Consultants: How to Minimize Your Billing Pain

By Brad Egeland

One of the most stressful, confusing and frustrating things consultants have to grapple with is how to go about billing a client. Typically, you meet with them up front to get some details on what they’re really looking for, then put together some sort of a proposal that includes a billing strategy or plan.

cash and a clockAs the consultant, you want that plan to maximize the amount of money you can earn while not scaring off the client because of a high price. You also don’t want to leave yourself exposed should the client decide to stop the work in midstream. That scenario can happen no matter how much money the client’s already invested. It’s all about money, so when their hopper is empty, so is yours.

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Generally, there are three ways you can bill the customer: Hourly, a set retainer rate paid weekly (or bi-weekly, or monthly), or a set retainer rate paid in advance (weekly, bi-weekly, or monthly). Let’s look at each:

1. Hourly

Pros:

  • You get paid for your actual work.
  • You can bill top dollar.

Cons:

  • You have to track every hour that you work.
  • You may get asked to justify hours.
  • Decisions have to be made on billing for transportation time.
  • Client may frown on personal calls while you’re on site because they feel like they’re paying for them.
  • Client could refuse to pay for work you’ve already performed.

2. Set Retainer Rate

Pros:

  • If you’re used to set income, this may make you more comfortable.
  • If the client has little for you to do during a given billing period, your “calculated” hourly rate can be very high.

Cons:

  • If the client doesn’t have enough for you to do, they may feel like they’re over-paying.
  • Client could refuse to pay for work you’ve already performed.

3. Set Retainer Rate Paid in Advance

Pros:

  • If you don’t get paid, you don’t have to do any work.
  • If work is slow, your calculated hourly rate will be very high.

Cons:

  • You’ll have to sell this concept to the client.
  • If there isn’t enough work, the client may think they’re not getting their money’s worth.

I always try to go with Option #3 first. You’ll be far less stressed when you have the cash already in hand for the work you’re performing at the moment. But be prepared to have to persuade the client to go with this scenario, because there aren’t many out there who’ll readily want to pay in advance for work you haven’t done yet, especially before there’s any client-consultant trust or working relationship in place.

So how do you go about selling this particular scenario? Below are a few things you can do. It’s worked well for me. I have about a 70 percent success rate in getting set retainers paid in advance.

  • Create a proposal showing both hourly billing and retainer rate (billing in advance).
  • Justify the hourly rate and show how the calculated retainer rate is based on a mutually beneficial “lower” rate.
  • If you get pushback, offer to bill the retainer bi-weekly, in the middle of the billing period. That means no one will be out more than one week’s pay or work should the other party bail.

Here’s an example of what I mean by that last statement is: Say you’re offering to bill the client $2,000 every two weeks and you want to be paid in advance for the work. If the client resists, offer to stagger the billing by one week. That means they’ll pay you in the middle of that two-week period for both weeks. You’ve given them one week’s work on trust and they’re paying you in advance for the next week’s work on trust. This has worked well for me on two occasions where I was having trouble getting the client to agree to pay me up front.

Summary

Consulting can be stressful enough, especially if you’re completely independent, and no one wants to put in a solid week’s or month’s worth of work only to a client refuse to pay some or all of your invoice. Also, if you’re just starting out or have been without an assignment for a while, you probably really need the money and can’t afford to wait two weeks or a month to get it.

Strategizing to get paid in advance will greatly reduce your stress level. Just be aware that you’ll likely have to persuade the client every time, and you’ll probably have to give them an aggressive rate to get to where you want to go. However, don’t offer to work for less money than you’re comfortable offering. Remember: your professional work has a lot of value. Don’t sell yourself short.

Brad Egeland is a Business Solution Designer and IT/PM consultant and author with over 25 years of software development, management, and project management experience leading initiatives in Manufacturing, Government Contracting, Gaming and Hospitality, Retail Operations, Aviation and Airline, Pharmaceutical, Start-ups, Healthcare, Higher Education, Non-profit, High-Tech, Engineering and general IT. Brad is married, a father of 9, and living in sunny Las Vegas, NV. Visit Brad’s site at http://www.bradegeland.com/.

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