CXO

Special project? Consider per-day billing

If a project isn't suited for per-project or hourly billing, you might consider per-day billing. This article describes when it can work to the advantage of both you and your client and gives tips for selling the concept.


IT consultants usually bill clients either an hourly rate or charge a predetermined flat fee for the entire project. But what if you’re faced with a project that isn’t suited for either method?

For example, your project analysis tells you that the hours you work may vary considerably from day to day, making it difficult for you and your client to budget the project. Per-day billing—in which you charge a flat fee per day regardless of the actual hours you work in that day—could be an option.

In the right situation, per-day billing offers both you and your client significant advantages over other payment methods. In this article, I’ll discuss when per-day billing works, how to share its benefits with a skeptical client, and how to determine your per-day rate.

When per-day billing can be advantageous
I first thought of per-day billing the first time I traveled as a consultant for a client. I had developed and written the acceptance test that my client, several programmers, and I were overseeing while their client conducted the test on-site.

After the third day of testing, it was obvious my client was going to pass with flying colors. Celebrating at a local bar, one of the employed programmers let it slip to me that one of the contract programmers was billing hourly for all 24 hours of every day we were away.

Granted, this programmer had saved the day for the client many times and was truly indispensable, but what a sweet deal for him!

In contrast, to protect myself from unpaid downtime, I had negotiated that I would be paid the greater of either actual hours worked or eight hours a day. Sure, I got paid for eight hours the one day we worked only six, but then I sat around and twiddled my thumbs the rest of the day, since the client location was a few miles from the middle of nowhere.

The happy medium seemed to be somewhere between the highway robbery method of 24/7 billing and not being compensated for being away from home and unable to do as I pleased in my nonworking time. So, after talking with consultants I know in fields where per-day billing is more common than in IT, I came up with the following circumstances under which I propose per-day billing to my clients:
  • I’ll be away from home, whether for two days or 20. The nature and location of the work precludes me from being productive in my downtime. I can’t relax with my family, enjoy my hobbies, or do work for other clients. Plus, any job is made more stressful when I can’t go home at the end of the day.
  • The number of hours worked on any given day is likely to vary. Some days, I may be able to do only two or three hours of productive work because I’m waiting on something outside my control. I’m not willing to bill a two-hour day when I’m idled through no fault of my own and can’t just go home. Similarly, if I work 14 hours the next day, I don’t want to charge the client a premium when I don’t have much else to do anyway.
  • The client wants me to make a budget for the project and stick to it. In many cases, per-day billing provides the only way to accommodate such a request. I’ll be on the job for 10 days and charging x amount per day, so I can easily provide a budget that both the client and I can count on.

Per-day billing can be even more flexible. You can adapt it for use only for your travel time, and you can apply it to local projects under certain conditions.

Using per-day billing for travel time
Another idea is to employ per-day billing for your travel time, even if you don’t use it for the other days you spend on the project. If the client is paying your travel expenses, you may want to charge only half your day rate, in consideration that you aren’t actually putting in a full day of work for the company. If you’re paying your own way, charging your full day rate would be appropriate.

Using per-day billing for local projects
Don’t think of per-day billing as something to employ only when traveling. Because of the budgeting advantages for both you and your client, consider proposing it to a client anytime you’re facing a project that requires uncertain hours.

You don’t have to justify billing for idle on-site hours when you’re waiting on someone else, and your client doesn’t get an unexpectedly high bill if you have a marathon stretch of long days.

If you do so, you may want to protect your client by including a provision noting that you’ll charge only a half-day rate when you work five hours in a day or less. After all, when you work short days locally, you can do work for another client or unwind at home the rest of the afternoon, and your client shouldn’t have to pay for that.

Similarly, to protect yourself, consider stipulating that you’ll charge an additional hourly rate after you cross the 13-hour threshold. However, I write these limits into the contract only when I’m working locally, not when traveling.

Making your case for per-day billing
The first client to whom I proposed per-day billing was reluctant to try it, even though I thought it seemed a perfect fit for the project. So I asked the client to agree to per-day billing—at a half-day rate—for only my travel days.

The client said “no,” and we agreed that I would charge my full hourly rate for all travel time. As it turned out, my first flight was delayed for hours, I missed my connection, spent most of the night in the Dallas/Fort Worth airport, and didn’t arrive at my destination until the next day.

At the end of the first week of the project, my faxed invoice to the client included 18 hours of travel time. I immediately received an e-mail asking if we could amend our contract to include my original offer of per-day billing at half-rate for my travel home.

The moral of my story is that per-day billing not only protects you from downtime in hours worked; it also protects your client from excessive charges due to unanticipated travel delays and long days. Your client benefits from being able to plan on a fixed budget for your part of the project. Many clients will like the idea of knowing exactly what they’ll end up paying you.

Setting your per-day bill rate
You’ll notice that earlier, I set a half day at five hours and overtime at anything exceeding thirteen. That’s because I don’t base my per-day rate on eight times my hourly rate and because I want to really push it before I charge a client for anything over that day rate.

So how do you figure your per-day rate? You could approach it in either of these ways:
  • Multiply your normal hourly rate times ten. Because you’ll use this method when you are likely to be working very long days, don’t use eight hours.
  • Figure your day rate as the rate you would charge for the entire project divided by the number of days you’ll be working on it.

Of course, you can use any method that seems fair to calculate your day rate. Just remember that as with a per-project bid, per-day billing involves a degree of uncertainty about exactly how much you’ll work, so make sure the rate reflects that.

Meredith Little runs InfoDoc Services, a documentation consulting business she started in 1998. Based in Colorado, the company provides procedural documentation, knowledge management expertise, and solutions such as user manuals and online help to IT companies nationwide.


What works best for you?
Do you prefer to bill on a per-day basis or to charge by the hour? Have you ever gotten burned with either method? Post your comments and share your experience with us.

 

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