Hourly or Project Fees? How to Choose.
Fees are a difficult subject for most freelancers. And one of the most difficult decisions you face is whether to charge hourly or per project. There are advocates on both sides.
In the hourly camp are those who claim that charging for the time you actually work is the only way to be sure you are fairly compensated. It’s also familiar to most freelancers who have worked this way in full-time employment situations. You quote your hourly rate, track your time, and multiply at the end of the project. Simple.
But hourly fees have a downside. Neither you nor your client know what a project will cost. This can lead to some nasty surprises and uncomfortable conversations when it’s time to invoice. Also, the better you are and the faster you work, the less you get paid, which is inherently unfair. The most important negative is that hourly fees mean you are selling your time instead of selling your expertise. This can prevent you from attaining the higher professional image you want.
Those on the other side of the issue say project fees solve these problems. You and your client both know the price tag before the work begins. The more efficiently you work, the more earning potential you have. And set fees help you to sell your expertise rather than your time. In other words, a client pays for the value of the work rather than for a chunk of your day.
But with project fees there are drawbacks as well. Without a lot of experience, you may not know what to charge, so you risk setting the fee too low, which means you will lose money on the project. You also may encounter clients who balk at the true cost of a project when they see that big number upfront. There are even clients who may inquire about your hourly rate because, regardless of the final cost, they simply want to know what you’re earning, which can cause some friction.
The answer? Apply the “Delimit Test” to choose hourly or per project.
I’ll tell you how I charge in a moment. But let me give you the skinny on choosing your fee strategy. I call it the Delimit Test.
The question to ask is whether the project has well-defined boundaries or whether it’s more open-ended. If you’re not sure about the limits or boundaries of the project, use an hourly rate. If you’re reasonably sure about the limits, use a per project rate.
When I say you’re not sure about the limits of a project, I mean you don’t know how long it will take you to complete a project. You anticipate that the client could make significant changes. The objectives are unclear. You’re dealing with a project that is inherently vague, such as generating “concepts” for an advertising campaign. Or the project will stretch over a long period of time, beyond your ability to fairly estimate the work involved, such as writing a lengthy technical manual for a new product or designing a large corporate Web site from scratch.
In situations like these, an hourly fee is the way to go. You can’t “delimit” the project, so all you can do is do the work and charge for your time.
However, when you can delimit the project, a project fee is always better for both you and your client. This would be for a situation where you know about how much time you will put in, you won’t have unexpected changes, the objectives are clear, you’re working on a well-defined type of project, or the project deadline is near and clear.
Which type of fee do I use?
When I started out, I charged hourly because that was easy. But it made me feel like an employee. Clients were buying my time, not my expertise. Also, as I became more skilled, I realized that I would have to either make less money or quote larger and larger hourly fees.
So I started using project fees for different types of projects. Did I know what to charge? No. I just took my best guess. Did I guess low sometimes? Yes. But after the project, I simply adjusted the rate. Rather than worry about the one project, my strategy was to keep adjusting until I figured out where the fees should be.
Today, I have a two-page rate card for every imaginable type of project. When a client asks my fee, I just quote from the card. Do I lose some work when the rate is too high? Yes. But my strategy on that is that I don’t care. If my fees are too high for a client, it means the client isn’t right for me.
One more thing, I also use hourly fees occasionally because some projects require it, such as consultation or on-going projects.
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This is actually what we did at the company that I used to work for, and it worked out quite well. Now that I’m looking for freelance projects, I intend to keep using the same basic method.
Fixed fees can be a little tricky at first, but over time they get easier. The thing to remember is to keep adjusting your fees so you are getting the pay you want and the clients you want. It took me years to figure out a fee structure.