Project vs. Hourly Rates: What Should You Choose?
One of the things people always ask me when they realize I’m a freelancer is “how do you know what to charge?” Honestly, I don’t always have the right answer. As any seasoned freelancer knows, estimated rates can sometimes be a game of chance with some jobs bringing in handsome sums while others end up as a loss. (You hope it all evens out in the end.)
So how do you actually charge clients? How do you know what a job is worth so that you are priced competitively and adequately for the work? That’s where the discussion of hourly versus project rates comes in. Here’s a guide to help you make the choice that is best for your business.
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Project Rates
Project rates are set by project. There are three ways to estimate project rates.
- Set pricing for specific jobs, such as creating a flyer will cost $100.
- Base pricing on the time you think it will take to complete, plus a little buffer. Estimate how many hours you think a project will take from start to finish and multiply that by your desired hourly rate. Quote that amount to the client.
- Set prices based on perceived value. Even if you can help a client get a website online in a few hours, the perception is that this is a complicated project (same goes for troubleshooting); charge more for these jobs than something that clients don’t perceive to have as much value (even if it takes you the same amount of time). Clients are more willing to pay higher rates for things they know they can’t understand or do on their own (even poorly).
Personally, the longer I freelance, the more I love project rates. Pricing is easy for me to quote and clients love that there is a set fee, which is less squishy than with hourly rates. (They also don’t have to think about what you are getting paid per hour.)
The other bonus to project rates? You can charge a client based on how hard or easy they are to deal with and reward clients for repeat business. The caveat is to make sure that you don’t create vast differences in pricing that are difficult to explain; clients will talk and you don’t want them to think you did the same job and one client paid twice the price.
Pros
- Project rates benefit freelancers who complete work efficiently, helping your earning potential. If you are fast and finish tasks quickly – particularly for repeat clients – you can feel cheated charging hourly rates. (Or end up feeling guilty charging a client for the minimum one hour for something that took only 10 minutes.)
- Rates are easy to understand and clients know up front exactly what they have to pay. (That’s also good for you because there are fewer awkward pricing conversations at the end of projects.)
- You can set prices per client based on the scope of work.
- You can accommodate client budgets for specific projects. Most clients are working within a set of financial constraints, a flat rate is stable and safe for the budget-conscious.
- Project rates are an easy way to give yourself raises over time without a sharp price increase. Clients are less likely to “see” a project rate hike, whereas they will know for sure if you jump from $75 to $90 per hour from one project to the next.
Cons
- Some clients just don’t like to pay in this way. They insist on hourly invoicing.
- Project rates can open you up to haggling or negotiating with clients over prices.
- You can get an estimate wrong and lose money on a project. It happens and there’s not a lot you can do about it as long as the client work remains in the initial scope.
- You need a solid portfolio and references that show you are worth the project rate. Project rates can be a lot trickier for some freelancers (particularly those just starting out) in some fields than others.
- Prices might look high to some clients. Many freelancers who use this pricing strategy opt not to publish a rate card online and all project rates are based on per client discussions with a written estimate.
Best For Projects That …
- Include hours and time that’s difficult to track or estimate.
- Clients don’t understand. It’s nice when the client “gets” what you are doing, but that’s not always the case.
- That could come with “sticker shock.” Think about that flier again at $100 as a project rate job. What if it only takes you 10 minutes to do the work? Clients don’t want think they are paying you $40-plus per hour.
- Reward your productivity. Quick jobs are ideal for project rates. Not only will you come out to better per-hour rates, but it also will encourage you to use time efficiently so you can get more projects done in less time. Here’s a fun game – finish as many small projects as you can in a day and then figure your earnings in that time period. It should make you feel good.
- Come with a well-defined scope. You’ll hurt yourself if the project scope is too loose or does not account for changes or revisions. Make sure these details are part of the plan of work and the client knows additional work comes with additional fees.
Hourly Rates
Hourly rates are exactly what they sound like. For each job, you charge a certain price per hour. Some freelancers round all work to the nearest hour, half hour or quarter hour with a minimum one-hour charge, while others use time-tracking software (which can calculate to the minute).
The obvious benefit to hourly pricing is that you get paid for all the time you are actually working. You can control the time and related cash inflow. The biggest pitfall is keeping up with said time and assigning it to the right client. (If you are anything like me, you sometimes have a few irons in the fire at the same time.)
Pros
- Hourly rates make it easy to account for project changes without having to re-quote a project, giving you plenty of flexibility for custom projects.
- There are a lot of variables you can’t always account for or control, particularly when it comes to design and web design projects. An hourly rate saves you from getting trapped in a cycle of changes or losing money on a job that snowballs.
- Some clients just really like hourly rates. It provides a baseline for comparing options and work that they can understand.
- You can publish a set rate for your services that can entice clients before you’ve ever had a conversation with them. Hourly prices look low to potential clients.
- Hourly rates are ideal for long-term, reliable clients, that you do maintenance or sporadic small and simple work for. They call, ask for a job and you do it at the hourly rate. You don’t have to provide an estimate for each job and the relationship is smooth and easy.
Cons
- Knowing what counts toward an hourly rate and what is a general expense. Do you charge clients for travel time if you have to meet them in person? What about phone calls? You need to have specific guidelines (even if just for yourself) so that rates and hours are consistent.
- Price increases are very obvious to clients and some freelancers are hesitant to give themselves raises – even when they deserve it.
- Clients might think your rates look high. Remember, to make money you have to account for expenses and taxes in your hourly rate. Some clients might not understand why you need to charge $100 per hour, while others are more than willing to pay $250 per hour. It depends on your market and client mix.
- The client might start to see you as an employee. (There’s a reason you work for yourself, right?)
- Clients almost always guess wrong when it comes to how long something will take – and not in the good way. It can be tough for non-creatives to understand and value time for creative work.
- Are long-term or ongoing.
- Can have a fuzzy scope or with a client that is prone to changes or not knowing what he/she wants.
- Are with new clients or if you lack a solid portfolio.
- Make you nervous when it comes to scope or if you aren’t sure of how to determine a project rate.
- Belong to clients that balk at paying any other way. (If you want to keep them as clients.)
Best For Projects That …
Conclusion
The best freelancers often use a mix of hourly and project rate pricing. (I know I do.) For projects – things with a distinct beginning and end, such as launching a website, writing an article or creating a flyer design – project rates work exceptionally well. For maintenance work – anything that pops up over time – website edits or changes, adding revisions beyond a project scope – hourly rates provide just the right insurance to make sure jobs are profitable and manageable.
Freelancing 101 is an occasional series to help the increasing number of freelancers in the market. Whether you are a designer, writer, developer or wear multiple hats, we will share tips, resources and ideas to help you make the most of your small business. Is there something in particular you want to know? Let me know at [email protected].
Image Sources: Allison McDonald and Alexandra Bilham.