Should you charge by the hour or per project?

Should You Charge by the Hour or Per Project?

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As a freelancer, learning how to price appropriately is as important as an adult learning how to navigate their taxes.

It’s not a should, but rather, a must.

Unless, of course, you hire an accountant and intentionally choose not to learn it (which is not a great life strategy overall!).

In the world of freelancing, there are two main ways to set your pricing:

  1. Hourly rate
  2. Fixed price

We recently wrote an article about the 7 factors to consider when charging an accurate freelance hourly rate. (yes, there is a science to this!)

But, it’s equally important to know there is an alternative way to charge—known as fixed price. So, the next time you ask yourself:

“Should I charge per hour?”

“Or… should I charge per project?”

Consider this.

The best way to think of freelance pricing is in the form of art and science. There is no right or wrong way to price for your services.

However, it is important to understand which method is better for you and more suited for your lifestyle, schedule, and long-term goals. These factors make up the art component of freelance pricing because of their subjectivity. Everyone has different lifestyle, goals and scheduling constraints. The foresight, planning and calculations of what the hourly rate or fixed price rate should be, make up the science.

Should you charge by the hour or per project?

The Great Debate: Hourly or Fixed?

As a freelancer, there are two possible price schemes: hourly rate or fixed pricing. There are positives and negatives for both schemes. Understanding the differences can help you make a more informed decision to your pricing strategy!

Should you charge by the hour or per project?

Charging by the hour

The positives

You get what you put in

Put simply, the hours that you put into providing services are equal to the amount that you get compensated for. An hourly rate pricing strategy is ideal for scenarios where you’re working with a new client or on a new project that has an unclear scope.

You don’t know this client very well and therefore could run into challenges around multiple revisions, which ultimately slows the project down as a whole.

On the other hand, if the scope is unclear you could end up being stuck in multiple ‘back and forth’ communications to solve one milestone or deliverable.

In both cases, an hourly rate makes the most sense because you get paid for the work you put in. Fixed price on the other hand could mean a smaller return on investment (ROI) on the project as a whole as the project drags on for whatever reason.

Ideal for long, ongoing projects

There might come a time where you start a freelance project that’s less structured, with more fluid timelines. Jobs that don’t have a project deadline but involves ongoing work that fluctuates week-by-week are great examples of these.

Think freelance writers/editors or web developers.

Freelancers are expected to edit and rewrite copy on websites, guides, etc, while developers are hired on to maintain a website. Both freelancers are required on an ongoing, as needed basis—making a per hour pricing structure ideal.

Comparison made easy

If you’re out scouting for new prospective clients, chances are, other freelancers are too! Offering a well thought-out hourly rate helps clients compare and contrast services and prices. It not only helps them get to a decision quickly (win-win for everyone), but it’s an easy justification when communicating your level of experience providing those services along with the quality they can expect from your work.

Imagine if you have 10+ years of freelance writing experience along with a copywriting portfolio in a certain niche your prospect is looking for. It’s easier to justify the per hour charge, especially if it’s higher than others in the market.

The negatives

Working efficiently can do more harm than good

The main downside of pricing per hour comes down to productivity, and the limits around being productive with your time.

In our last article, we touched briefly on the scenario of Jordan, a freelance website developer. In Jordan’s case, the caveat of charging by the hour is that it could limit his growth potential. After all, Jordan’s output—a high-quality designed and delivered to his customer—yielded an output of only $400 because he completed the work in 4 hours at an hourly rate of $100. The more experience you have, the faster you can do any task. With this model, your incoming earning potential is much lower.

You’re charging for the value of your own time, not the value of your work

Similarly, let’s say you’re working on something that will provide a high ROI for your client.

It could be a final website or a final e-book.

You know that the result will bring high value for your client. In this case, it might make more sense avoid a per hour charge and instead revisit your pricing structure from the perspective of the value it provides your client.

Fixed Project Pricing

The positives

Increased cash flow through lump sum payment

It’s exciting to receive a lump sum payment offered to you before a project begins. (Heck, it’s enjoyable receiving it any day and in any situation) Because a fixed project pricing structure is set up on a flat rate for the entirety of the project, all of the nuts and bolts are typically discussed prior to any work beginning.

Once agreed upon and validated in writing, you work as a freelancer begins! You can set your own payment terms. You can choose to charge the total amount prior to work beginning, at the end after the final deliverable hand-off, or sectioned into two payments: one halfway through the project and one at the end. The choice is up to you and how you’d like your cash flow to be structured!

Working quickly and efficiently is O-K

As we mentioned in the last section, productivity and efficiency goes up the more experience you accumulate. You’ll get faster at some jobs and tasks the more you do them. If you charge a flat rate, you’ll never risk losing out on earning potential just for being efficient.

No need for time trackers

Keeping track of time can become exhausting. It’s especially hard to estimate the hours you put in to a job before actually doing the job—making estimates for earning potential ambiguous to navigate. By charging a fixed price for the entire project, you’ll know exactly what you’re in for, and you’ll be able to project your income more intuitively.

The negatives

Hesitancy from clients

As a freelancer, you work with a wide range of clients. Typically, presenting your pricing in the form of a flat rate before starting any work can make clients take pause, especially if they’re not used to outsourcing work (aka never worked with freelancers/contractors before). Presenting this rate may prompt them to go elsewhere, so be sure to come prepared with all of the reasons why you’re worth the fixed price and even go as far as breaking down the work for them to help them understand what they’re paying for.

Scope creep is really a thing

Scope creep is extremely common among freelancers. Chances are, as a freelancer yourself, you’ve experienced one form of scope creep.

It’s where a client comes in with more revisions than you expected or the scope of the project takes a different path midway through. In these types of scenarios, it is very easy to increase the amount of work you put in without a pay bump to go with it—hence affecting your overall earning potential.

The bottom line: what’s best for my freelancing business?

The great debate over hourly vs fixed price when it comes to freelancing has been going on for a long time.

There’s no right or wrong answer.

Choosing a pricing method as a freelancer is both an art and a science. It depends on what your lifestyle, schedule, and long-term goals are—ideally backed by the planning and calculations that result in the rate you put forward to clients.

If you happen to freelance full-time, your schedule opens up for contracts of all size, structure and complexities. You likely have capacity for one-time bigger projects, as well as recurring jobs, that operate best in the form of an as needed, hourly contract or a monthly retainer.

On the other hand, if freelancing is a part-time gig, you might want to only work with a select handful of clients that you love. You’d choose your clients wisely, and based on your scheduling capacity, you might turn down larger projects with hard deadlines and focus your energy on ongoing, consistent work instead.

In summary

Charging an hourly rate works best in scenarios where you’re not familiar with the client’s communication/feedback process or if you expect the scope to change slightly (or a lot) at the outset of a freelance job. Entering into the contract with an hourly rate is the safer choice—it helps ensure you get paid for the amount of work you put in.

Charging a fixed price for the project makes the most sense when the client brief is clear and structured, making the scope breakdown very clear to you before you start the freelance job. One way of minimizing risk of scope creep is to include the number of revisions included in your pricing proposal.

Pro Tip: One way of minimizing risk of scope creep is to include the number of revisions included in your pricing proposal.

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