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Michelle Nickolaisen

If you charge by the project (or by another metric not linked to time, like per word), doing a regular client audit is essential to making sure that all of your projects are profitable. 

 

Introduction

When I say "client audit," what do I mean?

Even if you haven’t done the math, you know that all clients aren’t created equal. Client A is super low maintenance, and Client B is not (even if they’re not a bad client, per se, because some clients just require more administrative, email, and meeting time). When I talk about doing a client audit, I’m talking about figuring out what your hourly rate is with each client.

 

Step One: Figure out if you should do a client audit

If you charge hourly with all your clients, this doesn’t apply to you (there is one exception, see point 3 on the list below).

Otherwise, if you fall into one of these categories, you should be doing a client audit at least quarterly–if not monthly: 

  1. If you work primarily on a per-project fee basis (ex. $350 for Service Package A)
  2. If you work on another non-time metric fee (I charge per word instead of hourly)
  3. If you don’t bill the client for all of their tasks (for example, you don’t bill for admin or email time)

 

Step Two: Do the math

To get started, go inside your time-tracking solution of choice (mine is Harvest). Grab:

  • The money you made from that particular client in any given period of time
  • The amount of hours you spent on that client in that same period of time

Divide A by B and bam, your client hourly rate is staring you in the face. 

If you don’t track your time, sign up for something right now or I will whack you on the nose with a newspaper. Read more here.

 

Step Four: Let's see an example

Curious what this looks like in practice? Here's how it works:

  • In August 2014, when I did my first audit taking into account June/July/August, my hourly rate varied from $45-117 depending on the client and project. Way too much variety. And most of my time went to the two clients that I had the lowest hourly rates with (I believe it was almost half of my client work time).
  • As a result of that audit, I stopped working with both of those clients and replaced that income.
  • In September, my hourly rate ranged from $57-164–an improvement, but still quite a lot of range.
  • In October, the range was $72-140, with an average hourly rate of $105.

You can see there’s a clear upward trend, which is good, and though the range is still wide, it narrowed in.

Sometimes it gets a little tricky–with October, for example, I have two retainer clients vs. just one. I bill both of them every two weeks instead of per piece of weekly. That’s why the top-hourly rate is a little lower, because I was too lazy to go in and figure out what the real hourly rate was given that billing periods (because I know the “real” hourly rate is higher than that).

Doing this on a regular basis, keeping an eye on the low-lying outliers, and taking steps to improve the hourly rate (or eliminate the client/project) is one reason my income has improved steadily, without me having to work myself to death.

 

Resources

Watch the video on client audits here, if you'd rather watch than read. 

 

Michelle Nickolaisen is a freelance writer/content marketer and business owner based in Austin, TX.