No matter if you work on an hourly rate or charge a flat fee, time tracking is extremely important - not only because you can track how productive (and profitable) you really are, but because how much you earn depends on the time you spend working.
Hourly Rates vs Flat Fee
Most agencies and freelancers charge by the hour. They have hourly rates for different job types (like design, writing, development) and quickly create invoices based on the time they spend on particular tasks.
Charging by the hour has become a norm and clients don’t fear it as before. But there are still some clients who don’t like the open-endedness of time tracking. They have a budget, a clear idea what they need, and paying by the hour is risky because they can’t control it.
When searching for a contractor, a client just wants to knows whether the contractor can develop an app and how much it’ll all cost. They don’t need to know how you calculate work hours and whether you decide to spend 30 hours on design and 60 hours on development, or vice versa. They just want to know the bottom line.
So when managing client proposals, you first need to determine whether you’ll charge by the hour or a flat fee.
Charging by the hour is the best solution for you because it has the least amount of risk. The client is less likely to ask for rework or change project scope because they have to pay for any extra work. As far as you’re concerned, they can ask for a thousand revisions, as long as they pay for them.
A common error first-time freelancers and agencies make is to charge a flat rate for a whole project. Then, they’re stuck with a huge project in development and the client keeps asking for more and more work, thus delaying milestones and payment. In the end, newbies spend a lot of time making the client happy but end up earning nothing.
There are some instances where charging a flat, until-client-is-happy fee is acceptable:
- When you can estimate with 100% certainty how long the work will take;
- You can finish work faster than estimated;
- Small jobs that take less than a couple of hours, at most;
- You love working on a project and don’t care how much time you spend.
A good rule of thumb when it comes to charging:
- If a project is complex and prone to scope creep, charge hourly rates.
- If you’re doing routine and small jobs, charge a flat fee.
How to Track Time
The best way to track time is to keep time records associated with the tasks they belong to. So if you’re working on a task “Roadmap page” and you spent 5 hours on it, log that time directly on a task so you can keep all the information in one place for later reference and billing.
Let’s say you agreed on 200 hours for a project and you divide that time like this:
- “Roadmap page” takes up 40 hours of design and is assigned to Dora
- “Log-in form” takes up 120 hours of coding (Dale) and 40 hours of testing (Jake)
So you create the tasks, put estimates next to each one, and then let team members log time records.
Dora works for 3 hours on “Roadmap page” on Monday and 5 hours on Tuesday, and each day she adds a time record with comments on what she did (either manually or via a timer app). For “Log-in form” , both Dale and Jake add their own time records and comments.
Once you have a system in place and people track time, you can:
- Monitor how much of the estimated time/budget you’ve spent;
- Identify tasks that are taking longer than they should;
- Learn where you make bad estimates;
- Present the client with a detailed breakdown of what you worked on;
- Invoice your work in under a minute.
Once you can prove how much you’ve spent working, you can charge for all that time. Agencies often spend more time working on some tasks but they can’t bill for that time because they can’t prove it. If you’re organized and keep track of everything, there’s no chance you’ll lose money on non-billable work.
The best way to track time is to use a timer that has all your tasks in one place and which will automatically store time records when you stop working. This saves you from administrative work like entering time records in a timesheet.
In some instances, manually entering how much you’ve worked is faster. For example, you may be in a meeting and running a timer would be inconvenient. In that case, it’s easier to finish the meeting and log the time afterward. Or, if you’re switching between different tasks often and don’t want to bother stopping and running the timer every few minutes, just work and dedicate the last 5 minutes of your work to add time logs.
Getting the whole team to track time is a chore. People don’t like filling out timesheets no matter how important the activity is.
To make sure people on your team log their time, follow these rules:
- A task can’t be worked on before it gets an estimate.
- Each time log has to have a comment, explaining what was worked on.
- A task can’t be completed if it doesn’t have logged time.
- Check each day if the time logs were entered.
- Let each team member install a timer app and use it to track time.
- Frown upon entering time logs manually and ask a person to explain why they did it.
Don’t incentivize entering time records or creating bonuses for people who log the most time. People will hack the system, one way or another.
If you’re just starting out, you’ll work a lot because you can’t accurately estimate how much time you to need for various tasks. The key is to make an estimate and track time against it. Any kind of estimate is good for a start. As you work and see where you underestimate/overestimate, you get better at it. But to get better, you need data - and that comes only if you track time.
You need discipline to estimate and track time regularly. Some people don’t track time because they think it “slows” them down; but spending too much time on a “quick” task hurts their income much more than a few minutes it takes to make an estimate and add time records. Never work on a task if you don’t have at least a ballpark idea of how long you’re going to need and then see if the estimate is correct.
Once you made an estimate, recalibrate it as you go so you can improve your project proposals. When you have realistic estimates and a proof behind them, you’ll quote and manage client proposals better.
When estimating, take into account a task’s complexity index. A complexity index helps you measure the chance a task will take longer than you think. If you know a task might derail your schedule, you can plan extra buffer time accordingly.
In creative work, how long something takes depends on:
- Time you need to make the thing;
- Time it takes to communicate (gather requirements, feedback, get buy-in, and other admin stuff).
It would be ideal if you could bill for admin stuff too, becuase you can spend more time on communication than actually creating the thing. If you accurately estimate and agree on the the first part, but not the second, your project profitability drops significantly. You need to manage both. To manage the first, know yourself and the work - to manage the second, know your client.
Creative tasks such as writing and coding can take up as much time as you give them (also known as the Parkinson’s law). To avoid procrastination, allocate a fixed amount of time for each task (using estimates) and ship what you have when the time is up. When you have immovable boundaries boxing your time, you’ll be more motivated to finish the work.
Hourly rates make clients nervous. For all they know, you might be fabricating time records, or working more than necessary just so you can charge more. As a result, a lot of time tracking apps have proofing features.
For example, some timers take screenshots of your desktop at random moments so clients can later review them to make sure you were doing work stuff. Some timers can count the number of keystrokes and clicks you make, read titles of web pages you visit, or even get the first few sentences of emails you write.
That’s bad for a number of reasons:
- Privacy invasion and stealing the know-how;
- Hacks and workarounds that can be easily googled;
- A person needs time to think about work and that can’t be measured;
- Pressure to always look your best in screenshots and afraid to take a break;
- Tasks where you don’t actively participate (like video rendering) are billable too.
When you’re dealing with new clients, it’s best to start with small projects and build trust. When it’s time for bigger projects, agree on:
- Manually adding time records for tasks that require thinking or research (as long as it doesn’t exceed estimate),
- Tracking time for the rest,
- Taking pauses without stopping a timer as long as the pauses don’t last longer than 5 minutes.
But no matter how honest you are, clients get cheated by others and have a good reason to be distrustful. They aren’t necessarily big cheats; small cheats are way more common as a person can rationalize it and still believe they’re a good person. For example, studies found that people are more prone to stealing a $2 pen than a 1$ bill because stealing money is harder to rationalize.
Time cheats can happen in a number of ways:
- When deadline is approaching fast and you don’t have time to add time records, people tend to take the total time they were in the office, subtract two hours (one for lunch and one for dinner), and log the result even if they worked less (by taking several longer pauses during the day).
- Honest people who refuse to overbill have an overall billing rate that’s 20% lower than the average; as a result, when it’s time for lay-off, they’re the first to go - thus sending a clear message to others that honesty doesn’t pay.
- Some people are constantly “on-call” and bill every hour they spend monitoring email for a project, no matter if they receive work or not.
- Management gives out bonuses to people who log more time or penalize people who make a wrong estimate so they tweak their numbers either directly or by creating more artifical work.
The best you can do is earn trust by inviting a client directly on a project so they can see for themselves where each hour went.
Being Too Efficient
On a rare occasion, you’ll finish a project much quicker than you told your client. Don’t punish yourself for that. If you nail something on the first try, there’s nothing wrong with that. Maybe the first design is the winner and you don’t have to create others to justify your time estimate.
A client is paying you for the solution, not the time you took to get there.
The important thing is you were honest in your estimate. They will know your calculated work hours were based on real numbers and your experience. It just so happened that you finished earlier.
There are several ways to deal with this happy occasion:
Stipulate a bonus clause in your contract if you deliver before deadline. Or raise your prices because you know you can deliver faster than others.
Do Extra Work
Delight your client by adding a few more feature than they asked for, as a gift. They’ll owe you for that and be more loyal. Just don’t overdo it and get a client used to something extra on every project - gifts have an impact only when they’re unplanned.
Sit on Work
Put away the finisehd work and wait a few extra days to show the work closer to the estimated date. This way you avoid a potentially awkward conversation with your client. They will definitely aks you why you’re so early and might even suspect you made a bad proposal on purpose.
Other posts in the series on Managing Digital Projects
- Part 1: How to manage client proposals
- Part 2: How to make your client kickoff meeting a success
- Part 3: How to make sure you get paid (legal & finance)
- Part 4: The huge shift in how we manage projects
- Part 5: What's a project manager's actual job
- Part 6: A practical guide to project planning
- Part 7: Keeping projects on the right track
- Part 8: Getting things done, both together and on your own
- Part 9: How to work with clients
- Part 10: Time tracking for busy people
- Part 11: A practical guide to invoicing and billing work
- Part 12: The future beyond projects, clients, and deadlines
- DOWNLOAD THE WHOLE GUIDE (PDF)