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From The Blog

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The Billable Hour: How It Started and Where We Are Today

Many service-based businesses rely on the concept of the “billable hour” to calculate a rate for their services. While often associated with the legal profession, the billable hour can be a great fit for all kinds of professional services organizations (PSOs) and agencies. Let’s take a look back at the origins of this concept and how it comes into play in the contemporary business landscape.

The Billable Hour – The Key to Increased Income

The origins of the modern billable hour can be traced to Reginald Heber Smith, a lawyer and managing partner of Boston firm Hale and Dorr for more than 30 years.

Smith is best known as one of the key voices responsible for the development of the modern Legal Aid movement and is the author of “Justice and the Poor,” in which he put forward the concept that legal services should be available to everyone, regardless of ability to pay.

As a direct result of this book, the American Bar Association created the Special Committee on Legal aid work, beginning an era of increased access to services for those previously unable to afford them.

During his time at Hale and Dorr, Smith introduced many sweeping changes to the organization that would spread amongst the profession, including budgets, timesheets and – you guessed it – the billable hour.

William G. Ross, in his book “The Honest Hour: The Ethics of Time Based Billing by Attorneys,” revealed that billable hours became popular in the 1950s when multiple studies revealed that attorneys who tracked their time usage earned more net than the gross income of those who did not.

The Billable Hour Gets Creative

David Oglivy, who many suggest is the inspiration for Mad Men’s Don Draper, claimed to have been the first person to extend the concept of the billable hour beyond the legal and accounting worlds.

The system dovetailed nicely into the world of creative and marketing agencies whose team members often worked long hours making multiple revisions to projects based on a client’s input.

The billable hours system allows for equitable payment to be calculated for projects whose time and resource requirements are subject to constant change.

Underlying Smith’s innovation is the idea that by effectively managing time, it’s possible for an organization to optimize its work and provide the best quality service to all clients regardless of the size of the job.

Modern Challenges: Accurately Capturing Time

The secret to employing a billable hour system effectively lies in another of Smith’s introductions to Hale and Dorr: the paper time sheet. The concept of the timesheet has historical origins – daily wages broken down by profession are even included in the code of Hammurabi, written in 1772 BC!

But today’s organizations need a better, more efficient means of capturing billable hours. Ensuring that every employee’s hours are accurately reported on each project provides details and insight that, in turn, ensure rates are in line with the time and expenses put into each project.

With a business management platform that captures both time and expenses, the entire process can be seamless and take the mystery — and headache — out of time capture and tracking.

In a survey conducted two years ago, marketing, IT, web development and design were found to be the leading users of time tracking software – industries most accustomed to working with detailed reporting and analytics.

Linked time and expense tracking systems like those built into Vorex’s business management platform make corralling your data easy so you can gather insight into how well your hourly rates are working, as well as company margins. Add integration with billing and invoicing and you’ve got a complete system for taking Smith’s innovation to the next level.

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Reviews and Testimonials

Vorex has proven to be the simple, yet effective business management solution our software consulting firm needs to grow … Featuring a built-in CRM. And, with a robust set of time and billing features, Vorex has delivered simplicity without compromising our functionality.
Sally Kindsfater of Total Stream Systems
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