The smart money series: 5 reasons why you should still have fixed-fee contracts

Work with care (LOC)A few weeks ago, we talked about the traps of fixed-fee contracts. In this post, let’s talk about why we should keep fixed fee contracts.

  1. Stable revenues. Fixe fee contracts are revenue the client has committed to providing you. Contrary to time and material contracts which can dry up with no notice, with fixed fee, the length of the project and the amount to bill is already spelled out.
  2. 2.       Predictable work. Fixe fee contracts – at least when they are scoped right – provide a detailed, precise description of the work to be done. This makes planning your workforce needs easier.
  3. Clients that trust you. From the client side, signing a fixed fee contract means they already know what the project will cost. They can allocate the budgets before the work starts. It creates a trusting relationship with the client, who wants nothing less than surprise fees in the project.
  4. Relationship builder. Doing a fixed fee project with a client creates a trusting relationship at first, and eventually can turn into bigger contracts or even a retainer-based contract. The fixed fee contract is a trial, a way for the client to get to know you, and vice versa.
  5. Practices good estimation skills. Because fixed fee is so final, doing those contracts helps getting better at estimating costs and profit margins.

What about you? What’s your take on fixed fee contracts?

The smart money series: 5 traps of fixed-fee contracts

mouse trapFixed fee contracts. We love and hate them at the same time. It’s not that they’re bad in themselves, rather they must be done right. When drafting a fixed fee contract with a client, here are 5 traps to avoid:

  1. The missing information. When doing a fixed fee arrangement, make sure to be as specific as possible on what is included in the contract, and what is not included. This can be the number of hours of work included, or the number of revisions allowed on a plan. Also, any extras should be specified along with the rate at which these will be billed. This helps settle disagreements.
  2. Is it finished yet? Be very careful how you define a work as completed. Is it after the required hours have been worked? Is it if the customer accepts the work? Is it based on specific requirements provided by the client? Being specific about when work is done helps curtail the “one more thing” problem with clients who always want more.
  3. Forgotten costs. When putting together the proposal for a fixed fee contract, it’s important to think about all your costs. That includes time spent by administrative personnel, or travel expenses, or even luncheon meetings. You should also think about technical support costs, and factor those in.
  4. What about after? The fixed fee contract should also include the cost of post-project support. Just like the cost of customer service is built-in the products we buy, so should we include it in our fixed fee contracts – unless we exclude it.
  5. How full is the glass? No one wants to think about problems we might have in a project. We all want to feel competent and able to complete our projects on time. However, when estimating a fixed fee contract, pessimism rules. Planning for the project to take longer builds leeway for us down the line.

What about you? What are the potential problems with fixed fee contracts?

The smart money series: 3 ideas to stop wasting money

Sylvia Borken, at the family store, Knox Market, at Knox and Plymouth Avenues in North MinneapolisLast week, we talked about how businesses could easily lose money. This week, we’ll think about ways we can save money or increase revenues without doing more work.

  1. Save money: Go paperless. As we saw last week, sending a bill by regular mail costs about a dollar. When you invoice your clients via email, there is no paper to print, no stamp to buy and no waiting for the letter to reach the client. Plus, most businesses already have email accounts, so there is no additional cost to email the invoices.
  2. Increase billables: Tie complete timesheets to payroll. Often the challenge is not to know what to bill and what not to bill the client, but getting the information from the employees who do the work. One of our clients fixed the problem bluntly: he tied the employee time sheets to payroll. Even the salaried employees. This helped getting everyone’s time worked before payroll cut-off, and has helped getting all the billable information in the time and billing system.
  3. Save time: Automate invoicing. Instead of building each invoice individually, smart businesses automate the process. It can be done with a basic mail merge in Word, or it can be done with a professional time and billing system like Abak. With Abak, the time required to produce the invoices can be cut down by half or even more. This means clients get their invoices faster, and businesses get paid faster too!

What about you? How do you save money in your business?

The smart money series: 5 ways you’re wasting money

money and savingsRunning a profitable business is as much about bringing in revenues as it is about controlling costs.  In service businesses, costs can get out of control in several areas where we don’t always pay enough attention. Here are five areas of concern that can have a big impact on your bottom line.

  1. Paper invoicing: mailing a piece of paper to a client costs more than one would think. There’s the cost of the paper, envelope and stamp, of course, but also the cost of the employee who is preparing the invoices to be mailed. Let’s look how the cost of paper billing stacks up, at 500 invoices per year:
    Paper: 5$
    Stamps: 0,61$ each, 305$ total
    Envelopes, 23$
    Employee time, 1 hour per month at 20$/h, 240$
    Total: 573$ per year, for 500 invoices
  2. Uncontrolled non-billables: these are less visible but not less costly. It’s the time the administrative personnel spends on a client file, the support technician helping the client fix a computer issue, the expenses we incur because of the client, but that we cannot bill, for example a visit on the client site with the technical expert and the account manager. Let’s look at the impact of a non-billable site visit:
    Travel time: 2 hours
    Meeting time: 3 hours
    Employee cost: 10 hours total, at a cost of 30$/hour, 300$
    Lunch with the client: 60$
    Mileage: 80$
    Total: 440$ in additional costs
  3. Non-reported billables: these are billable items that employees or consultants forget to report. For example, a 15-minute call taken while driving, or a couple of hours done at night from home for fix a problem for the client. Often, we simply forget to put these billable items on our timesheet. Yet, that is lost revenue for the business. At a billable rate of 120$ per hour, a couple of hours a month of non-reported billables represents 2 880$ in lost revenue.
  4. Non-billed billables: In this case, the time sheets and expenses were logged by the team, but somehow they didn’t make it into the invoice. Sometimes it’s because the billable items were reported late, after that month’s bill was sent, for example. Other times, it’s because the items were simply forgotten. Just like non-reported billables, non-billed billables stack up fast: 2 hours a month of non-billed billable hours, at 120$ per hours, and up costing 2880$ a year in lost revenue – plus you’ve paid the employee for the work, which at 30$ per hour amounts to 720$ in additional costs.
  5. Manual record keeping and invoicing: While Excel and Word a great office tools, they do not scale very well. Keeping time sheets, expense reports and invoicing records in Excel, then creating each invoice individually in Word and Excel from this data is not only a great source of errors, it’s also time-consuming. At Abak, our clients generally used to take twice as much time invoicing manually as they do now invoicing with Abak. These time savings help your business be more productive, and would delay the hiring of additional administrative staff.

What about you? Where do you see money being wasted in businesses?