In time billing it’s all about time and money
Is time billing right for you and your business?
Is time billing right for you and your business?
Time billing is a specific way of billing the services provided in a certain period.
The invoice is the commercial document that indicates the total value to be paid by the buyer to the seller. This amount is calculated based on the number of products or services purchased and their unit price. In particular, in hourly billing, the unit price applied is the hourly rate.
This type of billing is widely used in both business-to-consumer and business-to-business environments. For example, here are some of the areas where these services are more active:
Consequently, the occupations that commonly use time billing:
Certainly, for the businesses developed in these areas of activity, time is the most valuable asset. Above all, because their business involves billing by the hour or maybe even minutes.
For sure, self-employed workers use this method of invoicing because it better reflects the value of the work
done. Also, it is worth mentioning that their number is not negligible at all.
According to the US Bureau of Labor Statistics 15,022 million workers identified as self-employed in May 2020.
This number includes both the unincorporated and the incorporated. Also, it represents approximately 10% of
the total number of the overall workforce.
The difference between the two categories of self-employed workers is given by the fact that:
Generally are freelancers that work alone. They did not set up a corporation and did not have employees. For instance, in this category, in 2019, approximately 9.53 million people were included.1
Work organized in a legal corporation. They usually are small business owners and employ other people. For example, there were approximately 6 million such workers in 2019.1
However, regardless of how their business is organized, many of these self-employed workers are using time
billing.
Most of them had chosen to work on their own precisely to be more independent. Also, to have a more flexible
schedule and to make more profit from their work. And, the latter, of course, means to be paid properly, so
that
their income gets higher than their expenses. Consequently, this will also help them get the desired profit.
Do you recognize yourself in the description above? Are you already a self-employed worker or are you planning to start your own business soon?
Everything related to time billing must be very transparent to your customer. Thus, this will establish mutually beneficial collaborative relationships that will be reflected in your revenues.
But, is it possible to carry out your professional activity and accurately bill your clients without this becoming a burden? Of course! Moreover, it's really simple and effective if you follow the steps below:
An appropriate rate and ensuring an optimal pricing structure is essential in time billing type of business. For this reason, there are several methods by which you can calculate your hourly rate. Certainly, one of them will be suitable for you and your business. Above all, you should always keep in mind that this must be both profitable for you and fair for your customers.
For example, the standard formula for a minimum hourly rate that will pay your salary and expenses, and create a profit is:
| labor costs + overhead costs + desired profit |
| --------------------------------------------------------------------------------------------------- |
| hours worked |
Specifically, here is what the notions included in the above formula refer to:
can be estimated as a target annual salary in the field of the business. However, always keep in mind that salary does not count as a profit. In particular, for your business, your wage must be considered a cost. At the same time, for yourself, it represents the payment for the work done.
For example, in May 2020 the average hourly earnings on private nonfarm payrolls by industry sector was 29.75$. However, it differs depending on the industry. On top, the highest hourly earnings rate is recorded in Information as $ 43.46. At the bottom, the lowest one in Leisure and hospitality, namely $ 17.39. At the same time, somewhere in the middle of this range are Private service-providing with $ 29.66 and Goods-producing with $ 30.09 2.
To illustrate, here are some examples of the mean hourly wages by occupation, estimates for May 2019 3:
| 1 | Anesthesiologists | $125.83 |
| 2 | Surgeons, Except Ophthalmologists | $121.17 |
| 3 | Oral and Maxillofacial Surgeons | $114.21 |
| 4 | Obstetricians and Gynecologists | $112.31 |
| 5 | Orthodontists | $110.98 |
| 1 | Shampooers | $11.02 |
| 2 | Fast Food, Counter Workers | $11.18 |
| 3 | Cooks, Fast Food | $11.31 |
| 4 | Gambling Dealers | $11.53 |
| 5 | Hosts and Hostesses | $11.54 |
Profit
is what you are going to earn, after you have covered all costs, including
salary. On one hand, a profit percentage at 10% - 20% of total costs is a common rate. On the other hand,
there is no standard but is recommended to be kept within the limits of the market.
Billable hours
are the hours worked on the task or project that can be billed to the
client. For this reason, extra care is needed when estimating the time for the tasks.
However, you will still need to consider the fact that the market conditions also may influence the hourly rate. To begin with, find out what are the prices for your field of activity and the factors according to which they differ. Although, keep in mind that professional experience and the high quality of the services offered can be elements that help you earn more than average. In fact, most of the time people are willing to pay more for better quality.
It is important to keep track of all our working hours, whether billables or not. To begin with, the activities that you do not bill are as important as the billable ones. Moreover, if we think about it, we'll realize that without them our business will not go well at all. Namely, what do we usually do in our working but non-billable hours?
However, we should really pay attention to the amount of time allocated to these activities. Also, especially to the ratio between the two types of hours. Otherwise, we may risk spending more time in planning and organizing than actually working. Therefore, if we track all our time we will be able to notice any possible flaws in our time management. Consequently, we can take the necessary measures promptly.
Regarding our billable hours, a clean record will also make our work easier. In particular, this will be visible when we prepare the invoice for our clients. Certainly, billing day won’t be a burden anymore. In fact, we will know exactly what we did, for how long. More than that, we will also have the possibility to present this to our client. Besides, time tracking helps us to know at any time how we are progressing with the work. Accordingly, we will know if we are on track or we have to adjust something along the way.
So, billing day is here! OMG or YAY?
If you use a time tracking solution then it will definitely be yay! Especially because all you have to do is
select the data for the period for which you are billing. Therefore, in a second, you will have everything you
need for your invoice. In addition, the great advantage is that you will be able to attach to the invoice a
Detailed timesheet. Equally important, you can do that without making any additional effort. In short, just
export the data and send it to your client.
As we have already said, transparency is paramount in business relationships that are based on time billing. In particular, this fact will be noticed when the due date comes and the client will pay without any problem. Above all, because it comes naturally when people know exactly what they are paying for.
You will have to get to the same result even if you don’t use a time-tracking program. But, it will definitely take you longer. And you already know how important time is to you and your business.
Use PlanArty time management solution for a complete circuit from preparing estimates, planning, and tracking time, to preparing billing data.
Time planning and tracking solution for freelancers and small business owners
The time billing system was created for greater transparency about the services that were being charged. However, in certain circumstances, this system may be evaluated as inaccurate or incorrect. In particular, these circumstances represent basically ethical issues. But, these problems can be easily avoided if certain principles of time billing are respected. To illustrate, here are some examples of possible issues and proposed solutions:
ThinkTyler offers Small Business CFO Services to business owners struggling with stagnant profits and unpredictable cash flow. Tyler, a CPA with a background in entrepreneurship, provides a 6-step plan to help businesses overcome these challenges and achieve consistent cash flow and profitability. The steps include setting targets, providing monthly scorecards, prioritizing actions, reviewing and adapting the plan, offering financial expertise, and providing entrepreneurial insight.
A time tracking software is extremely useful when billing by the hour. First of all, because an accurate time billing involves total control of the time spent on each particular task of the client project.
For a billing by the hour type of business, there are many time-tracking options to choose from. Especially, it is important to find the one that best suits the specifics of your business. IIn particular, it would be good to choose one that gives you as many tools and functions as you need. Otherwise, you may have to use additional software for each step of the way.
Time management is very important in this type of business, from planning to reporting. Therefore, it would definitely be beneficial if the To-do list is included in your time-tracking software. In other words, planning, time tracking, and excel export for the related reports can be carried out all in the same place
An accurate time billing helps increase respect and trust among partners. Therefore, it improves collaboration and implicitly revenues. It is both in the interest of the service provider and beneficiary that this process is being conducted correctly and in a timely fashion.
