What are Billable Rates?
Billable rates are the hourly rates you charge your clients for the
work your team does on their projects. They are essential to project
management because they directly impact your company's bottom line.
The billable utilization rate measures the percentage of available hours
employees spend generating revenue for project-based services.
Types of Billing Rates
The most common types of billing rates used in project management are:
- Fixed price:This is the most straightforward type of billing.
You agree on a fixed price for the entire project, regardless of
how many hours your team works. This type of billing is often used
for projects where the scope of work is well-defined, and there is
little risk of change.
- Hourly rate:This is a more flexible type of billing. You bill
your client for the actual number of hours that your team works on
their project. This type of billing is used for projects where the
scope of work is not well-defined or where there is a high risk of
- T&M (time and materials):This type of billing is a hybrid
of fixed price and hourly billing. You agree on a fixed price for
certain milestones, such as completing a design phase or launching
a website. You then bill your client for the number of hours your
team works on the project, excluding the milestones.
- Value-based pricing: This type of billing is based on the value
your project delivers to the client. This type of billing is often
used for consulting projects or projects where it isn't easy to
estimate the scope of work.
The best type of billing rate for your project will depend on many
factors, including the type of project, the scope of work, the risk of
change, and the client's preferences.
Setting Billing Rates
It is important to set a billing rate before starting any
project. This will help you to track your expenses and ensure
that you are being paid fairly for your work.
For example, John is working on a new project. The billing rate
for this project is set at $350 per hour. John worked for a total
of 120 hours on the project. Therefore, the total invoice for the
project is $42,000.
Here is the calculation:
Total hours worked: 120 hours
Billing rate: $350 per hour
Total invoice: 120 hours * $350/hour = $42000
How to set fair billing rates for business and clients?
- Consider the type of project: Some projects, such as software
development projects, are more difficult to estimate than others.
A T&M or value-based pricing model may be more appropriate for these
types of projects.
- Consider the scope of work: If the scope of work is well-defined,
a fixed-price billing model may be more appropriate. If the scope of work
is not well-defined, an hourly rate or T&M billing model may be more
- Consider the risk of change: A T&M or value-based pricing
model may be more appropriate if there is a high risk of instability.
- Consider the client's preferences: Some clients may prefer
a fixed-price billing model, while others may prefer an hourly rate
or T&M billing model.
- Consider your costs: When setting your billable rates,
you must factor in your expenses, including salaries, benefits,
overhead, and profit.
- Consider your competition: Research to see what other
businesses in your industry charge for their services.
- Be flexible: Be willing to negotiate your billable
rates with your clients, especially if they fit your business well.
With the abovementioned factors, you can choose the correct
billing rate for your project and ensure you are compensated fairly
for your work.