Define Effective Billing Rate

Your effective billing rate is how much you make per hour, even when you’re not working. Average all your revenue over all your hours, and you have the amount you’re effectively getting. Watch the video below and comment on it.

Define Effective Billing Rate: The billing rate you are actually getting when all working hours are included in the calculation of revenue divided by hours.

Here’s the deal… consultants usually can’t bill for every hour they work. They perform in-house tasks. They attend company meetings. They have admin overhead. Those are usually not billable activities, so you don’t get paid for them. You only get paid for the billable activities. So divide your total revenue by your total (billable and non-billable) hours and you have your effective billing rate.


Here’s an example: Say you worked 40 hours and charged $100 per hour. All the hours were billable. Your total revenue for the week is $4,000 and your effective billing rate is $100 per hour. Nice!

But what if only 30 of those hours were billable? The other 10 were admin. Your total revenue is now $3,000. $3,000 divided by 40 (total hours) is only $75 per hour.

Your effective billing rate includes admin and other non-billable time.

Fixed Bid Contract, Fixed Price Contract

Fixed-price contracts can be beneficial to both consultants and clients. Both parties know exactly what they’re getting. Scroll down for the video.

Define Fixed-bid contract: An employment deal where the price is agreed up before the work begins, and cannot change.

Most fixed-bid or fixed-price contracts are paid on milestones. Clients usually agree to pay in three installments: 1/3 up front, 1/3 at beta, and 1/3 at completion. But milestones can be anywhere in the middle for any reason. The contract total will always be the fixed agreed-upon price.

Why are fixed-price contracts good for clients?

The most obvious reason is that fixed-price contracts can never run away into huge cost overruns. The supplier will never get more than agreed.

Why are fixed-price contracts good for consultants and suppliers?

The supplier has fewer incentives to accept a deal like this, but there are some upsides. One is that the deal cannot be canceled partway, leaving the consulting party without revenue. Another is that the deliverables are tightly fixed, and scope creep is less likely to occur.

Have you tried the invoice milestones on Standard Time®. Good news, you can do it today. Just download a plug in your milestones. Then run a client invoice for each payment milestone.

Define Consulting Utilization Rate

I’m scheduled for 40 hours this week, but I’ll probably work closer to 90. If those are billable hours, then that over 200% utilization! Awesome! Unsustainable, but awesome.

Define Consulting Utilization Rate: The percentage of scheduled hours spent on client billable work.

A 200% utilization rate is pretty amazing, and also completely unsustainable over the long run. That is why Standard Time® forces you to choose a date range when examining the utilization rates. It’s not going to be the same for every week, or every month, or even for ever year. It changes all the time, depending on how much time you spend on client jobs.

How to calculate utilization rate: Divide client billable hours by scheduled hours. The results is a percentage of utilization.

Employee utilization is also closely connected to effective billing rates. If you are scheduled for 40 hours, but only work 20, then your billable amount must be spread over the full 40. In that case, it’s 50% of what you got. In other words, for every scheduled hour, you got only 50% of your total billable rate.

How to calculate effective billing rate: Multiple total client revenue by utilization percentage.

Crazy stuff? Don’t worry; there’s a simple report in ST that calculates all this. Just click it and go. But you may not want to know the results. Just kidding… you’ll be just fine, and probably happy that you knew.

Define Consultant, Freelancer, Contractor

What is a consultant? Zach knows. (scroll down for video)

Zach is a consultant, and the head of consultants. So he knows what a consultant is. Zach says, consultants used to be people you brought in for one or two days, maybe a week tops, that would explain a certain issue to you. Once explained, the consultant would leave. You consulted with consultants, and that was it. They were experts, and they explained things. You asked them specific questions, which they knew the answers to. Once you got the answer, you went off and did what they said.

That was before the internet and YouTube.

Now consultants are much like full-time employees. They often sit in the same offices and attend the same meetings. If you don’t ask, you may never know that your coworker is a 1099 freelancer. They still have expertise in a certain area, and apply that expertise like regular employees.

The big advantage to employers is their temporary stay. A months is usually enough. No pesky benefits package, no nurturing, no investment. Just raw performance for a price you can live with.

The thing is, consultants have to learn how to make good money. If they don’t, those short-term contracts turn into vicious cycles of feast and famine. You have to know how to up-sell and extend your stay. Plus, charge enough to tide you over during the down times. Without that, you’ll be out of business in no time.

Plus, consultants have to become very familiar with things like effective billing rates, utilization percentages, and billable hours. Working for a consulting firm removes you from that tedious treachery. You just work like an employee, and everything is okay. But the freelancer definitely has to watch his numbers, or he’ll end of working for two dollars an hour.

Download Standard Time® and let us know if it can help your consulting biz.  🙂

What is Your Effective Billing Rate?

Do you know how to calculate your effective billing rate? It’s pretty easy. Just divide your revenue by working hours. If you brought in $10,000 and worked worked 80 hours, your effective billing rate is $125.  Nice!

Scroll down for a video.

But if you brought in that same $10,000 but worked 80 hours on the project and 40 hours on secondary stuff, your effective billing rate is only $83. It’s that “secondary stuff” that kills you. We’re talking admin, email, Facebook, Twitter, hanging out, and goofing off. Of course, everyone has to goof off a little. We’re not machines. But still, it’s nice to know what we’re actually bringing in for every scheduled work hour.

The video below talks about finding your effective billing rate for a given time period, or for a certain project. That’s harder to do because you have to collect up all the revenue from time logs for that period, and divide that by scheduled hours. You probably need a good timesheet and project management app to do that.

Project Proposals Earn More Business

Attractive project proposals can help you get new business. It’s not all just about the bling, but yes, potential clients judge you by their first impressions. The promptness of your initial contact… the content of your first reply… the voice they hear on the phone… the proposal or quotation you send.

This video may prompt you to step up those initial client proposals a notch.

Standard Time® has projects  with a win/loss setting, and a percentage of likeliness you’ll get the deal. You can send multiple proposals for a single project. And, you can look into the future for a glimpse of your possible revenue. That’s some cool stuff.

Fixed Bid Contracts Rule the Universe

A lot of freelancers and consultants use fixed bid contracts. So much that they rule the consulting universe. (video below)

Your customers likes your work, but doesn’t quite trust the duration and cost of the project. They want assurances that the cost won’t exceed a limit they feel comfortable with. That’s natural. Once you establish a working relationship, the need for fixed bid contracts may go away. But until then, you agree to a single price for the project.

And once you have arrived at a the fixed price, you might ask for a starting payment. That discussion naturally leads to milestone payments. The conversation leads to something like this. “How about a quarter upon signing, and a quarter in the middle, and then one big payment of one-half at the end?” To which you reply, “How about one-third, one-third, and one-third.” “Done.”

This little video may inspire you to try milestone billing for yourself.

Service Techs and Route Drivers

Get a service fleet to support your customers? Route drivers? Or service techs?

Then you better track their time. Here’s why: (but watch the video first)

You could be spending a lot more than you need to. And, you may be spending time on secondary customers that don’t fit your priorities. The first issue is self-explanatory, but still pretty important. So let’s talk about the second one — the issue of priority.

Everyone prioritizes customers in terms of revenue and easy of support, right? Sure, you do it whether you know it or not. That’s only natural. You should probably codify that in a document somewhere, but that’s a secondary topic. Once you have your list of top customers, now compare that with the time you’re spending on each one.

Zowie! That could be a shocker!

What if the customers you’re spending the most time on are not the ones at the top of your “best customer” list?


Milestone Billing

Many consultants and freelancers bill clients by date range. In other words, all the time and materials for a chosen date range are included on invoices. But did you know you can use invoicing milestones instead?

Scroll down for a video on the topic

Let’s say you have a flat-rate project. The client has agreed to pay a fixed amount for the entire job. Plus, you and the client have agreed on a payment schedule. Such schedules commonly include some amount up-front, sometimes an amount in the middle, and the remainder at completion. Those are payment milestones are a contractual agreement.

Now that you have agreed to the milestone payments, you can put them into your timesheet software and bill accordingly. The video below demonstrates three ways to bill clients by milestone.

1. Bill clients by date range

Just choose a date range, and the software will find all the time and materials that fall in between those dates. Those will be totaled up for the invoice.

2. Bill clients a fixed amount of the project

Enter a dollar amount, and the invoice will include that amount. The time and material may also be included on the invoice, but the invoice subtotal will use this specified amount.

3. Bill clients a percentage of the project

Enter a percentage of the total project amount. The invoice subtotal will be a percentage of the total fixed bid. Time and materials may also be included, but their costs will not be used for the invoice subtotal.


How Consultants Track Time

Successful consultants track time a certain way. That’s probably one reason they are successful. The video below describes a few of those ways. Use this to inspire you. You may find something that works for you.

For instance, are you using a linked task list to define your projects? Or, do you just go at it with all your talents and efforts? Consider that a project task list help you remember everything that needs to be done. You don’t forget things and look incompetent in front of the client. Trust me… they notice.

If you are using project tasks, the next question is: how good are you at estimating hours? Have you ever compared the actual time your tasks took with your estimates? Doing that also makes you look good in front of the client. You can speak from authority, siting many other similar projects where certain tasks took X number of hours. Clients are more willing to pay extra when they know you’ve done your homework. Turns out comparing estimates with actuals is virtually free in ST. There’s a dashboard where you’ll see those numbers.

Watch the video and become inspired!