Billing rates

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 change.
• 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?

1. 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.
2. 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 appropriate.
3. 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.
4. 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.
5. Consider your costs: When setting your billable rates, you must factor in your expenses, including salaries, benefits, overhead, and profit.
6. Consider your competition: Research to see what other businesses in your industry charge for their services.
7. 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.