difference between the profit you’ve planned and the one you’ve realized.
Structure of work tasks
Understanding the place of each task within your team’s workflow and being acquainted with the time it takes to complete can help you adjust your work organization to increase efficiency.
Even though overtime is becoming very common in all industries, it isn’t a popular practice. Moreover, you should strive to bring it down to the bare minimum. However, there are two types of reasons for overtime. The first regards the increase in the job’s demands. In this case, if the increase is a temporary affair, you should transfer a team member to the project. If the increased demands seem to be the new normal, you should hire more team members. On the other hand, overtime can stem from unproductive work practices. If that is the case, you should talk to the managers and team members to determine the optimum solution for the problem. Different productivity tools and reorganizing the workflow are just some of the ways you can resolve this issue.
While time tracking is becoming a commonplace practice, you should still take some time to learn about all of time tracking benefits for the best results.
Using a time tracking platform to micromanage your employees and find reasons to penalize them, the benefits will be minimal. However, if you learn how to use the reports and KPIs to your advantage, you will be able to unlock your team’s full potential. A time tracking platform should be seen as a long-term investment.
Time Analytics offers a user-friendly interface that collects enough data to produce powerful reports that can propel your professional service company forward and ahead of the competition. It can guide the management in solving underlying problems while increasing transparency on all organization levels.
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