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Billing for research on IT consulting projects

Chip Camden gives a TechRepublic member advice about billing clients for research, which he notes can be hard to estimate.

I received an email from a reader who prefers to remain anonymous, which read in part:

I am interested in finding out if/how you charge your clients for time researching for their projects. I'm just starting to work with a company and they want me to start up a new division of their company, want to pick my brain on how I would do it...but we have no contract in place. I currently just get paid for specific projects but this research and developing is totally different. Should I charge by the hour...?

First and foremost, this consultant needs to establish a contract with her client. Working without a contract not only relies upon the good will of your client, it can also create ill will through misunderstandings of undocumented agreements. While you're crafting that contract, make sure it addresses research work.

As far as charging for research, the short answer is "Yes." It depends somewhat on how much research the job requires, and what kind. Research-based projects form the majority of my consulting work, so of course I bill for that; it's one of the most important sources of value for my clients. Some consultants might not charge for a brief conversation along the lines of "Can you do this for me? / Yeah, sure" because they're going to make their money from the implementation instead. I've found, though, that if you establish a pattern of not charging for informal consultations, they increase in frequency. You are, after all, a consultant. You should get paid for consulting.

I have, on occasion, made exceptions for initial research when the client could easily find someone who already knew the answers, but decided to give the business to me anyway. In consideration of their loyalty, I didn't charge them for educating myself. Even that, though, should not become a codified policy. Otherwise, the edge cases will grow. It's amazing to me how often a client will ask for something, expecting that it should be no big deal because surely someone has already solved this problem, only to find out that either nobody's ever done this before or they didn't leave any trails. You don't want to be in the business of continually justifying your bill, so state the policy that you bill for all research, and reserve freebies for exceptional favors.

Of all types of consulting work, research is probably the hardest to estimate. You can't know what it will take until you research it. Therefore, I usually bill by the hour or by the day. If the customer needs to budget it, I'll offer to spend a fixed amount of time on it and report back to them to see how they want to proceed. It's usually a good plan anyway to report back often, so the client can see where you're going with your research and change your direction if necessary. The last thing you want to do is submit an invoice for thousands of dollars of research only to be told, "You misunderstood the question."

Just because you bill for research based on time spent doesn't mean that you can't bill implementation by the job. You just need to spell that out in your agreement, and be ready to dicker over the distinction. What if the project requires additional research after the implementation has begun? I find it easier for everyone involved if I just bill for time spent throughout the project, including post-implementation support and revisions.

As far as how much to charge for research, I find it simplest to charge the same rate as for other work, for the same reasons of simplicity.  If you're billing implementation by the job, then you need to come up with a separate figure for research. Just like any other price determination, you need to base it on the value you're providing to the client. If you don't get any price resistance, then you're too low -- because nobody likes to part with their money. Examine, if you can, what their alternatives would be. Consider the ratio of affordability to value that each one of those alternatives would provide, then scale your price accordingly. There is no right answer -- in some markets you might be able to get $500 an hour, in others only $50. Then once you've determined what you can reasonably charge, you can decide whether you can afford to do business at that rate.

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...

26 comments
prh47
prh47

But you can teach the knowledge of facts that are learned through experience. But experience isn't just the knowledge of facts. It's also the knowledge of how to link together and use other knowledge, and that's difficult to teach. Knowledge of facts can become obsolete, but experience never becomes obsolete.

mtpemberton
mtpemberton

I owned and opperated a consulting firm for 8 years after having worked for one for 4. I don't believe in charging for research (within reason). First of all, your client shouldn't be paying you to "go to school". If it's a standard technology that I'm researching, I can always sell the obtained expertise to another client later on. I wouldn't expect an auto-mechanic to bill be for learning how to replace a radiator (bad anology, but you get the point). If your dilligent in your research you will be presenting the client a well designed and thought out solution that will pay for your research time and leave the client happy. Just my two cents.

clarity1
clarity1

thank you to all for this discussion. as a provider of service support and advice 'freebies' are a real problem. many clients don't want support contracts but think it ok to phone and 'ask a quick question'. that's how to lose 2 hours in a day. Doesn't this issue underline the need for constant time checks to see if we are really using time wisely? I will answer a truly quick question, but a 'this requires a visit to correctly answer' usually sorts out who is in earnest. In my industry there are many 'flash startups' but to really last you have to get on top this area.

biancaluna
biancaluna

I looked back at the consulting work I have undertaken to date and like Glen mentioned, you can categorise the research into different types. I typically add a feasibility and discovery service in my SOW to the client, and I include it as a standard in every WBS or PBS when planning a project. That way I have some budget already allocated to research, and if there are clients who question the need, I have plenty examples in my bag of lessons learned to provide advice why discovery is needed in a project. The other structure I have put in place in the past is a bucket, i.e. let's allocate a bucket or ceiling to a piece of research (be sure to agree on an outcome, nothing worse than not having an outcome and deliverable established up front, that way you and the client both know what your goal is and there can be no misunderstandings) and time boxed the research. I also agree with Glen to bill research you "swallow" to Client Self, that way you can do some activity based management reports at the end of the year and look at trends. It assists with directing your education efforts but also to tailor your services and rates better. In Chip's example, that to me sounds like a feasibility assessment. Also, I typically have an activity in the WBS/PBS (depending on methodology) for handover, that neatly covers any additional research and doco post implementation. it is also good practice to provide a post implementation report with recommendations for follow up, either scheduling a piece of work to measure against the success factors or bed the system down and look at anything that needs to be changed or tweaked. The more experienced you become, the more you know what to add in for the X factor. I do absorb some research, sometimes you share the risk, sometimes you suck it up yourself. But always know how much and where and how. It sounds like overkill, but if you do not analyse your business, you cannot change rapidly so record and document and report to yourself at the end of the year how much you spent on unfunded research. Afterthought: It is interesting that there were some comments that there are things that you should probably know. But my view is that this is not the crux of the matter, how could certain technologies fit into the client's environment and business, has it been done before, what are the risks, are there use cases or case studies in similar industries. That is what we bring to the table - decision analysis. All billable work.

a.portman
a.portman

I took this as the key part: "I???m just starting to work with a company and they want me to start up a new division of their company, want to pick my brain on how I would do it." They are asking for your advice and expertise. These are the things you get paid for. In a non IT position, I have been asked about something very similar. (I was in charge of a major fund raiser for a non-for profit. I was asked about how to duplicate it in a different part of the country.) I started up front. We can talk for 30 minutes for free. After that, we need to come to an arrangement. Setting up a division is different than the time you would need to research and learn new software. It is billable.

PMPsicle
PMPsicle

I solve the problem by breaking my research into three ... 1. The customer asked 2. I need it to answer 3. I want if for me. I do a lot of training and education projects now and I've let practice in that area drive my policies. If the customer asks me for anything involving research it's on their dime. And I charge at least at my regular rates. This covers those R&D projects where the client figured that the answer would magically appear. If the customer has asked me to do something and in order to do it, I need to research. I also charge. For example, if I'm writing and I need a quote I'll charge for the time to find the quote. This type of (usually simple) research is just part of the job. However, I also do a great deal of research focused on either a) improving my skills b) preparing a product In the former case, it's part of the profession and I swallow it. If it's part of the second I also swallow it. HOWEVER, in both cases I'm actually charging the time and costs to an internal project. And it's the internal project that I'm really swallowing the cost of. In that way, I'm always sure to be accounting for the research time. And charging for it. Even if I'm the one paying the bill. Glen Ford http://www.vproz.ca http://www.trainingnow.ca

RTHJr
RTHJr

There is also a gray area in working with software support. Software publishers of especially vertical applications just about count on their clients reporting back findings and acting as the Guinea pig. But small clients will tend to outsource to IT specialists rather than dealing with the software publishers themselves. As far as perception goes, the client normally would accept paying for a couple of hours of working with technical support, loading test data, capturing screen shots, etc.; but the perception will quickly change if it delves into the 80% of the program the small client generally does not use at present and may only dream of using in the future. So it becomes a situation where you are more or less working for these software publishers, and not getting paid for it. It is at that point I stop unless from the goodness of my heart, professional education growth and interest, or garnering a reputation; and often the question comes up by the support representative: "So what do you do for a living?"

prh47
prh47

I'm a novice at consulting, and I appreciate the perspective on charging for research. A rule of thumb for me is that if I can reasonably be expected to already know something, then I shouldn't be charging to learn it. On the other hand, if the information is specific to the client, and it will take a significant amount of time to discover it, then I should be able to charge for the research. Research done in order to determine whether I want to take on a project, however, is my own expense.

xuanlocvietnam
xuanlocvietnam

You should include more about video surveillance systems consulting market.

JohnMcGrew
JohnMcGrew

By willingly offering "free" advice from the onset, what you are really doing is setting expectations for the future. Not only will the client continue feel free to exploit you in this way, they will resent the day when you start to charge for it. Better to bite that bullet at the onset. And remember: There are few things in consulting more frustrating that offering up hours, days, or months of "free" advice, only to watch that client then take that information and do the project cheaper with someone else.

FreeStanler
FreeStanler

Thanks for great article, will keep it in mind should I start to do more research...this is applicable to most fields of consulting, I would assume.

Sterling chip Camden
Sterling chip Camden

Research is a large part of what I do. How about you? Is it incidental, or central?

JohnMcGrew
JohnMcGrew

...but what I do charge them for is time I spend figuring out how to implement technology into their unique situation. There is a big difference. I wouldn't expect an auto-mechanic to charge me to educate himself as to how to install an ordinary radiator. However, if I had some kind of highly unique vehicle that few have ever worked on before, I would. As for re-selling previously learned technology: Years ago, I'd have clients suggest that I should "discount" my fees because I could take the knowledge gained on their job and apply it to future work. My answer to this was that I'd be happy to apply a discount for the "new knowledge", but I'd have to add a surcharge for the "old knowledge". The bid would be exactly the same.

Sterling chip Camden
Sterling chip Camden

All good thoughts. Re: the question of "things we should know," we could always ask -- if this question is common knowledge, then why is the client asking it? Obviously they need an answer they don't have, so why shouldn't that be billable?

Sterling chip Camden
Sterling chip Camden

Good advice, as usual. Especially about accounting for time you don't bill the client. Otherwise, it's easy for those unaccounted freebies to eat away at your capital.

Sterling chip Camden
Sterling chip Camden

If the software company is expecting you to do testing that they should have done, then they're taking advantage of you. But often I find that customers use software in ways that the vendor never imagined. One could argue that they should have imagined it, or that they should have designed it in a more adaptable fashion, but the breadth of possibilities may be endless.

Sterling chip Camden
Sterling chip Camden

Remember, though, that anything you spend your time on that isn't billable needs to get covered by your billing rate. Too many consultants set their rate thinking, "$X an hour is great for this kind of work" without realizing that they need to add "and running a business and educating myself and paying for my benefits and ..."

Sterling chip Camden
Sterling chip Camden

But it needs to be at your discretion, not as a matter of policy. And when you give it, make a big deal out of it.

Sterling chip Camden
Sterling chip Camden

... although different types of consulting may require more/less research.

Sterling chip Camden
Sterling chip Camden

I guess that's why my fees are so much higher than they used to be -- it's all that "old knowledge".

biancaluna
biancaluna

Sometimes clients ask me so how can we implement ITIL as a service delivery framework for our applications support group? How can Kepner Tregoe Decision Analysis help me select the best option for my requirements? The subject matter may be common knowledge (and even that is at times debatable) but how to apply it is not. I was referring to the response by prh47. Common sense and common knowledge are not that common are they.

JohnMcGrew
JohnMcGrew

...that keeps us worthwhile in the marketplace. You can't teach experience.

Sterling chip Camden
Sterling chip Camden

... things like reading the vim cookbook to refresh your understanding of some of its more advanced features, even though your resulting boost in productivity might save the client more time than you spend on it. But I wonder how far that applies to things that the client asked you to find out. In practice, there's always an overlap between reusable and non-reusable knowledge.

prh47
prh47

My mention of things that I would reasonably be expected to know is more along the lines of a carpenter needing a particular kind of hammer in his tool set to do a job, not having it, going out to buy the hammer, then charging the customer the purchase price. Although the carpenter's tool purchases may ultimately be paid for by his customers as a group (and I believe there's no problem in that), to have a single customer pay for a particular tool (when that tool is for general use) is different. On a different theme, I like the idea presented here of accounting for all unbilled work, even when it can't be directly associated with any particular project. I'm going to start doing that. Thanks for the idea, PMPsicle.