A big part of effective project management is pricing and billing your products or services appropriately. There are different billing processes, each of them working well with different types of projects.
Factors like project duration, employee billing rates, type of industry as well as diversity and amount of services offered affect project billing. In turn, project billing influences the financial health of your business. Thus, you need to put a lot of thought before choosing a project billing method.
What are the types of billing for projects? How can you decide which one is best for you? We will guide you through the different billing options, their benefits, and pitfalls. Without further ado, let’s go through the most used billing methods in today’s business industry.
Basic project billing methods
Let’s go over the most commonly used project billing methods to see which one better fits your business needs, whether you are a freelancer or a small agency. Remember that you don’t need to stick to a billing method if it ultimately doesn’t work for both parties.
Before a team starts working on a project, both parties have to agree and sign a contract agreement. In that contract, the remuneration for this project can be a fixed amount of money that will include resources spent, project-related expenses, costs, and hours of work. This project billing method is known as fixed-price billing.
To determine how much a project should be charged, estimate time, resources, and employee rates. Therefore, consider raising the fixed price if the client is difficult or if the project is particularly hard and demanding.
Fixed pricing is inflexible and can result financially risky for the service provider if they underestimate the amount of work that needs to be put into a project. To avoid that, project managers must lay out a detailed plan with every step of the project so that the contractor has a more accurate picture.
On the other hand, clients often prefer fix-priced billing because it helps them have a more concrete overview of the money they will have to pay and plan better their budgets.
Hourly rate billing
Moving on to the next project billing method, charging by the hour is the most widespread one. Measuring financial remuneration based on the hours devoted to a project sounds fitting. This specific pricing model is popular amongst freelancers, small businesses, and agencies. Especially, law firms, consultancies, and designers prefer time tracking.
Apart from the time spent, you should also factor in expenses, like materials or additional resources, that were used during the project. The hourly rate doesn’t need to be fixed per client. You can charge the same client differently depending on the project at hand.
Clients are not very fond of the hourly rate, of course, as it raises issues of transparency and unexpected costs. Using invoicing and time tracking software, like Elorus, clients can monitor project progress through the client portal feature. The client may ask for a full analysis of the hours, and project costs. From the contractor’s viewpoint, calculating hours based on rates is the most reliable way to ensure payments for the rendered services.
Assignee hourly rate
Teams are usually made up of professionals with different billing rates. Some are in junior positions working on minor tasks. Others have more experience and take on more demanding tasks. In this case, you can set an assignee hourly rate. Thus, choose invoicing and time tracking software that offers a variety of billing methods to facilitate teamwork and accurate project billing.
Task hourly rate
In task-based pricing models, the duration and difficulty of a task impact the way that clients are billed. For example, a web design task may cost $60 per hour, while a web development task may cost $80 per hour. Thus, in order to calculate the final bill, the total worked hours should be multiplied by different task rates. This process can be too much, so make sure to find the right software that can calculate the billable amount automatically.
In the world of business, working on a retainer agreement sounds like a dream come true. A retainer pricing model means that a client assigns work continually to independent contractors or agencies and pays in standard intervals throughout the course of a year. This kind of business agreement describes a long-lasting relationship built on the mutual professional appreciation.
This pricing model creates a sense of security for both the service providers and clients. Service providers get stable income and are financially safe while clients are reassured that they will receive the right services whenever they need them.
At the same time, working consistently with a client helps you learn their business needs and regulate your workflow. This doesn’t mean that service providers should get too comfortable. On the contrary, you should always deliver high-quality work and respect the terms and conditions of your contract.
Pricing the milestones
Last but not least, another type of billing method is per milestone. In this case, contractors get paid when they have fulfilled a milestone in different stages of the work. When reaching a milestone, the service provider should receive remuneration equal to the time worked, expenses, and every task until that milestone.
This approach is very rewarding in every sense since the independent contractor is paid for successful deliverables, and the time and resources used to reach that point. Equally, clients have results on their hands before paying for the services they needed. However, if the two parties do not collaborate with trust, then disagreements and contract disputes may occur.
On the whole, finding the right project billing method is the gateway to successful invoicing management and revenue control. Knowing your needs, the project requirement, and your clients’ demands will further assist you in making the best possible decision when billing your work.