Billing Your Clients: Should You Charge by the Hour or per Project?

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The decision about how you should be billing your clients is an important one. This is true for many business areas, such as IT, design, and architecture.

There are two common approaches: billing by the hour or billing a flat rate for each project. Each option has its benefits and its drawbacks. Let’s try to figure out which approach is best for your situation.

 

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Billing by the Hour

Hourly rates are the most transparent way of billing. Your clients can be sure that you are not overcharging them. Moreover, they will be assured that you’re not billing them for time your workers spend on Reddit. That’s because time tracking software makes every bit of work traceable. So when clients have questions, you can show the in detail what you were doing all that time.

With this method, managers can count and bill every minute workers spend on a client’s project. Therefore, emails, phone calls, and any changes to the work brought about by clients’ modifications of their requirements will end up appearing in the invoice.

Importantly, hourly billing decreases your risks in case the work takes longer than you first estimated. However, your reputation is at stake as well. With an inaccurate estimate, you could have a dissatisfied client.

However, the most important drawback to billing by the hour is that you’ll have too many details. Many clients prefer to know only the overall figure, not what you had to do to arrive at it.

Another drawback is that you might have a more productive team than your competitors. In this case, you might end up with less income for the same amount of work, just because it takes you fewer hours.

And finally, it is difficult to explain hourly rates that are higher than average. That’s because you might have a hard time proving that your team performs better than your competitors.

 

Flat Rate per Project

The main benefit of this billing method is that it gives clients more certainty about the total cost of the project. For instance, if you tell a client that you’ll do the project for $4,000 and your competitor’s rate is $40 per hour for the same work, it can be difficult for the client to understand which offer is better for them. However, the flat rate is a perfectly understandable scale.

One of the drawbacks of this method is the risk of spending more time than you planned. And even if you include risks in the cost of the contract, there’s still a possibility that you won’t bill for all of the time you spend a project because of poor time tracking.

Additionally, a fixed rate billing method is not transparent. Some clients, such as official governmental bodies, need a detailed report of all performed work.

But the biggest drawback is that a flat rate often seems unreasonable or unaffordable. There is a chance that a customer prefers an offer from your competitor that has clear hourly rates. So make sure to do some market research before you bid on a project. You need to know the common billing method in your area.

 

Is It Possible to Combine Both Methods?

Actually, a combination of both is what many companies choose. They combine a fixed rate for simplicity and detailed time reports for better transparency. A popular approach is to give the client an estimate of planned work and an approximate total cost.

But make sure to estimate as accurately as possible. You could lose money if your bid is too low and you have to end up doing the work for less than it’s worth. But if your bid is too high, you might not get the job.

 

Summary

The choice of client billing method depends on the nature of your business. Think about what will bring more value in the current market situation. And finally, consider what will positively influence your relationships with your clients as well as what method will best motivate your team.

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source http://www.business-opportunities.biz/2018/10/23/billing-clients-hour-project/