One of the many challenges that freelancers and agencies face, is how much to invoice for contract work. Especially on a business’ onset, you need to make sure you charge fairly for your efforts but, at the same time, remain competitive in order to attract more clients.
So, if you are a freelancer or a start-up business still struggling to break even or generate profits, you might want to take a second look at your pricing policy.
We are here to help you get through this by providing you with information on the most important questions. We have previously discussed the different ways you can bill clients according to your business model. However, this article is about distinguishing between what you actually bill and what you should be billing - the trickiest part of your invoicing process.
Many services-based companies bill by the hour, especially freelancers, consultants, graphic designers etc. When it comes to invoicing and billing, they have to invoice the hours spent carefully and offer clear charges to their customers, so as to avoid disputes down the road.
So, the one question that pops up naturally is, “How to write an invoice for my freelance work?”. Let’s break down all the necessary steps, then!
What an invoice for time worked should include
In order to convert your hourly rates into an invoice for work done, you need to start tracking those hours by using a reliable tool. There’s always the option of writing down everything or using an excel spreadsheet, but why do that when there are so many smart applications that can do that for you?
Using a freelance time tracking and billing software will help you organize your projects to the last detail and bill your clients easily, so give it a try!
How do you calculate billable hours and round up your time?
First, we need to define what is a billable hour: It is the time worked on a business matter, that is going to be charged to the client based on the contractual agreement between you.
There is no legislation outlining explicitly what your billable hour should be according to your niche, but there are commonly followed practices.
Usually, professionals like accountants, lawyers and consultants sign contracts with their clients in which the billing method is clearly outlined. In this case, it is common that the billable hour may not refer to an hour per se, but the sum of tracked hours rounded up to the nearest time increment.
Some freelancers choose to round up to 15-minute increments whereas others to the half-hour. This practically means that if you have been working on a project for 3.10 hours with the 15-minute increment you will charge 3.15 while on the half-hour round up your billable hours are 3.5.
What to do to make invoicing your time easier
One of the obstacles you might run into when writing an invoice for hours worked is separating the time spent on the client’s project from other tasks that are also pertinent to it but not directly derive from it. This could present itself in a number of ways: Progress meetings, requests that are out of the project’s scope or even training in new technologies required to complete a project.
To combat this ambiguity, you need to use a billable hours tracker, like Elorus and split your tasks into billable or non-billable.
Also, you need to decide how much you actually charge:
- Per hour or project: This is the right time to look for those common practices we mentioned above. You can google them or simply ask your accountant’s advice on the matter. Find out how much other professionals in your field typically charge and tailor the rate to your needs and goals.
- Per customer: Some projects are more demanding than others, so this means you need to adjust your rates to continue being profitable. Additionally, different clients need different account management in order for their business to be worth your while and compensate you for your non-billable activities.
We firmly believe that you should factor some non-billable work into your billable hour so you can sustain your company and grow it further.
Most freelancers use non-billable hours trying to learn new skills and expand their team, so they can offer top-quality services. Your rates need to reflect those efforts as well, however, this remains a business decision that depends on your company’s goals and pricing strategy.
Moreover, this could be needed especially in cases where a client prevents you from making meaningful progress or keeps demanding that you work additional hours for which you cannot bill them.
Charging by the hour enables you to get paid for your actual work but make sure not to take advantage of it in a negative way. Do not charge for time spent on Facebook, unless you are the social media manager.
What the billable hours’ invoice template looks like
Your invoice template should include the sum of billable hours organized per project or task, so the client is fully aware of what they are paying for. So, instead of using a “Products” column, you might want to adjust the wording to “Services/Project name/Task name”.
Respectively, instead of using a quantity column you will need a measurement unit which refers to time such as man-hours/minutes/working days etc.
Time billing applications, like Elorus, offer a variety of options to choose from so that invoicing your projects becomes easier and fast.
All other the factors on your invoice template remain the same - it’s quite simple!
For example, a consultant invoice sample would be something like this:
|Services||Measurement Unit||Hours||Net amount||VAT 20%||Total|
|Employee evaluation consulting||Man-hours||25||$ 2,500||$ 500||$3,000|
A word on estimates
Tracking your billable and non-billable hour is also going to help you draft accurate quotes for potential customers. Once you’ve sorted out how much you should be charging for your services it is easier to include all the necessary project components to your estimates and sign better contracts!
Automate the time tracking and invoicing process
How? Time tracking apps usually provide ready templates along with automated calculation of quantities and taxes. This will help you avoid common mistakes that leave you exposed to your customers and save time. Remember: Time is money - billing your actual time will inevitably increase your revenue.
Taking it one step further, Elorus offers Time tracking, online billing and a client portal feature that allows full transparency between you and your customers. Just make sure to track your billable time and leave the rest to us!