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Practical Guide•November 6, 2026•16 Min Read

Time and Materials: How T&M Billing Works and When to Use It

Time and materials billing title card

Time and materials (T&M) bills recorded work at agreed rates, plus the expenses the parties agree are reimbursable. The final amount can change as the work changes, so the agreement should spell out rates, expenses, reporting, approvals and any budget ceiling. It can suit a creative project whose scope is still taking shape.

This guide covers how the bill is built, a worked example, what a T&M agreement should specify, how it compares with fixed price, and how to keep both sides comfortable while the meter runs.

TL;DR

  • T&M commonly bills recorded labor at agreed rates plus agreed reimbursable costs. Federal rules offer one defined version of this model.
  • It can suit uncertain work; a fixed fee can suit defined deliverables and a client who needs a firm budget.
  • Agree on role rates, billable time, expenses and any markup, reporting, approvals, and the change process.
  • Log task-level time as work happens and share recaps at the cadence agreed with the client.
  • An early estimate supports a budget discussion. A cap exists only if the parties agree to one, and its effect follows their terms.

Table of Contents

What time and materials means

The U.S. federal acquisition rules define one specific form: a T&M contract pays for direct labor hours at specified fixed hourly rates, which include wages, overhead, general and administrative expenses and profit, plus actual material costs. A private creative agreement may define reimbursable costs, labor rates, handling and markup differently. The signed terms determine the bill.

Three pieces make up the bill:

  1. Labor. Recorded billable hours multiplied by the agreed rate for each role. A billable rate may account for the studio's costs and profit, but its basis belongs in the agreement.
  2. Materials and expenses. A creative project might involve stock assets, fonts, licenses, printing, prototypes, subcontractors, software or travel. Specify which costs are reimbursable and whether approval is needed before purchase.
  3. Markup, if agreed. The parties may add a stated amount or percentage for handling. Its basis and application should be clear before it appears on an invoice.

People search for the same thing under different names: T&M billing, a time and materials agreement, a T&M contract. These terms can describe similar arrangements, but the agreement controls which time and costs are billable. The billing cadence can be monthly or another schedule the parties choose.

How a T&M bill is calculated

Here is a hypothetical website project with illustrative rates. Your own numbers will differ.

Line item Quantity Rate or cost Amount
Design 40 hours $95 per hour $3,800
Development 60 hours $120 per hour $7,200
Stock photography (at cost) 1 $400 $400
Materials markup 15% of $400 n/a $60
Invoice total $11,460

The labor is $11,000 and the materials come to $460 with markup. If 75 development hours are approved and billable instead of 60, the uncapped illustration adds $1,800. An agreed ceiling or approval threshold may change what can be billed; check it before the extra work proceeds.

Setting a markup on materials

Paper stock and ink tins in a print studio

Markup is a business decision, not a formula. A construction-industry guide gives a 10% to 30% material-markup range in its T&M discussion. Creative work has different expense patterns, so choose a figure from your actual handling costs and client agreement.

Two practices make the charge easier to review:

  • State the percentage in the agreement before work begins.
  • Keep receipts, so every material line can be traced to a real cost.

The U.S. Postal Service uses its own rule: profit is not paid on material or material-handling costs, and handling costs must be kept out of the hourly rate. That rule governs USPS orders, not every private creative job. For your agreement, make the rate basis, handling charge and any markup explicit so both sides understand what each line covers.

When time and materials fits

In federal buying, T&M can be used when requirements are uncertain and the extent or duration of the work cannot be estimated accurately. A creative team may face similar uncertainty. Consider T&M when:

  • The client has a goal but no finished brief.
  • The project is ongoing, such as a retainer, support or iterative product work.
  • Discovery will change the plan, for example a redesign of a site nobody has fully audited.
  • The client will be closely involved and will change direction as they learn.
  • Dependencies outside your control, like client content or third-party approvals, make a fixed schedule unrealistic.

It is a weaker fit when the deliverables are clear, the client wants one number for budget approval, and your team has done the same job many times.

Time and materials vs fixed price

In federal procurement, fixed-price contracts carry a price not subject to adjustment based on the contractor's cost experience. Private creative agreements can allocate risk differently through change terms, phase budgets and approval rules. Compare the practical tradeoffs in the terms actually offered.

Factor Time and materials Fixed price
Price certainty for the client Varies with hours and any agreed cap Defined fee, subject to change terms
Flexibility when scope changes New work can be priced by agreed rates, subject to approval terms Changes can be priced through an agreed process
Who carries overrun risk Depends on billability, cap and approval terms Depends on scope and change terms
Admin effort Time records, recaps and expense receipts More definition up front; changes still need records
Useful fit Uncertain or ongoing work Defined deliverables and budget certainty
Efficiency incentive Depends on the arrangement A shorter delivery may improve the studio's effective rate

The choice is also a design-business question; AIGA's pricing-models resource is further reading on that topic. One workable hybrid is a fixed fee for a defined discovery phase, followed by agreed hourly terms for work that is still uncertain. Price each phase on its own brief and approvals.

In federal contracting, the GAO discusses periodically assessing performance and converting portions of work to firm fixed pricing once tasks become predictable. A studio could make a similar choice after discovery: agree to a fixed fee for later phases once the deliverables are defined. Our guide on fixed price vs hourly for freelancers explains why discovery usually comes first.

What a time and materials agreement should specify

A good T&M agreement is short on surprises. At minimum, include:

  • Scope and objectives. What the work is meant to achieve, even if the deliverable list is loose.
  • Hourly rates by role. Designer, developer, strategist, project manager. Say when rates can change and with how much notice.
  • Billable and non-billable time. Meetings, revisions, travel and project management should each be clearly in or out.
  • Material and expense terms. What counts, whether the client pre-approves purchases above a threshold, and the markup percentage. State the markup before work begins so that later receipts support what was agreed.
  • Budget boundary, if agreed. In USPS T&M orders, the ceiling limits what the buyer must pay and when the supplier must continue. A private agreement can use a not-to-exceed amount, phase budget or approval threshold, but its effect depends on the written terms. A construction-sector overview notes that some T&M contracts use a cap.
  • Change and approval process. How a request to go past the cap is made and approved in writing.
  • Invoicing schedule and payment terms. Monthly is common. Add late-payment terms.
  • Dispute resolution and insurance, where they apply to your work.

For a substantial engagement, have a qualified adviser review the proposed terms under the rules that apply to the project.

Tracking hours and keeping invoices clean

A reviewable T&M invoice needs records that connect hours and costs to the work. For additional design-pricing context, see AIGA's pricing-models resource. A few habits help:

  1. Log time as you work. A short note made at the time is easier to check than a week reconstructed from memory.
  2. Tag entries to a task or phase. "Homepage layout, round two" tells a client more than "design."
  3. Photograph or save every receipt and attach it to the expense line.
  4. Send a short recap before the invoice. Hours to date, what was done, what is next, how much of the cap is used.
  5. Record scope changes in writing the day they happen.

Written change notes give both sides a record to revisit. In a construction-trade example, contractors are advised to notify owners in writing about additions, changes and unexpected conditions and document the work. The principle is useful for a studio, though the contract terms still decide what can be billed. For adjacent workflow ideas on keeping tasks and notes together, see this event-planner project-management roundup.

If you are choosing a tracker, our comparison of time tracking software for creative teams compares record-keeping options, and the piece on agency time tracking and quote continuity covers keeping actuals linked to the original estimate.

Risks of T&M and how to reduce them

Every pricing model moves risk around. With T&M, the client's main worry is an uncertain budget and a concern about unnecessary hours. The contractor's are tracking costs carefully and, sometimes, carrying costs upfront until the client pays.

Federal T&M guidance calls for buyer oversight: agency personnel are expected to monitor the work actively. For a private creative engagement, the studio and client can agree on a review cadence that fits the project.

Risk Who feels it How to reduce it
Budget creep Client NTE cap, monthly recap, hours-to-date shown against the cap
Suspicion of padded hours Client Task-level time entries, shared access to the tracker
Scope drift with no extra pay You Written change notes, change process in the agreement
Cash-flow gap You Invoice monthly or biweekly, deposit or retainer, clear payment terms
Disputed invoices Both Keep time entries and receipts together; a software-agency contract-practice example discusses documenting the engagement

Clear records give both sides a shared basis for questions about the bill. They can reduce surprises, though they cannot settle every disagreement.

Our view: estimate first, then bill by time

An early estimate helps a studio and client discuss the size of uncertain work. Break the brief into phases, assign roles and estimated hours, then review costs, contingency and the proposed quote. If the parties want a cap, they can negotiate one in the agreement; the estimate alone does not create it.

As work proceeds, compare recorded task hours with estimated hours and discuss changes while there is still room to choose the next step. Roadbase supports that draft, review and compare workflow.

Estimating a T&M project before you start

T&M does not mean estimate-free. Clients still ask "roughly how much?" and any proposed budget boundary needs a basis. A workable process:

  1. Turn the brief into phases. Discovery, design, build, revisions, launch.
  2. List tasks and dependencies in each phase, including client approvals that can stall work.
  3. Assign roles and hours to each task, with a range instead of a single guess.
  4. Add revision rounds explicitly. Say how many are included and what happens after.
  5. Review overhead, margin and contingency. Base the allowance on the work and risks you can identify.
  6. Present the total as an estimate. Discuss a separate cap or approval threshold if the client needs one, and record the agreed effect in the contract.

Presentation matters. Our guides on proposal pricing tables and professional services pricing show how to make the work concrete for a client. If you need a structured route from a cost base to a rate, see the five-step cost-plus pricing process for agencies. Software consultants who bill by the hour can see how we approach estimates and quotes for software work, and web designers can read about pricing a brief in one session. If spreadsheets are what you use now, creative project pricing beyond spreadsheets explains where they start to strain.

Build the estimate and track it in one place

Have a real brief, notes or PDF? Bring it into Roadbase to get an editable first draft of phases, tasks, roles, hours and timing. Review the assumptions, rates, costs and target margin, then export the reviewed plan and quote as a proposal PDF. As the work moves ahead, track time against the project or task and compare actual hours with the estimate. Explore Roadbase when you are ready to shape the next quote.

Roadbase

Ready to turn the brief into a plan you can discuss with your client? See the current Roadbase plans.

FAQ

What does a T&M project cost?

There is no standard figure. The amount depends on agreed rates, billable hours, reimbursable expenses, any markup and any ceiling. A USPS T&M order uses fixed labor-category rates plus material and handling terms, subject to its ceiling; a private creative agreement may use different terms.

Which is better, fixed price or T&M?

Neither wins on every project. Fixed price suits clearly defined deliverables, and T&M suits uncertain or evolving scope. Many freelancers and agencies combine them: a fixed-price discovery phase, then T&M or fixed price for later phases once the work is predictable.

Is T&M the same as hourly billing?

They can overlap. "Hourly" describes how labor is charged; a T&M agreement also addresses which costs, if any, are reimbursable. A creative project with few expenses may have a bill that is mostly labor. The agreement, rather than the label, determines the details.

Should a T&M agreement have a cap?

A cap can help a client plan, but it is a choice to negotiate. Agree on the amount, whether expenses count toward it, when to warn the client, what happens at the limit and how additional work is approved. Its effect follows the signed terms.

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