What is Time and Materials (T&M)?
Time and Materials (T&M) is a contract type where you charge clients for actual time spent plus materials costs. Learn how T&M billing works, when to use it, and how it compares to fixed-price contracts.
What Is Time and Materials (T&M)?
Time and Materials (T&M) is a contract pricing model where the client pays you for: 1. Time worked — at an agreed hourly or daily rate 2. Materials and expenses — at cost, with no markup (or a pre-agreed markup) In a T&M contract, the final price is unknown at the outset — it's a function of how much time and materials the project actually requires. You bill for exactly what you spend. T&M is the opposite of a fixed-price contract, where the price is set upfront regardless of how long it actually takes.
How T&M Billing Works
Structure | Element | Example | |---|---| | Hourly/daily rates | $125/hour or $900/day | | Rate schedule | Sr. consultant: $175/hr; Jr. consultant: $95/hr | | Material markup | Cost + 15% or No markup | | Expense handling | At cost, pre-approved | | Estimated not-to-exceed | $25,000 (cap with client approval for overages) | | Billing frequency | Weekly or bi-weekly | Time Tracking Requirements T&M contracts require meticulous time tracking. Every hour matters, and the client is paying for each one. Freelancers on T&M contracts should: - Use a timesheet system - Log time daily, not weekly - Be specific about what was done each day - Send regular time reports to the client Not-to-Exceed (NTE) Cap Most T&M contracts include a not-to-exceed cap — a ceiling on total spending that protects the client from runaway costs. > "Time and materials billed at rates above, with total charges not to exceed $30,000 without written client approval." This gives the client a budget ceiling while giving you flexibility to do the work properly.
Example: T&M Contract for a Website Redesign
A freelance web developer signs a T&M contract with a small business for a website redesign. Rate Schedule: - Web development: $125/hour - Design: $110/hour - Project management: $75/hour Actual Hours Over 6 Weeks: | Week | Hours | Rate | Amount | |---|---|---|---| | Week 1 | 32 hrs design + 8 hrs PM | $110×32 + $75×8 | $4,040 | | Week 2 | 40 hrs development | $125×40 | $5,000 | | Week 3 | 35 hrs development + 5 hrs design | $125×35 + $110×5 | $4,875 | | Week 4 | 25 hrs development + 8 hrs testing + 7 hrs PM | $125×25 + $75×8 | $3,775 | | Week 5 | 15 hrs development + 10 hrs client training | $125×15 + $75×10 | $2,625 | | Week 6 | 5 hrs revisions + 5 hrs project wrap | $125×5 + $75×5 | $1,000 | | Total | 185 hours | | $21,315 | Client pre-approved up to $25,000 NTE. Final bill: $21,315. Under cap.
T&M vs. Fixed-Price: When to Use Each
| Scenario | Best Contract Type | |---|---| | Scope clearly defined | Fixed price | | Scope uncertain or evolving | T&M | | Short-term, discrete project | Fixed price | | Ongoing retainer relationship | T&M | | Client wants cost transparency | T&M | | Client wants known total cost | Fixed price | | Highly technical/exploratory work | T&M | | Regulatory compliance work | Fixed price (often mandated) |
T&M Pros and Cons
Pros for freelancers: - Fair compensation for unexpected complexity - No financial loss if project takes longer than estimated - Rewards efficiency (if rates are fair) - Builds trust through transparency Cons for freelancers: - Requires detailed time tracking - Client may scrutinize every hour - Harder to scale income (limited by hours) - Scope creep can strain relationship
Invoicing T&M Contracts
T&M invoices are timesheet invoices — they attach or reference detailed time records: Invoice must include: - Date, hours, description, and rate for each work item - Materials and expenses with receipts - Running total against NTE cap - Remaining budget available Invoice format: | Date | Description | Hours | Rate | Amount | |---|---|---|---|---| | Mar 1 | Design mockups | 6 | $110 | $660 | | Mar 2 | Development - homepage | 8 | $125 | $1,000 | | Mar 3 | Client consultation | 2 | $125 | $250 | | | Time subtotal | 16 | | $1,910 | | | Materials: Stock photos | | | $85 | | | Total this invoice | | | $1,995 |
The Bottom Line
T&M contracts are fair for both parties when scope is uncertain — you get paid for what you actually do, and the client pays for what they actually get. But they require excellent time tracking, clear rate schedules, and honest communication. Never let T&M work without an NTE cap and regular billing cycles. (Bill time accurately →) (Compare contract types →) (Understand project pricing →) Key Takeaways: 1. T&M = pay for actual hours worked + actual materials/expenses 2. Always include a not-to-exceed cap to protect the client 3. Meticulous time tracking is non-negotiable on T&M contracts 4. T&M is best when scope is uncertain or evolving 5. Send regular time reports to keep clients informed and prevent disputes Invoice time and materials accurately — Try Eonebill Free Eonebill's timesheet and T&M billing features make tracking hours and expenses effortless — so you get paid for everything you do. View Pricing → | Glossary Home → | Home →