Benefits of using % Based Quotes with Time Based Invoices
A practical way to minimise your risk AND keep your clients happy
Have you ever provided a fixed price quote based on a client’s budget but later on find they wish to spend more?
This can result in Clients being charged less for early project stages than the cost of the work.
You may have mitigated this by making the fee a % of the estimated building contract so if it goes up so does the fee.
This is fair for you and may well be in the contract but can be disconcerting for the client who receive additional invoices for completed stages.
To avoid this upset you could quote using % Based fees but invoice the actual time worked.
If the building cost increases, a ‘credit’ is indicated on the invoice for the completed stages along with the overall balance for all Stage of (% based Fee $ – hours worked * rates).
The benefit to the client is that they see exactly what they are being invoiced for since based on actual work done in the current stage.
The benefit to the architect is that you cover your risk of the building cost increasing and working more hours, since you have more ‘credit’ you can invoice in later stages. The balance of the (% Based Fee $ – Hours worked * rates) is clear on the invoice and can be carefully tracked by both the client and the architect.
If the balance (credit) is positive at the end of the project:
– the client feels great at being “under budget” (a likely case for referral or repeat business);
– the architect has been paid for all their work and has managed the risk of increased costs throughout the project.
If the balance (credit) goes negative at any point, depending on the agreement either:
– the architect can invoice for the extra hours (with full justification since the whole project has been invoiced hourly),
– or not, in which case the architect is no worse off than if % Based Invoicing was used.
Ideally though, by providing staff visibility of estimated hours to complete in their timesheet for each stage, overruns are detected before they happen and can be mitigated (eg: by raising variations or assigning a lower rate consultant).
This win-win solution helps manage your risk if clients spend more than they estimate, while keeping clients happy for referrals and repeat business.