I love time-tracking. I started my business in 2017 with an eight-month-old baby at home. And I basically only could work during nap time, if there was a nap time that day. So I had to be really efficient and make sure that I was getting the most value out of the precious time that I had.
In this post, you’ll learn three important things:
- Why time-tracking matters for your business
- How to set up a tracking system
- Important numbers you need to know about your business.
Why do I need to track my work time?
Why is time tracking so important? It can be kind of difficult to set up and tedious to remember to do it. So why bother in the first place?
Time is the ultimate limiting factor for your revenue. You can always raise your rates and earn more money, but you can never get back time that you have spent. Once it’s gone, it’s gone. And so I like to tell people to set up a time budget, just like you would set up a budget for money. The first step in putting together your time budget is figuring out how much you have and what you’re spending it on.Time is the ultimate limiting factor for your revenue. You can always raise your rates and earn more money, but you can never get back time that you have spent. Click To Tweet
Three things time tracking helps you do
Tracking your time helps you estimate project fees more accurately because you have an idea of how long a previous project of a similar scope took you. When you know how long a project is likely to take you, you’re less prone to undercharging. (Not that the time you spend should be the only or even the main deciding factor for your pricing, but that’s a slightly different blog post.)
Time tracking also helps you predict your availability better. When you can accurately gauge how long a project is going to take you, you will have fewer instances where you overbook because you thought this project was going to take ten hours and it’s actually taking you twenty. You will also be able to better avoid the opposite problem where you think a project will take ten hours but it only takes you five. And then you’re just twiddling my thumbs because you didn’t book another project. When you track your project time accurately, you will have a better idea of how to scope your own availability.
And finally, time tracking shows you how much you really need to be charging because not only should you track your project time, you also need to track all the time you spend on your business: the marketing, the sales, the onboarding, and offboarding, the business development, the education.
Where does the time (and money!) go?!
Let’s look at an example of what happens to the money that you make. So let’s say you spent 40 hours on various projects this month and you billed those hours at $50 an hour, which is $2,000. Pretty good, right?
Then you have to take off your monthly expenses. So that’s your Gsuite, your Adobe Creative Cloud, your web hosting, all of those recurring business expenses that you have. Let’s assume that averages out to $200 a month. Okay. So that’s $1,800 left, not bad.
But then you have to pay taxes too. Obviously consult a tax professional for your tax responsibility, but let’s use 25% as a ballpark, so that’s $450 off. And so now you’re left with $1350.
If you take that $1,350 and divide it by the 40 hours that you spent on those projects, that’s $33.75 an hour, which is pretty respectable. But you probably didn’t just spend 40 hours working on projects. You probably spent time on marketing your services, doing bookkeeping and accounting, maybe developing a new product or service line.
And so let’s take another 40 hours of un-billable time spent on all of these peripheral tasks that you have to do for your business. And that’s not an exaggeration. Most of the business owners I’ve talked to spend about a 50/50 split between billable and non-billable.
So you’re at $1,350, and instead of 40 hours, you’re actually splitting it over 80 hours. And suddenly you’re only netting $16.88 an hour. It’s still the same amount of money. But when you look at the hourly rate…well, it’s better than minimum wage but not by much.
If you’re working for yourself, I assume that you want to be making a better hourly rate than what you might in a salaried position. And so learning where your un-billable time goes will help you determine how to price yourself appropriately.
How do I track my time?
It can be very simple to start tracking your time: you just download a time tracking app and start recording everything that you are doing. I find it easier to have a bit of a system in place before I start tracking so that I already have labels and categories for all of the different things that I’m doing.
List your service types.
The first thing you need to do is list your different services. The reason we do this is to have an idea of which services are the most profitable, because you can correlate the time spent with the income generated by a particular project or service type. You can start to understand which services are the most profitable, or which ones have the highest hourly rate for you. You don’t have to limit yourself to the most profitable services that you have in your business, but it’s helpful information to know which one is going to give you the most bang for your time.
For example, a photographer might have:
- One-off family session
- Maternity + milestone package
- Senior session
A graphic designer might have:
- Social media branded images
- Website graphics
A consultant in any field might have:
- Full-service package
- Done-with-you system setup and planning
- One-off consultation
List your un-billable activities.
The next thing you want to do is list all your other business activities. This is very important because the time you spend on these other activities related to your business is time that you could be earning money. You need to know how much time you’re spending on all of these other areas. These activities can be sorted into six broad categories.
- Marketing: anything you do to get your business in front of people (e.g. social media, email newsletter, going on a podcast, running a webinar)
- Sales: anything you do to book a project (sales call or emailing back and forth with a potential client, scoping their project, writing their proposal)
- Onboarding and offboarding*: anything to start off or wrap up a project (kickoff or send-off meetings, setting up project management software for each client, invoicing, creating a user manual)
- Operations: general business stuff that you have to do in order to keep running (accounting and bookkeeping, keeping your website updated, managing subcontractors. setting up new systems and tools)
- Business development: activities that help you grow your business (professional education, going to conferences, networking, developing a new product or service line)
*I now track onboarding/offboarding tasks under the Service category since those are attached to billed projects. You can keep a separate category for onboarding/offboarding or client care if you wish.
How do I set up a time tracking app?
To actually track my time, I use an app called Timeular, and you can also get a fun little time tracking device to go with it. You can use the app on its own for free, and that’s what I’m going to show you how to do. You can download the basic Timeular app here.
Here’s a video tutorial on how I set up Timeular using the categories I created in the previous step.
What time tracking statistics are the most important?
I will tag a project and everything I do in that project goes under that tag, and I can see how long that project took me. I also like to break down sub-tags for different phases of the project so that I know what each different phase took and estimate future projects.
I also like to look at my data by client and see how much time have I spent with that client each month or week or quarter. That kind of helps me know which clients are good to work with and which relationships are particularly worth cultivating. I give all my clients the same level of customer service, because that’s just how I run my business. But it’s useful to know which clients have really invested in my services.
Billable time vs. Un-billable time
I also keep track of my total billable time, my total work time, and the ratio of those two things. For most business owners that I’ve talked to, it is very hard to get significantly above 50% billable time. Most of them will spend half of their time doing the work that they love and get paid for and get excited about, and half of their time on the less glamorous running of the business part. I found that the more I can nudge that billable percentage up, the happier I am. One, because I’m getting paid for more of my time. And two, I’m spending less of my time on some of the inevitable drudge work of running a business
Income per hour by project type
When I start factoring in my income, I will look and see that maybe I had three course projects this quarter. How much money did I make from those three course projects? And then I go look at my time and see that I spent 35 hours on these course projects. Then I can calculate an hourly rate per project type.
That’s really useful for me to see which projects tend to be the most profitable. It doesn’t mean I can only do those, but it’s just useful to know where things sit with that.
How do I use time tracking to make more money?
As you calculate all these different rates and totals, you might find yourself wanting to increase your hourly rate, which I really support and encourage you to work towards.
There’s three ways that you can do that because it’s a fraction. Your hourly rate is your amount of money earned divided by the time it takes to earn it. To increase that rate, you can either increase the amount of money that you earn, you can decrease the total work time, or you can spend more time on billable work and less time on non-billable work. This means that you would get paid for more of the time that you spend working in or on your business.
Increasing your hourly rate
There are simple and potentially inexpensive ways to improve that ratio of billable to non-billable time. For starters, it will happen fairly naturally over time as you get better at what you’re doing, and you burn less time on some of the processes. But you can also consider investing in tools to help you automate some of your processes. Rather than spending an hour emailing back and forth with the client to schedule an appointment, you invest in something like Calendly that just lets them click on a link and pick a time that works for them. And there you go. You’ve saved yourself an hour.
Or instead of you having to remember and then make time to manually send a proposal and then a contract and then an invoice, you kind of have a business management software like Dubsado that does all those steps in sequence for you.Consider investing in tools to help you automate some of your processes. Click To Tweet
The other way that you can improve your billable to non-billable time ratio is to outsource. Have somebody else help you with your marketing or updating your website. You can pay somebody else to do the things that you are not a specialist in. And I know it can be very scary to think about spending that kind of money on your business, but here’s an important thing to remember: software costs and money that you pay to contractors are deductible as business expenses. Your time spent on non-billable work is not deductible. It’s just burned time that you could be earning more money.
When I thought about it that way, that really kind of helped me wrap my head around how spending $10 a month for a tool that saves me several hours of time is a pretty good deal. Especially when I can charge $175 an hour, spending $10 a month to save me even half an hour of time is well worth it.
Don’t be afraid to look for ways to make your business more efficient. You will have more energy for creating the work that you care about. You will have more time to create the work that you care about. And it can be a really good investment.Don't be afraid to look for ways to make your business more efficient. You will have more energy and time for creating the work that you care about. Click To Tweet
Raising your rates
The other thing to do as you track your time is to look at your pricing. Are you accounting properly for the time you spend updating your website, posting on social media, responding to email, delivering good customer service? (Because the real difference between someone who’s freelancing as a hobby or side gig and someone who’s a business owner is the level of customer service.) If you need help figuring our your pricing, get on the waitlist for my course Hope You Get Rich.
Time tracking can be a really powerful tool to help you make decisions about your business. I always believe in having numbers and data and facts to inform your business decisions, rather than fear. I know it’s very easy to make decisions based on fear, but when you get some evidence and data instead, you can really help your business grow quickly.