Hourly pricing charges a customer for verified time worked at an agreed rate, subject to the contract's scope and billing rules. It is common when effort is variable or requirements cannot be defined precisely enough for a fixed fee.
How is the charge calculated?
The basic formula is billable hours × hourly rate. If 140 hours are approved at $32 per hour, the base charge is 140 × $32 = $4,480.
Illustrative hourly invoice
| Calculation step | Quantity or rate | Amount |
|---|---|---|
| Approved standard hours | 140 × $32 | $4,480 |
| Approved overtime | 10 × $48 | $480 |
| Subtotal | 150 hours | $4,960 |
| Approved expense | — | $120 |
| Illustrative invoice | — | $5,080 |
The contract should state rounding, minimum increments, overtime, expenses, taxes and non-billable activities.
Hourly vs. fixed pricing
Hourly pricing allocates effort risk mainly to the customer. Fixed pricing allocates more delivery risk to the provider for a defined scope. Hourly work still needs budgets, priorities and acceptance controls.
What should a timesheet show?
Record date, person or role, task, project, hours, rate category and approver. Descriptions should be specific enough to confirm that the time belongs to the contracted work.
How should cost be controlled?
Use rate cards, role limits, not-to-exceed amounts, preapproval for overtime and regular burn reports. Monitor output and quality so increased hours do not substitute for productivity.
