1. How to estimate costs, prices and billing type for a billable project?

In this article in our invoicing file for service companies, we start from the beginning of the invoicing process: the costing of your projects. Discover the links to all the articles in the file below:

Before even invoicing, you must cost the project with the greatest precision and estimate the margin in order to determine the right price level. The first step consists of listing all the resources necessary to carry out the project and the cost to deliver it.

Define all necessary resources

i. Collaborators and associated time

You must start by listing the profiles that will be necessary to carry out the project. For each profile, it is necessary to estimate the time required to carry out the project as defined to date. This estimate must be as realistic as possible, even conservative, to avoid unpleasant surprises.

ii. Subcontracting

Many projects require the use of subcontractors. Whatever their contribution, subcontracting purchases must be planned and the re-invoicing approach defined. Subcontracting can be invisible to the client, or it can be clearly invoiced, with the possibility of making a margin on this subcontracting.

iii. Other purchases

You have to think about all the other purchases. Some projects require buying and reselling products (computer licenses for example), or equipment. To properly anticipate project invoicing, these elements must also be taken into account when thinking about the invoicing approach.

iv. Costs

When travel is necessary to carry out the project, the associated costs must be estimated. Actual rebillable costs do not impact the margin, but must appear in the invoices. Non-rebillable costs have a direct impact on the margin.

 

To facilitate project invoicing, Stafiz offers agility to define all types of elements to be included in an invoice .
Stafiz invoicing can simply include man hours/days, quantities, subcontracting or even costs.

The agility of the invoicing module allows you to configure the details for each project.

Discover invoicing with Stafiz

Define an appropriate selling price

To invoice a project, the client must first have accepted your offer. The pricing to be charged for a project is strategic, but it must reflect clear standards. Without standards, prices are defined in an anarchic manner and risk leading to lower profitability.

i. Rely on standard prices

Defining standard prices is a prerequisite for facilitating project invoicing.

Each contributor profile, each type of subcontractor and product must have standard prices shared with the sales teams. These standard prices must be known to all teams working on commercial offers, and when they change (annual increase for example), the changes must be communicated.

These standard prices are a basis on which salespeople can be assigned a trading window based on activity and time period.

ii. Calculate the forecast margin

Standard prices are used to calculate turnover. To calculate the margin, you must also define the costs of each element.

To simplify margin analysis, defining standard costs is a good practice, particularly for internal profiles. On the other hand, subcontracting costs and fees often depend on each project. They must therefore be calculated knowing the details of the project to be carried out.

By deducting from the turnover the costs necessary to carry out the project, the project margin makes it possible to verify that the project is financially viable: that it achieves the expected profitability standards.

Pricing with margin from pre-sale

Stafiz integrates standard prices and costs into its commercial module. Results, you can create quotes in Stafiz, edit them and send them to your customers. And Stafiz also tells you the margin you make based on each quote. This helps avoid starting projects that are too risky.

Discover invoicing with Stafiz

Choose the right billing type

The type of invoicing varies depending on the types of projects, and the negotiation with the client. Each type of billing has advantages and disadvantages.

i. Billing based on time spent or on management

This is the most standard billing in professional services. The service is invoiced for time spent, based on an agreement on the price per hour or per day.

We speak of Hourly Rate or Daily Rate.

On the one hand, this type of invoicing simplifies the negotiation with the client and avoids risk taking by the company selling the project. The prices are transparent, and the project margin is almost guaranteed.

However, billing based on time spent prevents the company from outperforming. It is attached to the time spent by employees who do not work more than 8 hours per day. So it limits the potential. It does not value execution excellence, task automation and customer value creation.

To facilitate your project budgeting, Stafiz provides you with a projected project budget table template for:
– Have a view of your KPIs
– Check the viability of your projects
– Arbitrate on the allocation of your resources

Download our model

ii. Fixed-price billing

Flat rate billing corresponds to billing at a fixed amount negotiated with the customer. This amount can be invoiced in several installments, according to a schedule negotiated between the client and the company selling the project.

It has the advantage of focusing on the value that the project brings, that is to say its return on investment, rather than only valuing the work necessary to obtain it. This specificity allows for more profitable pricing and therefore higher margins.

On the other hand, when invoicing on a fixed price basis, it is imperative to precisely monitor the forecast margins of the projects. Otherwise there is a significant risk of regularly deviating from the budget and missing your objectives.

iii. Subscription billing

Subscription billing is a type of billing in which a company offers a service that may be variable based on an amount negotiated with the customer and billed periodically.

Subscription-based billing provides readability and consistency for the customer who is not surprised when they receive the invoices. It is a form of insurance that allows the service provider to optimize its profitability by remaining at the level of service expected by the customer.

But poorly managed, the subscription bill can quickly present risks for the issuer. If the contract is poorly drawn up, the costs, which are variable, can put the project in a loss.

iv. Hybrid billing

Some projects require mixing these different approaches. Let's take the example of a software deployment project. It regularly happens that project billing is billed on a fixed rate basis, with the exception of certain personalized developments which are billed based on time spent. Then once the project is installed, a subscription for monitoring and maintenance can be invoiced.

 

Stafiz allows you to manage all invoicing and automate each of them.

Fixed-price billing, management billing, subscription-based or hybrid billing.

Regardless of the project invoicing method, Stafiz allows you to calculate turnover and margins in the right way.

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The 9 problems of project invoicing and how Stafiz helps you solve them?

1. How to estimate costs, prices and billing type for a billable project?

2. How to manage the risks of project overruns ?

3. How to get paid faster by customers?

4. How to manage complex billing arrangements

5. How to take into account the invoicing of taxes? and multi-currency billing?

6. How to manage invoicing between different entities of the same company (interco flow)

7. How to simplify communication with customers?

8. How can certain parameters be modified during projects that will impact invoicing?

9. How to set up a project quote and invoicing tool?

The 9 problems of project invoicing