Billing for time can broadly be broken down into two major categories:

1. Fixed charges; and
2. Charges against a rate over time.

Which billing structure works best for a business will depend on the nature of the work being done.

What are Our Options When It Comes to Billing Clients?

In the end, it may well turn out that a mixture of fixed pricing and time-based billing is the best way to encompass the value of your services. What is most important in that case is clear communication.

Billing By Fixed Fees/Items

Fixed price billing is simply this; you and your clientagree on a set price for the service/project you are to work on beforehand witha clear idea of the scope/expectations of your work. Payment dates will also beagreed upon beforehand; whether that be paid in advance, after completion, orsome split payment combination of both.

Benefits

The first thing fixedbilling provides is clarity in terms of income – you will knowthe value of your work before performing it and will therefore have an easiertime calculating profitability early and staying ahead of managing expenses.

If you are using materials or other expenses which arespecific to the given project you are working on, fixed fees let you betteraccount for those material expenses in your billing – you can communicatethose material costs clearly to your client and make sure that you have coveredthem in the bill.

Working within a project’s budget can beeasier with fixed fees – you and your client can more easily trackexpenditure against the budget as they will have more clarity on what you arecharging before the invoicing stage.

Limitations

Fixed fees can offer a less accurate reflection of thevalue of your work effort. When you are using a fixed fee billingstructure, you are essentially guessing when it comes to the time/effort thatproject will take to complete. Unique circumstances from job to job will resultin differing time resource requirements, which will not be reflectedin your pricing. You may inadvertently overcharge or undercharge yourclient because of this.

The value of highly skilled workers is in their time,which is not reflected in a fixed fee billing structure. For example, ifyou are providing legal or accounting expertise, one of the best measurementsof value for that kind of work is the amount of time you need to spendproviding that expertise. As time requirements will be unique from one projectto another, it becomes more difficult to accurately assess the value of skilledprofessional work in a fixed fee context.

What Kind of Work/Industries is a Fixed Fee Structure Best Suited to?

Trades work, like that of plumbers/electricians/buildersis often suited to a fixed fee focussed billing structure. While the skillsetsare highly necessary and valuable to the work, trades industries will ofteninvolve the same tasks being repeated in different situations. This lets tradespeoplehave a highly accurate understanding of their time requirements for a givenjob, which reduces the need for time billing, and the nature of trades workinvolves a certain amount of material cost which needs to be passed on to theconsumer.

Projects involving mostly materialcosts will make more sense for a fixed fee billing structure. If thetime worked is incidental to where the value of the industry is, such as inretail industries where the value of the business is primarily in the goodsbeing sold, then fixed pricing is the way to go.

Shipping/transport/industries where the value is notin the time of the worker or time taken to complete work is always similar/thesame. These types of industries will also find that their operating costs areaffected by what is being transported rather than the workers performing thetransportation.

Billing By Time

Billing by time is taking the amount of time you work againsta client, assigning a price per unit of that time (whether that be price perminute, per hour, per day etc) then charging your client accordingly. Whetheryou charge a flat price for your time or differentiate between the relativevalues of different tasks/work being performed and charge a rate dependant onthe job you are doing will depend on the nature of your work.

Benefits

Timebilling can be the most accurate assessment of the value of yourwork. Because you are billing according to work hours performed, you willbe able to structure your pricing to make sure you are in line with youroverall income expectations. The income created by your work will be reflectiveof your effort/commitment, and as such an increased workload will result inincreased revenue, which is not necessarily the case for fixed billing.

Highly skilled work is best reflected in the time valueof the worker. If your business is in the professional services sector, youwill find the value of your service is provided through the amount of time youspend on a given client. In that way, time billing allows you to best accountfor the value of your skillset in your pricing structure. In a very real sense,your time as an expert is what you are selling.

Time billing can provide clearer communication to clientsabout the charges they receive. You can offer your client absolute clarityon your invoice, as they will be able to clearly see exactly how much workeffort has been involved in making their project flow smoothly.

Time tracking provides benefits in addition to the billing aspect.Using time tracking is necessary for operating a time billing structure, butprovides benefits in the data it creates, which can be used to improveproductivity, decrease admin requirements, and help identify areas whereprofitability could be improved.

Limitations

If you have material costs to pass on to the customer,you will need to include fixed pricing to account for them. There is notreally a straightforward way to get around this, which means you will end upwith a sort of hybrid of fixed price billing and time billings. This is not abig issue if your invoices are clear and easy to read for you clients but mightget some pushback from clients who feel that material costs should be includedin the value of your work.

Recording your time for time billing is an increase inyour workload. The nature of time billing makes time tracking/recording anecessity and doing so requires additions to your normal workflow. You canmitigate the additional workload by utilising time tracking software to makethe process faster and more useful to you outside of billing.

What Kind of Work is Billing by Time Best Suited to?

Professional services industries like Accounting/Law/Bookkeeping, wherethe worker’s expertise is the commodity being sold, are the best fit for timebilling. A time billing structure allows specialist workers to base theirbilling around the value of their work time to the client. Running a fixed feestructure in these industries can result in lost profits where the nuances of aspecific job require more time than expected. If you are charging a fixed feebut end up working ten hours longer on a project than you initially thought youwould, your profitability will decline!

What if Neither Fixed nor Time Based Billing Seems to FitYour Work?

A final consideration is whether workers in your industryare working for one client at a time or working for all/many clients at once,and whether your scope of work has a clearly defined start/finish – take forexample administrative/help work for an online service or forum, or an ongoinglegal retainer.

This type of work often does not have a clear scope in termsof there being an ongoing service rather than a defined project with a clearstart and finish. Charging by time might not make sense in such a case eventhough the main part of the service is being provided through employee workhours. In that case it may be better to consider a subscription/ongoingretainer type charge rather than fixed or time-based billing, to better accountfor the ongoing nature of the work.

Modern Software Makes Billing and Administration Easier –Here's How

The advancement of technology has been a huge boon for small and large businesses alike. With modern time keeping, billing, and accounting software solutions, you can automate processes which used to be highly work intensive and prone to user error.

Use accounting software providers like Xero, QuickBooks, and others to manage and track the payment of invoices, organise payroll, and keep a record of your billing process saved in the cloud. Making use of these software options can save you immense amounts of time you would otherwise spendon your billing and administrative workloads.

In the end, it may well turn out that a mixture of fixed pricing and time-based billing is the best way to encompass the value of your services. What ismost important in that case is clear communication

Billing By Fixed Fees/Items

Fixed price billing is simply this; you and your clientagree on a set price for the service/project you are to work on beforehand witha clear idea of the scope/expectations of your work. Payment dates will also beagreed upon beforehand; whether that be paid in advance, after completion, orsome split payment combination of both.

               Benefits

The first thing fixedbilling provides is clarity in terms of income – you will knowthe value of your work before performing it and will therefore have an easiertime calculating profitability early and staying ahead of managing expenses.

If you are using materials or other expenses which arespecific to the given project you are working on, fixed fees let you betteraccount for those material expenses in your billing – you can communicatethose material costs clearly to your client and make sure that you have coveredthem in the bill.

Working within a project’s budget can beeasier with fixed fees – you and your client can more easily trackexpenditure against the budget as they will have more clarity on what you arecharging before the invoicing stage.

               Limitations

Fixed fees can offer a less accurate reflection of thevalue of your work effort. When you are using a fixed fee billingstructure, you are essentially guessing when it comes to the time/effort thatproject will take to complete. Unique circumstances from job to job will resultin differing time resource requirements, which will not be reflectedin your pricing. You may inadvertently overcharge or undercharge yourclient because of this.

The value of highly skilled workers is in their time,which is not reflected in a fixed fee billing structure. For example, ifyou are providing legal or accounting expertise, one of the best measurementsof value for that kind of work is the amount of time you need to spendproviding that expertise. As time requirements will be unique from one projectto another, it becomes more difficult to accurately assess the value of skilledprofessional work in a fixed fee context.

               WhatKind of Work/Industries is a Fixed Fee Structure Best Suited to?

Trades work, like that of plumbers/electricians/buildersis often suited to a fixed fee focussed billing structure. While the skillsetsare highly necessary and valuable to the work, trades industries will ofteninvolve the same tasks being repeated in different situations. This lets tradespeoplehave a highly accurate understanding of their time requirements for a givenjob, which reduces the need for time billing, and the nature of trades workinvolves a certain amount of material cost which needs to be passed on to theconsumer.

Projects involving mostly materialcosts will make more sense for a fixed fee billing structure. If thetime worked is incidental to where the value of the industry is, such as inretail industries where the value of the business is primarily in the goodsbeing sold, then fixed pricing is the way to go.

Shipping/transport/industries where the value is notin the time of the worker or time taken to complete work is always similar/thesame. These types of industries will also find that their operating costs areaffected by what is being transported rather than the workers performing thetransportation.

Billing By Time

Billing by time is taking the amount of time you work againsta client, assigning a price per unit of that time (whether that be price perminute, per hour, per day etc) then charging your client accordingly. Whetheryou charge a flat price for your time or differentiate between the relativevalues of different tasks/work being performed and charge a rate dependant onthe job you are doing will depend on the nature of your work.

               Benefits

Timebilling can be the most accurate assessment of the value of yourwork. Because you are billing according to work hours performed, you willbe able to structure your pricing to make sure you are in line with youroverall income expectations. The income created by your work will be reflectiveof your effort/commitment, and as such an increased workload will result inincreased revenue, which is not necessarily the case for fixed billing.

Highly skilled work is best reflected in the time valueof the worker. If your business is in the professional services sector, youwill find the value of your service is provided through the amount of time youspend on a given client. In that way, time billing allows you to best accountfor the value of your skillset in your pricing structure. In a very real sense,your time as an expert is what you are selling.

Time billing can provide clearer communication to clientsabout the charges they receive. You can offer your client absolute clarityon your invoice, as they will be able to clearly see exactly how much workeffort has been involved in making their project flow smoothly.

Timetracking provides benefits in addition to the billing aspect.Using time tracking is necessary for operating a time billing structure, butprovides benefits in the data it creates, which can be used to improveproductivity, decrease admin requirements, and help identify areas whereprofitability could be improved.

               Limitations

If you have material costs to pass on to the customer,you will need to include fixed pricing to account for them. There is notreally a straightforward way to get around this, which means you will end upwith a sort of hybrid of fixed price billing and time billings. This is not abig issue if your invoices are clear and easy to read for you clients but mightget some pushback from clients who feel that material costs should be includedin the value of your work.

Recording your time for time billing is an increase inyour workload. The nature of time billing makes time tracking/recording anecessity and doing so requires additions to your normal workflow. You canmitigate the additional workload by utilising time tracking software to makethe process faster and more useful to you outside of billing.

               WhatKind of Work is Billing by Time Best Suited to?

Professional services industries like Accounting/Law/Bookkeeping, wherethe worker’s expertise is the commodity being sold, are the best fit for timebilling. A time billing structure allows specialist workers to base theirbilling around the value of their work time to the client. Running a fixed feestructure in these industries can result in lost profits where the nuances of aspecific job require more time than expected. If you are charging a fixed feebut end up working ten hours longer on a project than you initially thought youwould, your profitability will decline!

What if Neither Fixed nor Time Based Billing Seems to FitYour Work?

A final consideration is whether workers in your industryare working for one client at a time or working for all/many clients at once,and whether your scope of work has a clearly defined start/finish – take forexample administrative/help work for an online service or forum, or an ongoinglegal retainer.

This type of work often does not have a clear scope in termsof there being an ongoing service rather than a defined project with a clearstart and finish. Charging by time might not make sense in such a case eventhough the main part of the service is being provided through employee workhours. In that case it may be better to consider a subscription/ongoingretainer type charge rather than fixed or time-based billing, to better accountfor the ongoing nature of the work.

Modern Software Makes Billing and Administration Easier –Here's How

The advancementof technology has been a huge boon for small and large businesses alike.With modern time keeping, billing, and accounting software solutions, you canautomate processes which used to be highly work intensive and prone to usererror.

Use accounting software providers like Xero, QuickBooks, andothers to manage and track the payment of invoices, organise payroll, and keepa record of your billing process saved in the cloud. Making use of thesesoftware options can save you immense amounts of time you would otherwise spendon your billing and administrative workloads.

 

 

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