How to bill clients when your product is your time?

Managing expectations for what is considered billable work

When your time is your product it’s a subtle art to manage your hours. Your clients, especially those whose income is generated by a physical product or service, will have very different expectations of what is considered billable work. It’s important to be clear about the terms of your engagement upfront to avoid any potential problem later on but there is one caveat that is tough to avoid - the sales process.

In any “time as a product” (i’ll refer to it as TAP) industry there is going to be a need for acquiring new business. Whether it be as an attorney, a software developer, a consultant, or other area, the sales process and the acquisition of new business is probably present. It’s a skill and it’s a fairly interesting area of operation for small companies who don’t have dedicated sales staff. The problem that can arise as a byproduct of the sales process is an expectation that certain time will not be billed for later on. In my company, we have no sales staff. Everyone in the business participates in the sales process as needed, developers, marketers, and interns alike. This can cause challenges down the line.

When starting a new relationship with a client, there is a period of courtship that, of course, is not billed. The cost of acquiring this new business may be high, but you generally expend an effort in proportion to the estimated account size. This can include several rounds of meetings, presentations, and lunches along with time consuming proposals, recommendations, etc. all gratis. Once you successfully win that client’s business, it’s off to work on their project where you’ll shift into your normal role as a software developer or marketer or attorney or whatever. You can probably spot the problem at this point.

The client will now remember you as the salesperson who does all of that stuff at no cost because it’s the job. In reality, the time you spend on the phone with them, meeting in person, performing discovery, conversing via e-mail, and so on is part of the service you offer - your time. Down the road when you start billing for the time you spend on their account you’ll probably experience some resistance or backlash.

Something we do to attempt to head this off in our industry (software development / marketing which is very much a TAP business) is to price out projects based on our estimation of the work involved for a flat rate. Along with this flat rate proposal, we include details about our maintenance and ongoing support offerings after the project has been completed. The flat rate project also comes with a 30 day maintenance period at no additional cost, during which time we reiterate that, upon expiration of the 30 days, a maintenance agreement will need to be in place or all additional time spent will be at the hourly rate. Unfortunately, even that is not enough to prepare every client.

Anyone who has had any legal services performed (or accounting for that matter) knows how ruthless and efficient they can be with billable time. I once had an attorney call me for a friendly chat and an invitation to lunch - both of which ended up getting billed to me later on. There are different expectations for different TAP industries and I wouldn’t consider being quite so ruthless in ours. We generally operate on a “meaningful effort” style of time tracking. If something is going to take you less than a couple of minutes to accomplish for your client, just do it in good faith. On the flip side, you need to be razor sharp with your time tracking if you’re a small company and would like to survive.

Somehow there has to be a clear distinction between the upfront sales effort and the project commencement / ongoing maintenance. There also needs to be a balance in how strict you are with tracking billable time. If you’re invoicing every second you think about your client, they won’t be your client for long. This is a problem we’ve faced for years and have only been partially successful in mitigating it. I’m curious to know if others have solved this a different way. What has and what hasn’t worked in other TAP businesses?

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