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

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

Even before invoicing, the project must be costed with the utmost precision and the margin estimated in order to determine the right price level. The first step is to list all the resources needed to carry out the project, and the cost of delivering it.

Define all necessary resources

i. Staff and associated time

The first step is to list the profiles that will be needed to complete the project. For each profile, you need to estimate the time required to complete the project as defined to date. This estimate should be as realistic as possible, even conservative, to avoid unpleasant surprises.

ii. Subcontracting

Many projects require the use of subcontractors. Whatever their contribution, you need to plan for subcontracting purchases and define the approach to re-invoicing. Subcontracting may be invisible to the customer, or it may be clearly invoiced, with the possibility of making a margin on it.

iii. Other purchases

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

iv. Fees

When travel is required to complete a project, the associated costs must be estimated. Expenses that can be re-invoiced in real terms do not impact the margin, but must appear on invoices. Non-rechargeable expenses have a direct impact on margin.

 

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

The billing module's agility means you can customize the details for each project.

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Setting the right selling price

To invoice a project, the customer 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 way, and risk lower profitability.

i. Rely on standard prices

Defining standard prices is a prerequisite for easy project invoicing.

Each contributor profile, each type of subcontractor and each product must have standard prices shared with the sales teams. These standard prices must be known by 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 sales staff can be given a negotiation window depending on the activity and the period.

ii. Calculate forecast margin

Standard prices are used to calculate sales. To calculate margins, we also need to define the costs of each item.

To simplify margin analysis, it's best practice to define standard costs, especially for in-house profiles. On the other hand, subcontracting costs and expenses are often project-specific. They therefore need to be calculated with knowledge of the details of the project to be carried out.

By deducting the costs required to complete the project from sales, the project margin verifies that the project is financially viable: that it meets the expected profitability standards.

Margined costing in the pre-sales phase

Stafiz integrates standard prices and costs into its sales module. As a result, you can create quotations in Stafiz, edit them and send them to your customers. And Stafiz also tells you how much margin you can make on each estimate. This prevents you from starting projects that are too risky.

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Choose the right billing type

The type of invoicing varies according to the type of project, and the negotiation with the customer. Each type of invoicing has its advantages and disadvantages.

i. Time and materials billing

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

These are known as Hourly or Daily Rates.

On the one hand, this type of invoicing simplifies negotiations with the customer and avoids risk-taking by the company selling the project. Rates are transparent, and the project margin is virtually guaranteed.

However, time-based invoicing prevents the company from outperforming. It's tied to the time spent by employees who don't work more than 8 hours a day. So it limits potential. It does not value excellence of execution, automation of tasks and creation of value for the customer.

To facilitate your project budgeting, Stafiz provides you with a project budgeting table template to :
- Get an overview of your KPIs
- Check the viability of your projects
- Arbitrate on the allocation of your resources

Download our model

ii. Flat-rate billing

Fixed-price invoicing involves invoicing a fixed amount negotiated with the customer. This amount can be invoiced in several instalments, according to a schedule negotiated between the customer and the company selling the project.

It has the advantage of focusing on the value of the project, i.e. its return on investment, rather than just the work required to obtain it. This specificity makes for more profitable pricing, and therefore higher margins.

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

iii. Subscription billing

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

Subscription-based invoicing offers clarity and consistency for the customer, who is not surprised when he receives the invoices. It's a form of insurance that enables the service provider to optimize profitability while maintaining the level of service expected by the customer.

But if poorly managed, subscription-based invoicing can quickly present risks for the issuer. If the contract is badly drawn up, the costs, which are variable, can put the project at a loss.

iv. Hybrid billing

Some projects require a mix of these different approaches. Let's take the example of a software deployment project. The project is often invoiced on a fixed-price basis, with the exception of certain customized developments, which are invoiced on a time-spent basis. Then, once the project has been installed, a subscription for follow-up and maintenance may be invoiced.

 

Stafiz lets you manage and automate all your billing processes.

Fixed-price invoicing, time-dependent invoicing, subscription invoicing or hybrid invoicing.

No matter how a project is invoiced, Stafiz allows you to calculate sales and margins in the right way.

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

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

2. How to manage the risk of project overruns?

3. How can I get paid faster by my customers?

4. How to manage complex billing arrangements

5. How do you handle tax billing and multi-currency billing?

6. How to manage invoicing between different entities within the same company (inter-company flows)

7. How can we simplify communication with our customers?

8. How can I change certain parameters during the course of a project that will have an impact on invoicing?

9. How do I set up a project quotation and invoicing tool?

The 9 problems of project billing