What is time & materials billing?

Time & materials billing, also known as T&M or hourly billing, is when an agency, freelancer, or consultant tracks the time they spend working on a project, and then sends an invoice for that time at a predetermined hourly rate, plus any expenses incurred at the client’s request.

time x rate + expenses = invoice amount

Time & materials billing is the simplest and most common billing method, and the method that every other billing method is compared to. In fact, the entire industry of time tracking software like Clockk exists mostly because of this method.

Advantages of time & materials billing

Time & materials billing is absolutely fair. The client agrees to pay a you rate per hour worked, you track the time spent, you send an invoice, and the client pays. You get to charge a fair rate, and best of all, you will always get paid (unless the client is acting in bad faith) for all the work you do.

T&M gives you internal metrics. By tracking how many hours you work in a typical day, week, or month, you can get a sense of your productivity, utilization, and how much work you can actually accomplish in a given time period.

You can defend your invoices. When a client asks why a bill is so high, you can turn around and show the time sheets that substantiate the work you did.

Disadvantages

Tracking time is hard. It seems really simple — you write down the time when you start working and you write it down when you end, and then do the math to figure out how long you worked. Unfortunately, real life doesn’t agree, as there are:

• Interruptions from children and spouses
• Phone calls & emails from clients (not the one you’re working for at the moment 😩😩😩)
• Distractions like YouTube or surfing
• Forgetting to write down the start or end time

Tracking time is so hard that a great many freelancers and agencies (I’d estimate around 50%) don’t track time at all, preferring to bill by project.

Risk

On time & materials projects, the client holds all the risk. The vendor always gets paid for the work they do. The client, on the other hand, has no upper bound on how much they spend, and they have no guarantees about deliverables. Over time, some T&M engagements can start looking like employment, opening another set of problems for the client in certain jurisdictions (like Canada).

When to use time & materials billing

Time & materials billing is most appropriate for projects where the scope or timeline are unclear. This type of billing works best when the vendor is independent (they set their own working schedule and provide their own hardware and software) but they take instructions from the client on what to work on next. Examples include:

• A small manufacturer can’t justify a full-time marketer, so instead hires a freelancer for 10-20 hours per week.
• An agency just won a contract for a multi-channel promotion, but they don’t have the necessary web skills, so they use one of their freelancers.
• A software development company needs extra hands to help bring a project to completion.

Time & materials is also a good choice for any maintenance projects where there is regular but unequal work. For example:

• An enterprise company needs support maintaining an internal software tool.
• A retailer needs someone to regularly review and update ad campaigns and SEO.
• A small company needs someone managing their social media presence.

Alternatively, for maintenance projects, you may want to choose retainer-based billing.

When not to use time & materials billing

Time & materials is a poor choice for a client looking for a fixed-scope or fixed-time engagement. Examples:

• A new company needs branding and a website to promote their product.
• A large telecom needs a Chrome extension for their sales users to help speed up data entry.

For these examples, you probably want to choose project-based billing.

Conclusion

In spite of the fact that it’s very unpopular (no one likes tracking time), time & materials remains one of the most popular methods for billing a project. It’s simple to understand, and it works really well in a lot of cases.

**To help you manage your time & materials projects, use Clockk to automatically track what project you're working on, and when. Do the work you love to do, and let Clockk do your time sheets. Sign up for free.