Guide to Project Billing: Stages, Types and Useful Tools

Setting correct hours rates, constantly tracking time spent on work while staying within project scope, and more. Yes, project billing is complex, but it’s less fuzzy once it’s well-defined and you’re respecting some simple steps to make it work.

After years of managing content writing projects, I’ve learned the ins and outs of project billing strategies that actually work, and I’ll teach you all about it.

Key takeaways

• ⚡️Smart project billing always starts before the first task with a clear scope defining, rate setting, and choosing a billing method.
• 💰 To stop leaving money on the table in project billing, the backbone tool is an automatic time tracker – it helps you prevent revenue leakage and no more “forgetting” to bill for those quick client calls or research sessions.
• 🎯 Mix and match the many types of project billing to maximize your revenue! You can choose from time and materials billing, fixed-cost agreements, monthly retainers, value-based pricing, or milestone payments.
• 🚫 Kill scope creep before it kills profit: Those “small tweaks” add up. Set clear boundaries in your contract and implement a formal change request process – you’ll thank yourself when you see the final profit margins.

What is project billing?

A successful project billing process implies tracking and charging for all the work and resources used in a project and then billing the client accordingly. In other words, you’re offering an invoice for your services and collecting payment for that.

It’s pivotal to understand that the project billing scheme starts long before the project tasks are completed.

The stages of the project billing process

The foundation of successful project billing begins before any work starts. It actually starts from the project planning phase. As soon as you conceptualize a project, you need to consider how your predetermined project milestones interfere with your cash flow and how you’re collecting payments.

Another important note is that project billing is complex as it’s impacted by many factors that are not always in your control or in the hands of your project team. Some of these factors are how well the team respects the budget, resource allocation and deadlines, but also how your external providers affect your work.

During this crucial first stage, you need to do the following steps:

1. Define the scope, billing method, and rate

You have to thoroughly understand the project requirements. In my experience managing writing projects, I always start with a detailed client questionnaire and discovery session to understand not just what needs to be delivered but also potential complexities that could impact billing.

Select the billing method

Based on the project scope, you’ll need to choose the right billing method. For instance, when I recently managed a website content project with unclear requirements, I opted for time and materials billing rather than a fixed price to account for potential scope changes.

Set the rate

When setting your rate, you should consider a baseline of factors, on top of which you could, of course, add your subjective factors (such as having a history with a certain customer and offering bonuses, etc.)

• Project complexity and the required expertise
• The market rates for similar services
• Your desired profit margins
• The project timeline and urgency

2. Make the contract and documentation

This stage focuses on formalizing all billing arrangements through proper documentation.

Create the contract

If you’ve been in business for a while, you must have already had disputes with clients, and you found out that the contract was your basis in any conflict. Make sure every contract clearly outlines:

• The chosen billing method and rates,
• The payment schedule and terms.
• The scope of work and deliverables.
• Any change request procedures.
• Late payment policies.

In my practice, I’ve found that including specific examples of what constitutes billable work helps prevent future disputes.

💡 Pro tip: Interested in understanding the billing process in more detail? We’ve written a comprehensive article on client billing. Dive in to clarify all your questions.

3. Execute the project and track your work

This is where the actual billing process begins to take shape. Make sure to implement a systematic tracking of hours worked by team members, resources used, and additional expenses needed, and constantly monitor milestone completion.

For example, my team and I use automatic time-tracking software in which we categorize time projects and tasks with tags that help us track new expenses and resources and make billing more accurate and transparent.

4. Project-based billing

This stage involves the actual creation and processing of bills with the billing software of your choice.

Create invoices and submit them

• Generate detailed invoices based on tracked resources and time spent on the project, and include all relevant project information and payment terms.
• Attach supporting documentation (time reports, expense receipts).

5. Collect payments and reconcile

The accurate invoices you and your team sent should come to fruition. So, you should get paid for your work. Make sure you handle incoming payments and take care of the following, too:

• Track payment status and send payment reminders if needed.
• Process late fees if applicable and reconcile payments with invoices.

💡 Pro tip: Remember that a change request process should exist for any alterations needed at a fixed cost. There should be a standardized way to record, assess, and approve/reject changes to a project. An efficient project cost-tracking system is the best way to protect the work done by the team.

Types of project billing

The way you bill your projects is totally up to you, but there are some standardized ways to bill projects. The project billing type of your choice can be determined by your industry, the types of services you offer, or simply if you need cash flow to enter your company regularly or not.

You could also bill differently different projects and clients like me.

As a content and copywriter, I charge most of my projects on a value-based approach, meaning that I charge the actual value delivered to the client rather than time spent or resources put into them. To give a specific example, if I write a sales page for a course launch, I’ll charge depending on how much the client can win out of it in terms of course enrollments. Other times, I charge retainers.

But what are retainers and value-based approaches, and how do these generate project profitability? Let’s dive into this!

1. Time-and-materials project billing method

The time and materials projects billing method is an approach in which clients pay for the actual time spent on their project, plus any materials or resources used, based on predetermined rates.

Best suited for:

• Projects with unclear scope or providers who deal with variable scope projects.
• Development work with potential changes and creative work with multiple revisions.
• Research-heavy projects.

If the requirements of a project often evolve throughout the project,

In my case, when my agency handles website writing projects, we use T&M billing because research time can vary significantly depending on topic complexity and available resources. What we do as a team to keep the T&M billing process accurate and transparent is track time and materials projects with diligence in our automatic time tracker. Then, we share the full reports with our clients in the project accounting process.

How you could apply it:

• Track all hours spent on project tasks in a time-tracking system, then add the costs of all materials or resources used.
• For your professional services project, apply agreed-upon hourly rates with the customer in the initial phases of the project.
• Create invoices and bill your project regularly, depending on the frequency of the project.

Advantages:

• T&M billing minimizes risk for service providers and it’s transparent for clients.
• It offers flexibility to accommodate changes and comes with fair pay for extra work.

Disadvantages:

• It requires detailed time tracking, which can be a nightmare if you’re not using the right work hours tracker.
• It might lead to budget uncertainty for clients or may incentivize service providers to work slower.

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2. The fixed-cost project billing method

The fixed-cost project billing method is an approach where you set and agree on a price before the project begins, regardless of the actual time spent or resources used during project execution.

Best suited for:

• Projects with clearly defined scope and detailed requirements.
• Repeatable services where the provider has extensive experience.
• Short-term engagements with specific deliverables.
• Projects where the client needs a project fee and budget certainty.

In my case, when managing writing copy for website projects for small businesses, we use fixed-cost billing as both scope and deliverables are typically well-defined from the start. What we do as a team to ensure profitability is to thoroughly do competitors and market analysis and create detailed project specifications before providing the fixed price to the client. Then, we track time to monitor our actual hours against our estimates to refine future pricing.

How you could apply it:

• Estimate total project costs upfront by breaking down all required tasks and calculating expected hours needed for the project.
• Add a buffer of 15-20% for unexpected issues and a profit margin based on project complexity.
• Create a detailed scope document that clearly outlines what is and isn’t included in the fixed price.
• Set up a clear change request process for handling any work outside the agreed scope.

Advantages:

• It offers budget certainty for clients, making it easier for them to plan and approve projects.
• It simplifies the billing process since there’s no need to track and bill hours, but a fixed cost you calculated prior.
• It can be more profitable if you complete the work efficiently and can handle multiple projects at the same time.

Disadvantages:

• It comes with a risk of scope creep if deliverables aren’t clearly defined at the start. Hence, you need to make a detailed scope documentation for it.
• It has a potential for loss if the project is poorly estimated or stumbles upon unexpected challenges.
• It’s less flexible to accommodate changes without renegotiating the price.

3. Retainer project billing

In the retainer billing approach, clients pay a fixed recurring fee (usually monthly) for a predetermined set of services or amount of work. For any business or solopreneur, a retainer is a great source of monthly cash flow, and it also provides reliable access to services for clients.

Best suited for:

• Services that need ongoing services, as well as projects and consistent support.
• Marketing and content creation services, as well as maintenance and support projects.

In my case, when managing content creation for several clients, we use retainer billing because it allows us to plan resources effectively and provide consistent quality. What we do as a team is create detailed monthly content calendars and track deliverables against the retainer agreement.

How you could apply it:

• Define clear monthly deliverables or available hours for your team to work on these ongoing projects.
• Establish clear processes for adjusting retainer scope when needed, and set up regular check-ins to review how projects progress.
• Create systems for tracking unused hours or extra work with overtime trackers and other tools.

Advantages:

• Provides predictable monthly income for service providers and predictable cash flow for clients.
• It enables better resource allocation and planning while it reduces time spent on proposals and contract negotiations.

Disadvantages:

• It can be challenging to adjust scope or pricing once established, and it may also require the need to justify the value regularly.
• It may come with a risk of scope creep without clear boundaries.
• It requires consistently delivering quality.

4. Value-based project billing

The value-based billing approach sets project prices based on the value delivered to the client rather than time spent or resources used, typically tied to specific business outcomes or ROI.

Best suited for:

• Strategic consulting projects and marketing campaigns with measurable outcomes.
• Performance improvement initiatives and business transformation projects.

In my case, when delivering sales page optimization services, we use value-based billing by tying our fees directly to conversion rate improvements. What we do as a team is first establish the current conversion rate through comprehensive analytics, then document all existing sales metrics, including average order value and monthly traffic. After implementing our optimizations, we track the increases in both conversion rate and revenue, providing detailed monthly reports that show exactly how much additional revenue our changes generated

How you could apply it:

• Identify and quantify the specific value your work will deliver and create clear metrics for measuring success
• Establish pricing tiers based on different value levels, and set up regular reporting on value delivered.

Advantages:

• It has the potential for higher profits based on client success and the entire project.
• It brings better client satisfaction when value is achieved.

Disadvantages:

• It can be challenging to quantify value upfront for certain deliverables and requires strong proof of previous results.
• It comes with higher risks if value metrics aren’t achieved.

5. Milestone-based project billing

The milestone-based billing approach breaks payment into predetermined project milestones, with specific amounts due upon completion of each milestone.

Best suited for:

• Large, complex projects with distinct phases, such as software development projects, construction or design projects, or long-term consulting engagements.

In my case, when managing website rewriting projects, we use milestone billing by breaking the project into key phases like discovery, design, development, and launch. As a team, we clearly define the deliverables for each milestone and use project management tools to track progress.

How you could apply it:

• Break the project into clear, measurable milestones and assign specific payment amounts to each milestone.
• Create detailed completion criteria for each phase and establish clear verification processes.

Advantages:

• It keeps a steady cash flow throughout the project and provides clear progress indicators.
• Reduces client risk through a phased delivery while it makes it easy to manage scope within each milestone.

Disadvantages:

• It can delay payments if milestones are delayed and often needs more complex project management
• It can create challenges with resource allocation.

The main challenges in project billing 

As you see, the project billing process is quite intricate and depends on many puzzle pieces. Hence, you need to learn how to stay on top of it and prevent or manage the challenges surrounding the entire process.

After years of managing writing projects and working with various teams in different startups, I’ve come across significant challenges. Here’s what you should watch out for:

• Scope creep and undefined boundaries: It happens when clients continuously ask for small changes that aren’t part of the agreed project deliverables. For instance, in my content projects, “quick edits” often turn into complete rewrites, affecting both timeline and profitability. To prevent this, establish clear boundaries in your initial contract and set up a formal change request process, such as no more than two revisions.
• Time tracking inconsistencies: Without reliable work hours trackers, you risk either undercharging for your work or damaging client trust with inflated hours and not only. You’re also at risk of adding an extra layer of administrative work for your team. I’ve seen projects become unprofitable simply because team members forgot to track research time or client calls. Using an automatic time tracker makes all the work seamless, invest in one.
• Payment delays and cash flow issues: These are especially problematic with milestone-based billing, where delayed approvals can create a domino effect on your entire project timeline and resource planning. Recently, a delayed milestone approval from a client affected our ability to start other scheduled projects.

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• Resource allocation challenges: Balancing resources becomes particularly tricky when you’re managing multiple projects with different billing methods. For example, when juggling retainer clients alongside fixed-price projects, proper time allocation without over-committing your team is pivotal.
• Unclear deliverables and requirements: When project requirements aren’t precisely defined at the start, it becomes difficult to determine what’s included in the original scope versus what should be billed as additional work. Clear documentation from the beginning will help you prevent billing disputes later.
• Communication gaps Misunderstandings about billing terms, timelines, or deliverables often lead to payment disputes and client dissatisfaction. Regular updates and transparent reporting are simple solutions to keeping clear communication channels.

💡 Pro tip: Most of these challenges can be mitigated by implementing proper time tracking and project management tools from the start. Having systems and processes in place to track time, document scope changes, and manage resources helps prevent all billing issues.

How to improve your project billing process

A way to prevent and easily manage all challenges in this complex process is to establish a reliable foundation. From my experience, the foundation is formed by implementing both systematic processes and the right tools.

Set clear documentation and communication protocols

Every project should have standardized templates for proposals, contracts, change requests, or invoice formats. In order to keep things on track, set up regular check-ins, either weekly, monthly, or quarterly, to assess performance. Are you profitable based on how you choose to bill projects? Are the project billing schedule types preventing you from relying on constant cash flow? Is your team missing any invoices?

Implement the right tools

Many times, the reason for which your project billing goes wrong is because of your tools. From my experience managing multiple content projects, I’ve found that the right combination of tools can transform a chaotic billing process into a well-oiled machine that practically runs itself.

The vital tools for project billing are automatic time trackers to capture time spent on tasks and financial management tools.

⏱️ Time tracking software

As you need detailed timesheets, the backbone of efficient project billing is a robust but effortless time tracker. I’ll introduce Timeular as my team has been using it, and it’s been the best project time tracker for us.

Timeular has revolutionized how my team and I track billable hours through a combination of physical and digital tracking methods that make time logging feel natural rather than tedious. This AI-powered tool automatically captures work completed on a project and work patterns while it makes it easy to generate customized reports for our customers.

Here’s an example of a granular report in which time entries can be rounded to a granularity of minutes.

What sets Timeular apart is its comprehensiveness, which includes:

• An intuitive physical 8-sided tracker that sits on your desk as a tangible reminder to log time.
• An automatic time-tracking feature that runs quietly in the background, ensuring no billable hour goes untracked – it captures all sites, tools, and documents you’re working on.
• Detailed project-based time reporting that makes client billing transparent and dispute-free, as no one has time to dispute it on pricing and time spent on work, but actually spend it on actual work.
• Team management features that help prevent resource overallocation, such as PTO tracking to plan around your team’s time off or overtime patterns.
• An AI-powered insights dashboard that reveals when each individual is most productive and when not (This dashboard is available to each team member).

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💰Financial management and accounting tools

The second most important tools in the project billing process are financial apps. Note that these need to seamlessly integrate with your time-tracking system. Here are some of the tools that I’ve tried and can help you automate project accounting and increase business profitability:

• QuickBooks or FreshBooks serve as your financial command center. Both apps automatically generate professional invoices based on your reports and make it easy to manage all financial records in one secure place.
• Payment processing solutions like Stripe or PayPal can also help you streamline the collection process. With both tools, you can reduce payment delays and improve cash flow on a regular basis.

💡 Pro tip: The key to successful tool implementation lies in proper integration. Start with Timeular as your foundation for accurate time tracking, then gradually integrate accounting and financial tools as your needs grow.

Conclusion

Project billing might seem complex at first, especially if youre not not a project manager or don’t have a role that’s diving into the technicalities of project billing in general. But don’t worry, it’s manageable and can be quite simple as long as you’re respcting the mentioned steps.

Whether you choose time and materials tracking with Timeular’s AI-powered system, fixed-cost agreements, monthly retainers, value-based pricing, or milestone payments – the key is finding the right mix that works for your unique business needs, and you’ll achieve effective project billing.

Remember that successful project billing isn’t just about sending invoices. It’s about building a systematic approach that starts with planning and ends with predictable cash flow.