Every agency eventually has the same four arguments. They are worth having once, properly, and then writing down — because the cost of leaving them unsettled is not the arguments. It is that your billable percentage ends up measuring how each person interprets the question rather than what anybody did.
The four arguments
Travel time. Two hours on a train to a client workshop. Billable, half billable, or the cost of doing business? All three are defensible positions. What is not defensible is one account manager billing it and another not.
Internal meetings about a client. A resourcing conversation, a creative review with nobody from the client present, the twenty minutes explaining the brief to a new starter. This is real work, caused entirely by that client, and it will not appear on any invoice.
Rework caused by your own mistake. You built the wrong thing because you misread the brief. The hours were spent. Most agencies write them off, and most do it invisibly, which is why they never learn how much their own errors cost.
The quick question that took forty minutes. The most expensive category in any agency, because it is small enough each time that nobody logs it and frequent enough that it adds up to a person.
The answers matter less than picking one
There is no correct set of answers, and agencies that spend a long time seeking one are usually avoiding the easier and more useful step of just deciding.
What actually matters:
- Everyone applies the same rule. Otherwise cross-project comparisons are meaningless and so is every trend.
- The rule is written down where a new starter will find it in week one.
- The rule does not change mid-year, because that breaks your own history.
Pick the answers that suit how you sell. If you quote fixed fees, treating internal time as non-billable but tracked is the most informative option. If you bill hourly and your contracts allow it, billing travel at half rate is common and clients rarely object when it is stated up front.
Track non-billable properly, or you learn nothing
The most damaging habit is treating non-billable as a residue — the stuff that was not billable, lumped into one bucket, never examined.
Non-billable time is where an agency's real cost structure lives. Split it into categories you would actually act on. Something like:
- New business — pitching, proposals, discovery calls
- Internal delivery — resourcing, reviews, project admin
- Company — all-hands, recruitment, line management, reviews
- Development — training, learning, R&D
- Rework — work redone at your own cost
That last one is the uncomfortable one and the reason to do this at all. An agency that tracks rework separately finds out within a quarter whether its briefing process is the problem. An agency that folds rework into "internal delivery" never finds out at all, and instead has an annual conversation about whether everyone is working hard enough.
What a healthy split looks like
At the 65–80% utilization that is normal for professional services, non-billable is a fifth to a third of everything your agency does. That is not waste. It is new business, quality control, and the reason anyone stays.
The signals worth watching are proportional rather than absolute:
- New business above about 15% of total time with flat revenue means you are pitching for work you are not winning. Look at your qualification, not your effort.
- Rework above 5% is a briefing or approvals problem and it is fixable, usually cheaply.
- Company time creeping up as you grow is normal and is the actual cost of management. It is worth knowing the number so you can price it in rather than discovering it as margin compression.
One thing not to do
Do not set a billable-hours target per person and manage to it.
It works, in the narrow sense that the number goes up. It works by discouraging exactly the non-billable work that keeps the agency functioning — the review that catches the mistake, the half hour helping someone else, the pitch that lands next quarter. You will get your 80%, and you will pay for it somewhere that does not show up on this report.
Measure it at the agency level, look at the distribution, and use it to make resourcing decisions. That is what the number is good for.