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Should freelancers charge hourly?

There is no overall right or wrong way to price your services. It all depends on what works for you. Charging by the hour (or by the day) is a common pricing model among freelancers. It's where you charge your client for a precise number of hours worked, no less and no more.

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A common dilemma faced by freelancers in every industry is whether to charge by the hour or by the project. Both strategies have their benefits and drawbacks depending on your freelancing services, ability, and audience. In this article, we’ll have a look more closely into the pros and cons of hourly and per-project pricing to see which strategy might best suit your freelancing business.

Dilemma freelancers face overpricing projects

Setting your freelance rates is tricky, especially when you’re new or trying to raise your prices. The more money you need to earn, the more strategic your rates need to be. What may work early in your freelancing career might not as you gain more experience and expertise. When you add unprecedented events and new developments in your industry, you may also find yourself switching between different pricing strategies numerous times throughout your career. There is no overall right or wrong way to price your services. It all depends on what works for you.

Pricing model: By the hour

Charging by the hour (or by the day) is a common pricing model among freelancers. It’s where you charge your client for a precise number of hours worked, no less and no more. You record time spent on a particular project and include the hourly price total in your invoice.

Benefits of charging by the hour

Clients generally understand the “by hour” rate model. It’s simple for anyone to comprehend. You work three hours for $40 per hour, which means the final fee is $120. It’s crystal clear for both parties. Clients are less likely to embark on scope creep with an hourly rate. Scope creep is where they demand a little extra work within the project parameters. Once the hour is up, that’s it. There’s a clear boundary. Hourly billing is generally easier than “by project” billing if you have good time-tracking and invoicing software. The technology allows you to focus on client work while the admin and payment duties are largely done for you automatically.

Drawbacks of charging by the hour

If you’re an experienced freelancer, the hourly pricing model penalizes you for your speed, efficiency, and knowledge. If you can get a project done in half the time as a slower and less experienced freelancer, you’re still earning the same amount. This hampers your ability to make more money as you become more productive. It can be tricky for larger and more complicated projects to accurately judge how long tasks will take. Clients can become unhappy if you continually need to increase the number of billed hours.

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Clients can feel insecure when seeing a long stream of costly hours stretching into the distance. Per hour pricing is extremely common and leads to prospective clients judging a freelancer on price alone. There’s a greater likelihood of a race to the bottom with hourly rates.

Pricing model: By the project

By-the-project pricing is where you set a single fee for an entire project. You might have an hourly rate, but the client will never know what it is. Your hourly rate is simply used as a rough guideline to judge the total price. The client either agrees to the project fee (perhaps with some negotiation), or they don’t.

Benefits of charging by the project

A per-project fee ensures you focus on value rather than productivity and speed. You’re not continually racing against the clock and can spend more time on delivering quality results.

Many clients, especially good clients, see a per-project

fee system’s value. They prefer for the freelancer to take their time without fighting the clock. The more experienced you become as a freelancer, the faster you will naturally work, without impacting on quality. A per-project price means you can make more money in half the time than what you might get done currently. Experience, knowledge, and productivity are rewarded. Charging by the project is becoming a more widespread and accepted way to work with a freelancer. It’s also simple for the client to understand when sending estimates, quotes, and deposit invoices.

Drawbacks of charging by the project

A total project fee can seem rather large compared to a small figure hourly rate. While it might work out to precisely the same amount in the end, it can be difficult for clients to process the difference. There’s a lot more planning that needs to go into a total project fee quote and proposal. Every facet of the job needs to be factored in and priced before work begins, which can be laborious, especially if the prospect then decides not to go ahead. Scope creep can be an issue without a clearly defined contract. Clients have little understanding of how much time you are putting into their project compared to a per hour fee.

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If you misjudge the complexity and length of a project and underprice it, you can be working a lot of extra hours without payment.

Combining pricing models

So, there you have the benefits and drawbacks of charging by the hour and by the project. Another factor to consider is that you don’t have to stick to just one pricing method. If you have several different services, then some services might run more smoothly with a per hour rate model. Others will be more suited to a total project fee.

Retainer agreements

A retainer is another pricing method popular with freelancers seeking a stable monthly income. In some ways, a retainer agreement is similar to the per hour payment method. However, it’s paid in advance on an ongoing basis for retained services each week or month. An example would be a freelance consultant who spends a predetermined chunk of their time with a client during a set period. The regular retainer income predictability is as close a freelancer can get to a traditional salaried job.

By the hour or by the project?

Whether you charge by the hour or by the project – or rely entirely on retainer agreements – each payment method’s benefit depends on your unique business. As mentioned previously, there’s no inherent right or wrong way. What works for one freelancer will not work for another. And what might work well for you now could hinder growth and profits in six months. In an unpredictable world, it’s always wise to re-evaluate your freelance pricing strategies on a regular basis and modify them when needed.

invoiceninja.com - Freelancers: Should You Charge By the Hour or By the Project?

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