Hard Cost

What is a hard cost?

A hard cost is an out-of-pocket expense you pay to third parties on behalf of a client. Filing fees, court reporter charges, expert witness fees, travel expenses, and overnight delivery are hard costs. You typically bill these to clients at cost or with a markup. Hard costs are distinct from soft costs, which represent internal resources like copying or research database access.

Tracking and billing hard costs

Record hard costs as they occur with supporting documentation. Assign them to the correct client and matter. Your engagement letter should specify whether hard costs are billed at cost, marked up, or included in your fee. Some clients require advance approval for expenses above certain thresholds. Unbilled hard costs tie up your cash until collected, so bill them promptly.

Hard cost recovery

Review your hard cost recovery rate. Are you billing all eligible expenses? Are clients paying what you bill? Unbilled or uncollected expenses directly reduce profitability. Some firms absorb small hard costs as overhead while billing larger ones. Others mark up expenses to cover administrative handling. Whatever your approach, track hard cost recovery as a component of engagement profitability.