Firm Pitfall: Hourly Billing
February 15th, 2008 | Posted in Pitfalls.Now before I get harassed by my readers, please hear me out. Billing your services by the hour can cost you money. The main key point in running a business is to generate profit.
Example:
The design department of the company I work for has never generated any profit in the last seven years. At this moment, they charge by the hourly rate of $150. Here’s how the client process works:
1. The client gets a proposal from business development personnel.
2. The client accepts the quote, signs the contract and pays a 50% deposit up front.
3. The design project is then assigned to a designer.
4. The designer works with the client to build out the site.
5. When the site is ready to go live, the billing department only bills the client for the time spent after the initial deposit.
Let’s say in the above example the client was quoted 30 hours of work which equates to $4,500. Then let’s say that the designer only takes 20 hours to complete the site. The client is billed a total of $3,000 for the project. That’s a $1,500 profit that the company is throwing down the drain.
When you bill by the hour, you can only make more money by working slower. If you have more than one client, this will greatly hurt your business.
Bill By the Project!
The more sites you do, the faster you will get at completing them. So in the above example of billing hourly, you will lose more money each time you build a site.
By billing by the project, you are guaranteeing yourself that the amount quoted will be in your bank account.
What if it takes longer to build a site than expected?
During the initial proposal development process with the client, you will establish boundaries and create a solid scope of work. If at anytime during the project where the client requests something outside of the scope of work, you need to stop and go over the proposal again with the client and come up with a new cost to accommodate the new requests.
But if it takes you longer without additional requests, you have two options. One, you can explain to the client the situation and justify the price. Or two, you can eat the time and learn from this experience. Your primary focus is not just the quality of the work, but the quality of your customer service. So keeping your clients happy is vital, but try not to give too much away — you have to eat too.
I hope that this post has insightful for you. Just remember, that clients really don’t care how much you charge by the hour, they care about the quality of the service and how much that is going to cost them.
Reasons to Outsource :: Increase your Skills Diversity
March 24th, 2008 at 12:51 pm
[...] The next time you get a request for proposal from a prospect, first contact each of the contractors on your list. Explain the project and request quotes from each of them. Select the best quote from your contractors and double it. This is what you are going to quote the prospect. Prepare the proposal using a flat-fee for the project and not hourly billing. [...]