I love discussing and debating the intricacies of services strategy within product companies. However, the most popular blog entry I’ve written to date is the one that defines a standard method for calculating utilization for delivery staff. It has generated several comments and questions—a majority made directly to me. A question that came in last week concerns hours that are billed to a customer but not successfully charged. The question had two parts:
- Where should hours that were billed but not charged be categorized using the schema provided in calculating utilization?
- What is a reasonable target for the number of hours billed but not charged?
Let’s explore both of these questions.
Categorizing Hours not Charged
Previously, I provided the table below to define the common buckets PS organizations can use to track how delivery staff use their time.
But what happens when hours are billed to a customer but they are not successfully charged? Should those hours be tracked in the “billable utilization” bucket or somewhere else? My recommendation is that these hours should not end up in the billable utilization bucket. My logic is simple: the hours were never billed. How can you understand the true financial health of your services business if your billable utilization number is inflated by a bunch of hours you never actually billed?
However, I do believe your delivery consultants should get credit for these hours. They should be classified as “productive utilization.” Specifically, you can track these hours in the non-billed “customer project” category as shown below.
How big is the non-billed bucket?
The second question from the reader concerns the amount of hours that typically are billed but not successfully charged. How big is that bucket for PS organizations? We benchmark several aspects of utilization including:
- The percentage of time billed
- The percentage of time spent on non-billed pre-sales hours
- The percentage of time spent on non-billed training hours
However, we do not benchmark the percentage of hours billed but not charged. To help provide a rough answer to this second question, we need the readership to lend a hand. Please take a moment to answer the poll question below. Your peer appreciates the guidance.
Tags: billed but not charged