Project Management

Are you pouring your consulting fees into your gas tank?

The rising gasoline prices in the U.S. is causing some consultants to think about how to account for these costs in their billing. Let us know if and how you're accounting for the high cost of fuel.

As with any business, consultants must charge their clients in one form or another for costs incurred during the course of performing their work if they want to make money in their profession. Generally, we either include these expenses explicitly on our invoice, or we include them in our usual rate. Part of the art of billing and collections is in deciding which goes where.

When a particular expense is extraordinary and not a part of the usual conduct of business, we tend to bill for it separately. Thus, we often expect reimbursement for travel expenses when that involves air fare and a hotel stay, but we might consider the price of driving across town to be our responsibility.

However, the recent rise in the price of gasoline might be changing some of that. According to nationalgasaverage.com, prices in the United States are about a dollar a gallon higher than they were a year ago, and the general trend is still upwards. At around $3.50 a gallon on average, a 20-mile drive isn't going to break the bank, but a 100-mile drive could take a significant chunk out of what you charge for a short client visit. In a high-traffic metropolitan area like New York City, even a drive across town could get expensive.

TechRepublic member Bob Eisenhardt (reisen55) says that he's considering how to build this added expense into his fee structure for clients who reside at marginally remote distances. He's also concentrating on locating new work that's closer to home, and doing more work via remote connection.

I can think of a number of ways to account for these costs in your billing. You could:

  • Raise your rates across the board. This has the advantage of simplicity, but unfairly penalizes your local clients.
  • Add a "trip charge" to your invoice. This is more fair, but complicates your invoicing. And by complicates, I don't mean that it's more difficult for you. Rather, it gives the client something to question and resent.
  • Charge a different rate for on-site vs. remote consulting. This is almost as complex as the trip charge option, but less equitable because a longer visit pays more for the same travel overhead (assuming you're billing hourly).
  • Charge a different rate to each client based on their distance. This has the advantage of a simple bill, but it unfairly penalizes clients when you don't have to go on-site.

Someone will undoubtedly ask, "What's the problem with charging some customers more than you need to?" It isn't a problem, unless it makes you less competitive than you need to be. That will depend on your specific market.

About

Chip Camden has been programming since 1978, and he's still not done. An independent consultant since 1991, Chip specializes in software development tools, languages, and migration to new technology. Besides writing for TechRepublic's IT Consultant b...

19 comments
Developr
Developr

I have pretty consistently been charging approximately half my normal billable rate for all time I spend travelling to a client. It usually at least covers the gas and depreciation and also gives both me and my client an incentive for me to not travel onsite unless necessary. It also makes accounting for it pretty simple. And charging for the time I'm travelling and not the mileage helps protect me somewhat when traffic is bad. This system seems to work well when talking about the benefits of remote support for my clients.

dexpcdoc
dexpcdoc

Two years ago increased my hourly rate across the board for all of the 12 offices I visit for one organization. In addition I charge $5/hr more for 2 of the offices that are much farther away. However now that gas prices are on a sudden rise I'm considering another way to account for it other than increasing my hourly rate another $5/hr across the board. Since I know the mileages to all the offices I would calculate a gasoline surcharge based on mileage to the office, miles per gallon for my vehicle, and the current price of gas per gallon less $2.75. $2.75/gallon was the average price in my area two years ago when I last raised my hourly rate. Consequently I would charge the same hourly rate for all offices. Admittedly there is a fair amount of bookkeeping here although I already record the location and mileage daily. However it does have the advantage of holding the hourly rate the same, charging the same hourly rate for all offices regardless of location, and separating the increased travel costs from the services I actually perform.

Polymars
Polymars

The fuel prices and running costs that are quoted make us here in the UK green with envy. Our costs have been double those of the US for a long time. Being a real smart guy I spent a couple of years driving around the countryside supporting clients at a very competitive hourly rate and congratulating myself on what a good guy I was and all the while buying fuel with the credit cards. Yep! You probably guessed it- all the cards are maxed out and I have had to come up with a new way of working. If you leave your office to visit a clients site the day is pretty much used up and so the rule now is either we support on line or the client pays the day rate; guess what! 90% of my clients are supported on line and the 10% who insist on site visits are no longer a drain on resources. Have I lost any clients? Yes, one or two but I am happy to let my competitors go bust supporting them.

todd_dsm
todd_dsm

Every server is an equal distance away from your office. Remote logins have saved me this very headache. And, of course, everything is scriptable. I have a few clients left that are still afraid of making the switch. If you can't make Linux work for you, schedule some maintenance time with each client to install/configure MS Terminal Services Server: http://technet.microsoft.com/en-us/windowsserver/dd448619.aspx Explain the problem with travel expenses; then explain the alternative in simple math. I promise they will understand. With TS you can access any client server remotely from your office workstation. No need to alienate your client by jacking up the prices. I hope this helps. TT

billyg
billyg

I have for years felt that there is never fuel to waste, particularly when it has a negative impact on the META-economy, that is the environment. I have a very comfortable car that serves all of my purposes and gets 45-49mpg on the freeway. It is nicely appointed in leather and no client that gets in that car turns up their nose at it. It's a reasonably priced 2002 VW Jetta turbo-diesel. The point is that conservative options exist that aren't extreme in cost or complexity. An earlier post mentioned Europe's response to high fuel cost. We can benefit from it individually and collectively by examining their response and improving on it. If more of us create demand for cars like mine, the US auto industry will respond.

Regulus
Regulus

If your 'Ride' had a 'new' value of in excess of $20,000.00 and you get less than 25 miles per gallon, you can afford anything that they charge at the pump. You are a 'Consultant' and advise others on how to run their business and probably also are involved in providing parts & service(s). That means that you are a 'Big Boy' now. You are responsible only to yourself for your decisions. Just remember, if you trade in your 'guzzler' for a new, 'Hi-Tech "greenie"', the bottom line will probably cost you twice as much as $5.00 per gal gas over the next few years. Another thing that you don't want to hear is that most Europeans have been dealing with +$5.00 per gal gas for as long as they can remember. Many of them even apparently have healthier economies than we (USA). BTW, how often do you check the price of milk? Or even printer ink (est $5200.00 per gallon. Hey, Tech Republic, haven't we got something better to quibble about?

Developr
Developr

I use a reduced travel rate and always bill for the time it takes to get to and from the client. This rate is approx half of normal hourly billing rates; it allows both the client and me share equally in the expense of travel and helps reduce unnecessary calls from the client. It is supposed to help offset the cost of travel including gas and car depreciation, pay for some of the labor time lost while driving, and provides a financial incentive for the client to allow me to do whatever work I can remotely, since remote work involves no travel expenses.

ndveitch
ndveitch

I have been working in consulting for the last 4 years and I'm in South Africa. The way the companies that I have worked for over the last 4 years do it is, they charge a flat rate per kilometer that is driven which is worked out to cover all expenses for your car. These rates are worked out by taking the national average for business travel worked out by the AA and then a fixed amount is added onto that. So for example, if the AA state that an average cost for travel is X, then we add a small extra charge to that amount to accommodate for price increases. When the SLA contract is first signed with the customer, they are made fully aware that the hourly rate is for work done and that the travel portion is a set figure. The travel portion will be the distance for a round trip from the office to the client and then back to the office. Then the customer knows, that should we do remote support the bill will be less, but should we need to do to their office, the travel will be added. Working out this one has some pros and cons. On of the nice things is that, if you have many clients to see in the day, and you can manage your schedule correctly, you can score a little extra, as the travel cost is already agreed upon between the company and the client right at the beginning, and as you can guess, should you have one of those days were you are on the other side of town, you can't bill the customer more as the distance agreed upon is only from your office to theirs. This seems to work out for the best for both the client and the company. Also with the charge being a bit above the national fuel average for distance traveled, this extra portion is to cover things like tires, services, oil etc.

JG2000
JG2000

I don't charge mileage or travel for clients that are 50 miles (one way) or less from my office. For clients outside this radius, I charge what I will get to deduct on my taxes, for 2011 this is 51 cents per mile. With the 50 mile radius, clients understand. Also the mileage rate works out OK in regards to the actual drive time.

Alpha_Dog
Alpha_Dog

Nope, I don't mean laying off half your staff in a misguided effort to save money... make your operations smaller. After I hurt my back trying to awkwardly lift my tool bag, I decided to lighten my load. Out came everything I didn't use for years. Coax strippers, crimpers, thin net tees, AT to PS/2 adapters, all gone. Tools which solve more than one problem replace multiple single use tools. Large lamps are replaced with their LED counterparts. Ladders are replaced with collapsible ladders manufactured by Xtend-n-Climb. We replaced 300+ pounds of tools (we do network and equipment installations as well as PC maintenance) with just over 80 pounds, of which less than 7 pounds are used on 90% of jobs. This change also made our kit much smaller. The 8 foot ladder was replaced by something that collapses to about 2 1/2 feet by 2 feet by 8 inches. Everything can be put in the trunk of a compact car. This brings me to another point. Just like the rest of the tools, downsize the vehicle. Our friends in Europe never had the "bigger is better" mentality we had in the states, but there are probably those who can make a cut or two. We needed gas mileage, covered loading for boxes, and enough room for our tools. After a long process of selection, we settled on purchasing several used Volvo 850 wagons. They have the best longevity, get 30 miles per gallon (double of the pickups they replace), and fit a large amount of inventory in the back. It's also a comfortable vehicle to drive (we cover a 250 mile radius) and may be vehicle wrapped for advertising. For those of you buying new, the Chevy HHR was our second choice with similar statistics. The result is higher efficiency and less overhead, but a downside is that our techs cut the time needed to do a job. This is great for our clients, but cut into the billing somewhat. This required us to raise our rates (long overdue) as well as charge more per mile for travel.

melbert09
melbert09

It???s not just the cost of petrol that is going to hurt you; it is also the location if it is unfeasible to commute to from home on a daily basis. I recently turned down a contract in Switzerland because the Cost of Living was way too high, even though the day rate was really good (Cheapest Hotel ??130 per day). I???m currently have a contract up in North England, but had to find a place 20 Miles away and commute in by train due to the cost of hotels and long term stay places here. It's not too bad though, it???s only a 35 minute commute and half the cost of the work location. The biggest challenge now is finding a nice pub... :) Bottom line is that it can be a combination of cost issues when working at a clients site.

santeewelding
santeewelding

Goes all the way from niggling every miserable penny -- to arm and a leg because you can, and everybody happy. I wing it, still; going on 40 years.

JohnMcGrew
JohnMcGrew

...but are charity. You didn't lose business.

timl006
timl006

Regulus, I won't presume to know what your status is vis-a-vis the effect that the cost of fuel has on your bottom line. I can tell you, however, that in just eight years, the cost of regular unleaded fuel in Canada has gone from 80 cents per litre (about $3.20 per US gallon) to almost $1.40 per litre (~ $5.60 per US gallon). I remember going on vacation a few years back and commenting on the fact that gas costs have risen from that of minor annoyance to a major part of one's traveling expense. Translate that to cost of doing business. Regardless of one's industry, if your business requires constant consumption of fuel, you are well within your rights to pass it on to your customers under normal circumstances. Perhaps there are some instances in which such a decision is unwarranted but I would argue that such cases are rare. Just ask the airlines. In short, it really is something to "quibble" about.

Robert Flum
Robert Flum

IRS changed mileage rate to $.555 on July 1 through December 31, 2011.

JohnMcGrew
JohnMcGrew

For in-town clients, I typically charge my hourly rate for 1/2 of the travel time to any client that is more than 30-minutes away. That more than pays for the gas.

mattohare
mattohare

I've usually used public transport when I could. I can use the travel time to work. When I was living in Portland (Oregon), I had a client that was an hour to the north by Amtrack. I'd use the hour out to prepare for the visit so I had everything in mind when I got there. I'd use the hour back to compile and digest everything before I forgot it. Now that I live about 45 minutes out of Belfast, I do the same thing with those cliens.

Alpha_Dog
Alpha_Dog

We raised our mileage rate which we charge beyond a 25 mile radius (within this, mileage is free). We also raised our rates, but this was due to our undercharging in the first place.

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