How do I set up time tracking software for billable hours and project profitability reporting in a design firm?

Here’s a practical way to set up time tracking software so it actually supports billable hours tracking and project profitability reporting in a design firm.

1) Define what you want to measure

Before configuring the software, decide on the core metrics:

• Utilization: how much of team time is billable
• Billable vs. non-billable hours
• Project budget burn: hours spent vs. estimated hours
• Revenue vs. cost by project
• Profit margin by project/client
• Staff capacity and workload

This keeps the setup focused and prevents “time tracking for time tracking’s sake.”

---

2) Set up your firm structure in the software

Create a clean hierarchy so time entries roll up correctly.

Recommended structure

• Clients
  • Projects
    • Tasks / phases
      • Research
      • Concepting
      • Design
      • Revisions
      • Meetings
      • Production
      • QA / handoff

If the software supports it, also add:

• Departments
• Teams
• Locations
• Service lines like branding, UX, motion, print, etc.

---

3) Configure billable and non-billable categories

Set each time entry type clearly.

Billable categories

Examples:

• Client design work
• Strategy sessions billed to client
• Revisions within scope
• Project management if contract allows

Non-billable categories

Examples:

• Internal meetings
• Business development
• Admin
• Training
• Marketing
• PTO

This distinction is essential for utilization and profitability calculations.

---

4) Add labor rates and bill rates

For profitability reporting, you need both cost rates and billing rates.

Cost rate

What an employee costs the firm per hour:

• Salary allocation
• Payroll taxes
• Benefits
• Overhead allocation if you want more accurate profitability

Bill rate

What the client is charged per hour:

• Fixed by role
• Fixed by person
• Variable by project

Example:

• Designer cost rate: $45/hr
• Designer bill rate: $125/hr

Then the software can calculate:

• Gross margin per hour
• Profitability by project
• Unbilled labor value

If your firm uses fixed-fee projects, you still need cost rates to see true margin.

---

5) Set up project budgets and estimates

For each project, input:

• Total fee or contract value
• Estimated hours by role or phase
• Budget per task
• Start/end dates
• Retainer or fixed-fee terms
• Change order tracking

This lets you compare:

• Estimated hours vs actual hours
• Planned margin vs actual margin

For design firms, it helps to budget by phase:

• Discovery: 10 hours
• Concepting: 20 hours
• Revision rounds: 15 hours
• Final production: 8 hours

---

6) Standardize time entry rules

Make it easy and consistent for staff to enter time.

Best practices

• Require same-day or next-day entry
• Use timers plus manual entry
• Require project + task + billable flag
• Set minimum increments, often 0.1 or 0.25 hours
• Allow comments for context
• Make categories simple enough that people actually use them

Example time entry fields

• Employee
• Date
• Client
• Project
• Task/phase
• Billable/non-billable
• Hours
• Notes
• Hourly rate or cost code

The simpler the entry process, the better your data quality.

---

7) Define approval workflows

Set who reviews time and when.

Typical workflow

• Employee logs time daily
• Project manager reviews weekly
• Finance checks for missing or unusual entries
• Billing team approves for invoicing

Add flags for:

• Unsubmitted time
• Over-budget tasks
• Duplicate entries
• Time against closed projects

This prevents billing surprises.

---

8) Connect time tracking to invoicing

If you bill hourly or use time-and-materials projects, integrate time entries directly into invoicing.

Useful setup

• Approved billable hours flow to draft invoices
• Non-billable hours excluded
• Markups handled by service line or rate card
• Retainers track against balances
• Write-offs captured separately

For fixed-fee work, still use time entries to:

• Check profitability
• Spot scope creep
• Improve future estimates

---

9) Build profitability reports

Create recurring reports that management can review weekly or monthly.

Key reports

1. Project profitability report

   • Revenue
   • Labor cost
   • Gross profit
   • Gross margin %
   • Budget vs actual hours

2. Client profitability report

   • Total billed revenue
   • Total hours
   • Margin by client
   • Repeat work trends

3. Staff utilization report

   • Billable hours
   • Non-billable hours
   • Total capacity
   • Utilization %

4. Budget burn report

   • Planned hours
   • Actual hours
   • Remaining hours
   • Forecast over/under

5. Write-off report

   • Unbilled time
   • Discounted time
   • Non-recoverable hours

---

10) Decide how you’ll handle fixed-fee and retainer projects

Design firms often use mixed billing models, so configure the software accordingly.

Fixed-fee projects

Track:

• Contract value
• Actual hours
• Implied hourly rate
• Margin

Retainers

Track:

• Monthly retainer amount
• Hours consumed
• Remaining balance
• Overages billed separately or rolled over

Hybrid projects

Example:

• Discovery billed hourly
• Production fixed-fee
• Extra revisions billed hourly

Your software should support multiple billing rules per project or phase.

---

11) Train the team and enforce usage

Software only works if everyone uses it consistently.

Training topics

• How to start/stop timers
• How to classify time
• What counts as billable
• How to enter notes
• Why accurate time matters

Reinforcement

• Weekly reminders
• Dashboard showing missing time
• Manager accountability
• Monthly review of time accuracy and project performance

---

12) Use the data to improve estimating and margins

After a few months, use actual time data to refine how you sell work.

Look for:

• Which project types run over budget
• Which clients are least profitable
• Which staff roles consume the most hours
• Where scope creep happens
• Which estimates are consistently too low

This turns time tracking into a planning and pricing tool, not just an admin task.

---

Suggested setup checklist

If you want a simple rollout plan:

• Define billable/non-billable categories
• Create client/project/task structure
• Add employee cost rates and bill rates
• Set project budgets and fee types
• Configure time entry rules
• Set approval workflows
• Connect to invoicing/accounting
• Build profitability dashboards
• Train team and launch
• Review reports weekly and refine

---

If you want the most important tip

For a design firm, the biggest mistake is only tracking hours.
You need to track hours + rates + project budgets + actual cost to understand profitability.

If you want, I can also help you with:

1. a recommended software stack for a design agency,
2. a sample workflow for billable time tracking, or
3. a profitability report template you can copy into Excel/Google Sheets.