Consulting and billable hours

[jimmyjazz 46977]

I do a little engineering consulting now and then, and I'm curious to find out how those who have done similar work deal with booked hours.  If you have a contract that specifies an hourly rate but doesn't break down what might be considered billable hours, how do you handle things like on-site meetings?  To me, it seems like those should be on the clock.  Is that typical?  Same for phone consultations?  I'm not gonna charge for a 15 minute phone call, but if I spend an hour going over details of work I've done, it seems like I should charge for that.  

To me, it feels like I should account for my time once we have a contract, but not before that point.  Up until then it's just sales and marketing.  After that, it's work.  Is this a reasonable breakdown?

[Henry Hill 3156]

Time spent before signing an SOW should be attributed to business development unless otherwise stated in the SOW. For management consulting, we bill the hours we work per the terms agreed to in the SOW and typically bill using either a rate card that contains a rate by rank/blended rate or fixed fee. A thorough SOW can cut through a lot of the gray area.

[jimmyjazz 46977]

4 minutes ago, Henry Hill said:

Time spent before signing an SOW should be attributed to business development unless otherwise stated in the SOW. For management consulting, we bill the hours we work per the terms agreed to in the SOW and typically bill using either a rate card that contains a rate by rank/blended rate or fixed fee. A thorough SOW can cut through a lot of the gray area.

Thanks.  Does your typical statement of work address what I referred to above? 

[TwiceHorn 31987]

You probably should bill that 15 minute phone call if it's of substance.  A meeting that's of substance, also.  If it devolves into golf or hi-fi discussions, cut it down.

Professionals have a tendency to undervalue their work outside of a setting where they are encouraged to bill lavishly (e.g. a law firm with billing requirements).  If they're hiring you on an hourly basis, they should know what to expect.

Bill tenths of an hour and bill EVERYTHING that's legitimately spent on the engagement.  Zero it out on the rate ("no charge")  if you feel like it, but it probably builds less good will than you think.  If there are no entries that seem illegitimate, but the bill is too high, give a discount ("courtesy adjustment").

As far as I know, not many engagement agreements/SOW try to define what's billable and what's not.  A recurring issue is travel time (air travel).  The easy part is when you work on the flight.  A decent compromise, if it is a time suck that could be devoted to billable work, is to bill a small fraction (1/8) of your hourly rate for travel.  You spell that kind of thing out in the agreement.

Edited May 10, 2019 by TwiceHorn

[Henry Hill 3156]

20 minutes ago, jimmyjazz said:

Thanks.  Does your typical statement of work address what I referred to above? 

Travel time isn’t billed but meetings are, including prep.

[jimmyjazz 46977]

Thanks.  Does the client pay travel expense or do you?

[TwiceHorn 31987]

5 minutes ago, jimmyjazz said:

Thanks.  Does the client pay travel expense or do you?

For short car trips, that is usually just ignored, but air travel, the client usually pays, but the question is do you want to pay and bill it?  Sometimes a client will prefer to use their own "travel agent" or bookers for you, and that's nice.

Assuming you are just you, cutting down on "carrying costs" like fronting fees and travel is a good practice when you can get away with it.  Less risk of holding the bag, and less fooling with admin stuff.

If you are going to have longer car trips, agree on a per-mile charge.  Using the IRS table seems to be common.  https://www.irs.gov/tax-professionals/standard-mileage-rates

Edited May 10, 2019 by TwiceHorn

[jimmyjazz 46977]

To date most of my work is local, and all within Texas.  I've driven and eaten the miles, regardless of distance, but charged hotel.  Feels reasonable.  If I'm flying, I think they should be buying.

[TwiceHorn 31987]

7 minutes ago, jimmyjazz said:

To date most of my work is local, and all within Texas.  I've driven and eaten the miles, regardless of distance, but charged hotel.  Feels reasonable.  If I'm flying, I think they should be buying.

About right, I think.  At some level or point, a client actually loses a bit of respect if you are charging markedly less than you could.  If they are tiny firms with tight budgets, they will probably appreciate economy.  Big firms tend to have pretty rigid billing practices and will let you know what you can do or not do and as long as you don't break those rules, you're fine.  The mid-sized, healthy firms are the ones where you should bill ethically but "generously," in my observation.  You play it by ear, but those tend to be accurate observations.

Edited May 10, 2019 by TwiceHorn

[jimmyjazz 46977]

Those are good points, thanks.

[bernorange 8385]

1 hour ago, jimmyjazz said:

... how do you handle things like on-site meetings?  To me, it seems like those should be on the clock.  Is that typical?  ...

Our contracts stipulate all on site time to be billed at our standard consulting rate.  If the client is out of town, we also bill travel time, travel expense and, if applicable, per diem.

We aren't an engineering firm, so our phone consulting is usually covered under a maintenance and support contract. 

Hth.

[TwiceHorn 31987]

One final thing alluded to, but not discussed.  Sometimes you will have an occasion to "recycle" work product and achieve a real economy for yourself and the client.

In such an instance, unless it's a long-time client, consider a flat fee somewhere above the actual hourly work you expect to achieve with the economy, and the hourly work without the economy.  Like if it would be 60 hours at 100 to start from scratch, but you think you can get it done for 25 because you already have the model, consider billing 3000 or 3500 flat.  But add an hourly rider in case the client starts piling on because of the flat fee.  That's a good compromise between screwing yourself because you are good and experienced, and being tempted to bill time you didn't actually work.  Clients always love a flat fee.

[Henry Hill 3156]

20 minutes ago, jimmyjazz said:

Thanks.  Does your typical statement of work address what I referred to above? 

Travel time isn’t billed but meetings are, including prep.

[shakahorn 1655]

We handle travel time in one of two ways, depending on the distance and associated estimated travel time.  The base is 1/2 the hourly rate, one way.  So basically 1/4 of the time spent traveling.  The other is to specify a minimum number of hours billed for on site visits, usually 2.  Both of these are typically never questioned by the clients, so figure out which one is most beneficial to you, and go with that one.

For out of town travel, we bill actuals for airfare, hotel room, rental car, and a per diem (meals and incidentals) based on what GSA allows https://www.gsa.gov/travel/plan-book/per-diem-rates This is all spelled out in the SOW or Master Services Agreement.  We give our guys the per diem and they can choose to do whatever they want.  So they will typically eat fast food and pocket the rest.  Provide the actuals for the airfare hotel and car when you make the reservations or before the the reservations are booked if they seem expensive for whatever reason.

[Chewbacca 7827]

10 minutes ago, shakahorn said:

We handle travel time in one of two ways, depending on the distance and associated estimated travel time.  The base is 1/2 the hourly rate, one way.  So basically 1/4 of the time spent traveling.  The other is to specify a minimum number of hours billed for on site visits, usually 2.  Both of these are typically never questioned by the clients, so figure out which one is most beneficial to you, and go with that one.

For out of town travel, we bill actuals for airfare, hotel room, rental car, and a per diem (meals and incidentals) based on what GSA allows https://www.gsa.gov/travel/plan-book/per-diem-rates This is all spelled out in the SOW or Master Services Agreement.  We give our guys the per diem and they can choose to do whatever they want.  So they will typically eat fast food and pocket the rest.  Provide the actuals for the airfare hotel and car when you make the reservations or before the the reservations are booked if they seem expensive for whatever reason.

You sound like you do what we do.

[Upgrayedd 5861]

For our pre-con stuff,  I’ll stipulate in the agreement how many meetings, how many drawing reviews, etc. I allowed for.  I’ll bump that up by 33% to cover the misc stuff and note that we can always go straight T&M if they want.  I’ll include a travel allowance to be reconciled if it’s out of town.

During construction I’ll stipulate how many site visits and reporting frequency, format, and scope.  Bump and come up with a flat monthly rate.  

I use the fully burdened rate to calc out the fee.  Hours actually spent fluctuates depending on where the project is the timeline.  I rarely go over the monthly budget for hours.

 

[luke duke 6445]

Clients always love a flat fee.

No they don’t. The main client at my last job always thought that they were getting ripped off if we suggested a flat rate job.

[Capt 235]

Two words
Lump Sum
$$ Profit

[Nice Guy Eddie 13707]

Always good to discuss these items as early as possible and have them documented in the agreement. 

When I used to consult, I never thought there was anything wrong with billing for my time as long as I could confidently document what value I produced during the billable time.  The real problems are for clients that want extremely short consulting work each week. I had one client that wanted about 3 hours per week on-site but I was wasting about 1 hour commuting.  We had an agreement that any time under 4 hours included commuting. Because he was taking me away from other potential work driving to his office at 1pm.  Buy my entire day and the commute is free.

Some clients really have no understanding how consultant time should be billed. They get real stingy when they believe you are taking advantage of them. I always never wanted to surprise them. 

[Capt 235]

I would try to bill all my waking hours at tree fiddy

[TwiceHorn 31987]

4 hours ago, luke duke said:

 

No they don’t. The main client at my last job always thought that they were getting ripped off if we suggested a flat rate job.

Depends on the client and job.  If it's a big or complicated job, then it becomes extremely difficult to estimate, you're going to protect yourself, and that means lots of cushion, most likely.  Client perceives the cushion and qed ripoff.

If it's small enough to safely do a flat fee on, with an appropriate cushion, client will probably love it.  Easier to budget, no uncertainty.  I wouldn't try flat fee for much above 10k if even that.  Also assumes one or two timekeepers.

Edited May 11, 2019 by TwiceHorn