At Parakeeto, we are very particular about the language we use, and this is a great example. What is a Delivery Hour, and how does it relate to a Billable Hour?

First, let’s talk about each individual term and how we think about them.

• We generally consider a Delivery Hour to be any time your team spends on client work, from the moment a client signs through to completion of all services. Simply put, if your team wouldn’t be doing a task if it weren’t for this client, it is a Delivery Hour.
• Also generally speaking, we’d consider the time that you bill clients for client work to be a Billable Hour.

There are nuances and edge cases to both of the above terms, and it’s not always so black and white. But, the majority of the time this is how we think about the distiction between the two.

You’re probably noticing the difference right out of the gate. A Billable Hour is simply the time spent on delivery work that is actually billed to the client.

Why is this distinction important?

****Distinguishing between Delivery Hours and Billable Hours is critical to properly measuring your earning efficiency. Getting this wrong can give you wildly inaccurate Average Billable Rates (ABR).

Let’s go through an example:

You are doing a T&M contract for a client at a Billable Rate of $150/hr. You spend 200 hours completing the work for the client (Delivery Hours), but only bill the client for 150 of those (Billable Hours). The Agency Gross Income (AGI) for this project is: 150 hours x $150 = $22,500. Your Average Billable Rate (ABR) for this project is $22,500 (AGI) / 200 (Delivery Hours) = $112.50/hr.

Now consider a different scenario:

You bill the same project as a fixed price contract. This time, you only spend 100 hours to complete the deliverables, but still bill the client for 150 hours because that’s what you told the client it would take at the start. In that case, the AGI is still 150 hours x $150 = $22,500. But the ABR this time is $22,500 / 100 = $225/hr.

**ℹ️** If you have any other questions on the topic, please don’t hesitate to reach out to your Parakeeto Account Manager so they’re able to give you the clarity you need!