It seems like such a simple task for a contractor; bill for the hours you worked. In my profession and how my brain operates, defining “work” is not easy. My brain doesn’t have an on/off switch so at the end of the day, if I was working on something, even if I walk away from the computer, I may still be thinking about it. Same goes for when I run, especially if I’m working on a hard problem.
Tonight as I was giving my son a bath, I realized that code that I had written today (based on other code in the project) could potentially crash in some race conditions. Do I bill the client for only the time that I’m typing? Do I bill the client for 24 hours a day just to make things easy? What is considered work and what isn’t? I don’t really have the answers to those questions; I look at things on a case by case basis. I’ve been doing contract work for a long time now and so far no one has ever questioned by time as I’m very honest and provide a detailed invoice with all of my hours and tasks recorded.
The next part of billing that doesn’t seem clear cut is during the day when I am at my computer, when do I start and stop billing? Do I round to the nearest 15 minutes? Do I bill for every minute? I’ve seen invoices from some contractors that recorded time down to the minute and even one with a fraction of a minute. Do they sit there with a timer and start and stop every time they read and email message? If they get a phone call, do they start billing when they see the caller ID? These just are far too extreme for me. I do reasonable billing and round my billing.
Finally, one area that I still haven’t figured out the best practices is handling interruptions and emergencies. If I get interrupted to work on something else (email, phone call, or instant message), it can take time for me to get back into the thought I had before I got interrupted. Best case it takes me few minutes, worst case, it can take me hours. Who do I bill for this? Do I bill the client that interrupted me or the project was working on before the interruption? I don’t have a clue.
Luckily all these billing issues are minor and as long as I’m honest and ethical, no one has a problem with my billing practices. It also doesn’t hurt that I get the job done!
Terrific analysis of a common misconception of “hourly” billing.
Having worked for large corporations with responsibility for reviewing and approving payment for architects and engineers time, I found it extremely frustrating to review a detailed cost breakdown of time, travel, printing, phone calls, etc. There was no way I could audit them. About the only thing I could do was check the rates against the agreement, and the overall cost to date against the budget. I felt that it was a huge waste of my time, and seemed like I was questioning the honesty of the professional with each invoice. I felt that we needed a better way.
Here’s what I came up with. It may not apply to your business, but perhaps it will spark an idea. The architect was charged with having a good handle on construction costs and expected to be able to design a project to be within budget. I needed the architect to help set the budget, and operations personnel to determine what was affordable. (We were developing hospitals.) In the beginning of each project the size, location, time frame needed to be explored with conceptual designs and a “ballpark” budget (known as “order of magnitude” budget). When operations decided what the project could afford, and the architect agreed that it could be tailored to that price, the budget was set and the architect’s fee was FIXED at a previously agreed on percentage of the agreed budget. That percentage include ALL of his overhead.
During the study period leading up to the agreed upon budget, the architect billed at set hourly rates. All study costs were part of the FIXED fee so that it was in the architect’s best interest to help get to an agreed upon budget as soon as possible so as not to eat up his profits in study after study.
The process worked extremely well for both the owners and architects. The relationship could then focus on results and never about trust.
Now I provide private construction inspection. All my competitors bill hourly. I don’t know if they charge additional hours for writing reports, travel to and from, phone and email work . . . .
Knowing that my clients don’t want to pour over long detailed invoices, I simply set a charge per inspection. Some inspections are short, some long. They all involved travel, reports, and emails. My invoices can easily be audited … how many trips did I make last month? On major projects where I have been on the job full time, or almost full time I used a fixed weekly rate, with an understanding that I would be working on other projects at the same time.
Perhaps some of you clients would be satisfied with a fixed weekly rate. Say you have 3 current clients. Charge each of them 1/3 of the week’s income you want, which needs to include all of that thinking time, start up time, interruption time.
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