Be transparent with client
In many industries charging clients by hour is common practice. However that is very important to be transparent toward clients and determine what to include in billable hours list and especially what is out of the scope. Also, Client does not want to be surprised with your invoice. Let’s see what is important to track billable hours.
First of all, if you track and invoice billable hours it is always suggestion to profile of estimated of hours needed for engagement before certain engagement. Best practice is signing a transparent and fair agreement and defending exact billing terms.
Determine hourly rates of your team
Usually project manager determines hourly rate for each member of team, per specific tasks. Hourly rates could be flexible depending on different clients and their fee sensitivity.
In addition to track billable hours and hourly rates, you need to track cost rates as well.
Cost rate per employee includes the cost of salary per hour (e.g. average or expected monthly salary divided by total working hours in a month).
This part of cost rate should be based on regular salary, bonuses and benefits. However, cost rate should include and cost of other expenses that can be indirectly allocated to employees, such as office use, phone use, car and other fixed cost necessary of use an employee as company resource.
The example of structuring hourly rates for certain project is presented in following info graph:
How can I track billable hours and calculate a margin of project?
In order to do this, you need to allocate hour cost to employee to the project.
Indeed, allocation billable hours to project is easier, but some simple tools may help you to calculate cost pre service, clinet, emoployee.
Once you have costs and revenues per hours, you will be able to get excellent KPI whtich is margin (profit) per hour. See the example of calculation of project profit (gross margin).
From the presented example at graph above, we see that total project creates 470 $ of gross margin with gross margin percentage of 17%. If we go deeper into the analysis we see that partially profit that is related to junior team member is negative amounting -360 $. This result come from significant part of non-billable hours of this team member.
Therefore, in order to make sure that all team members achieve positive contribution you need to track all time consumption data on project, including hourly rates and cost rates.
On line tool as excellent solution to track billable hours
A tool for time tracking may help your company to implement timesheet management system and make excellent insight where you lose the money and discover which project is profitable and which not. Also you will have full information on team member productivity.
Our free online timesheet solution offers easily tracking of team time per each task, project and clients. At the bottom line manager of project or company will have full insight in time utilization, productivity and profitability. “Time Analytics” is the most simplified on line timesheet software for free use.
Besides, you can implement other solutions in a purpose of track billable hours and employee productivity could be:
- time and attendance software
- employee time tracking software
- online timecard
- time management software
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Time Analytics modules and features.