Skip Navigation
time tracking for consultants

Time Tracking For Consultants: Increase Your Productivity, Profitability, & Fees

Leave a Comment

As a consultant, should you be tracking your time? If so, how?

The latest data from our consulting industry study showed that 58% of consultants use an hourly rate or project rate (based on hours).

Whether you are using an hourly rate or not, there are times that you should and should not be thinking about tracking time in your business.

For example, maybe you want to know how much time you’re spending on a specific client engagement.

On the surface, time tracking seems like a minor part of your day-to-day life as a consultant.

But underneath the surface, how you think about time tracking says a lot about the trajectory of your business.

Tracking your time incorrectly can “trap” you into using hourly fees.

But tracking your time properly can help you discover hidden areas of profitability in your business.

By the end of this post, you’ll know everything you need to know about time tracking for consultants:

  • What you should track (and what you shouldn’t)
  • How to track your time
  • How proper time tracking can help you build a more profitable consulting business.

Let’s dive in…

Tracking your time properly can help you discover hidden areas of profitability in your business.

Important: DON’T Track Your Time For Hourly Fees

First, let’s discuss the reasons why you shouldn’t track your time.

At Consulting Success, we DON’T recommend tracking your time for billing clients or using any sort of time-based fee structure.

Why not?

With hourly billing, there’s a misalignment between the incentives of the consultant and the client.

The client is incentivized to get the project completed within the fewest amount of hours.

This is fine, but the incentive for the consultant isn’t the same.

Getting a project done quickly is great — but with hourly billing, this incentive doesn’t exist for the consultant.

Using hourly billing, the consultant is incentivized to take longer to complete the project. The longer it goes on, the more they get paid.

The ideal fee structure is one that creates an alignment between the consultant and the client.

Switching from an hourly fee structure requires a critical mindset shift:

Your clients aren’t paying you for your time. They are paying you for the outcomes and results you create for them.

How much time you spend on a project isn’t important.

In fact, it’s a waste to track your time because it requires you to spend time on administration instead of creating results for your client.

Instead of using hourly fees, we recommend using value pricing: where you’re paid not for your time, but for the results you create for your client.

Our latest survey shows that 26% of consultants are using a value-based rate, which, when executed effectively, allows you to command higher fees.

September 21, 2022 11:43:05 am - Screenshot

The ideal fee structure is one that creates an alignment between the consultant and the client.

With value pricing, you don’t need to track your time. Instead, you track the outcomes and results you create for your client.

That’s what clients truly care about. And that’s what you should be tracking.

The more you shift away from hourly-based fees and towards value pricing and ROI-based fees, the more profit you can generate per project.

2 Reasons To Track Your Time

If you shouldn’t track time for fees, what should you track your time for?

Here are 2 reasons to track your time:

  • Client Profitability
  • Project Profitability

We teach both of these concepts to clients in our Clarity Coaching Program.

Client Profitability

Client profitability refers to how profitable each of your clients is to your business.

You use this to analyze the characteristics of clients who are most profitable so that you can double down on that type of client.

Here’s a story to illustrate the idea.

One client I worked with was generating high-six figures but wanted to take their consulting business to the next level.

I had them make a list of…

  • all the clients they worked with over the last couple of years,
  • the value of the projects,
  • a rating of how much time they spent on each project
  • And the overall profit of each project.

As they created this list, they realized they served two groups of clients: larger organizations and smaller organizations.

They were spending the majority of their time on smaller organizations despite the fact that only a minority of their profits came from these clients.

The majority of their profits were coming from the minority of their clients: the larger organizations.

Using this information, they set a minimum project value and updated their messaging in their marketing to more effectively target those larger clients.

They ended up building a more profitable firm by doubling down on their most profitable type of client.

Track time so you can understand which clients, projects, and parts of projects are the most profitable.

Project Profitability

Project profitability refers to how profitable your different products and services are (and the types of projects you work on).

Six-Figure Blueprint

Download Free Guide
You will also be notified when new complimentary consulting trainings and resources are available

You use this to analyze the characteristics of projects that are most profitable so that you can double down on that specific type of project.

You can also do this same analysis on parts of projects — breaking down your most profitable project, and finding the most profitable phases of that particular project.

Here’s an example to illustrate the concept.

We had a client in our Clarity Coaching program who had a small team.

The team wasn’t tracking their time, so they didn’t know how they were allocating their time across their various projects.

After they began to track their time, they discovered that there was a certain phase of work that was taking them much more time than was budgeted for. And there were other phases that took them a lot less time.

Knowing this allowed them to reorganize how they billed based on where they needed to spend more time on a project, and where they should spend less time.

From that point forward, all of their projects were much more profitable.

If you’re a solo consultant, this isn’t as critical. But once you have a team, tracking your time so you can allocate your resources effectively is key.

Track your time so you can understand how long it takes you to complete phases of your projects. Then, you can plan around capacity and ensure that you have the right people working on the right things.

Time Tracking For Consultants: How-To Guide

Now that you know the best practices around time tracking, let’s get into how to track your time.

If you’re looking for simple time-tracking software, check out Harvest or Toggl. They both have free options, allowing you to create projects and time your work on them.

If you’re looking to combine your invoicing and time tracking, take a look at QuickBooks. In addition to sending invoices to clients, QuickBooks has fantastic time tracking features: clocking in/out, timesheets, and more.

If you’re a bigger firm, check out Kantata. It’s a resource management software that allows you to manage and allocate the resources of your firm. It’s highly recommended by some of the consultants running bigger firms in our coaching program.

To track your time effectively, organize your time tracking around projects. Use a manual timer every time you’re working on a project.

If you use something like Toggl, you’ll be able to see your total earnings per project:

screenshot of Toggl Track showing billable hours

You can then analyze the profitability of your projects using the analytics your time tracking software provides.

Remember: we recommend tracking time for internal use only.

Track time so you can understand which clients, projects, and parts of projects are the most profitable.

When you use time tracking to understand where you’re most profitable, you can leverage the 80/20 principle: focus on the 20% of inputs that generate the 80% of outputs.

This will enable you to target better clients, create more streamlined services/products, and ultimately, build a more profitable and scalable consulting business.

Get Help Building A More Strategic, Profitable, & Scalable Consulting Business

Time tracking for consultants can increase your company’s profitability and the effectiveness of your operations when done right.

If you’d like our help optimizing your consulting business (your ideal client, marketing system, pricing, packaged offers, and more) so that it’s more strategic, profitable, and scalable — without having to track every minute of your time — our customized Clarity Coaching Program is for you.

We’ll work hands-on with you to develop a strategic plan and then dive deep and work through your ideal client clarity, strategic messaging, consulting offers, fees and pricing, business model optimization, and help you to set up your marketing engine and lead generation system to consistently attract ideal clients.

Schedule a FREE growth session today to apply for our limited capacity Clarity Coaching Program by clicking here.

Leave a Comment, Join the Conversation!