“What’s your hourly rate?” it’s an all too frequent question that freelancers and consultants hear from new clients. It’s an uncomfortable conversation, for several reasons:
- You worry that you may be pricing your services too high or too low and lose out either way.
- You feel you have to scramble to justify your rate.
- Not all projects make sense to bill by the hour – for you or your client.
You can no doubt add to this list. But what’s the right way to go about pricing your services? There are many viewpoints that suggest that small businesses should never charge by the hour, but I disagree. Certain clients and projects are absolutely the right fit for hourly pricing.
Here are some instances when charging by the hour makes sense, and when you’re better off pricing by the project.
When a New Client is Already Familiar with your Work
If you’re working with someone who’s familiar with the quality of your work or have been referred by someone else, you’re in a strong position. Because the client has heard about or seen the work you do, it’s unlikely that you’ll have to spend too much time explaining why you charge $X and will be able to command your desired rate.
When You Enter Unchartered Territory
When you’re scoping out work for a new client, oftentimes you’re getting into new territory. There may be a learning curve as you get to know the client’s work methods, products and services, and industry. Coming up with a project rate isn’t always easy.
Consider pitching hourly-based pricing, at least for the initial project. This will help ensure that you don’t underprice yourself. It will also mitigate the effects of scope creep which can quickly turn a 5 hour project into a 10 hour one – yet you’re stuck with a fixed price contract based on the lower time estimate!
When a Project Lacks Definition
If a client can’t clearly define the project – be careful. In this scenario you have several options.
- Bill by the hour – This will ensure you get paid as the project evolves and takes shape.
- Charge a project fee, but with a caveat – Alternatively, price the work as a flat fee project, but include a caveat in your contract, something like: “The above pricing is based on an anticipated timeframe of 20 hours to complete the project. Should the scope change or more time be required, <Client> will be charged at $x per hour”.
- Charge a project fee, but be very specific about the scope – For example, if you’re a writer and are producing a whitepaper for a client, use your contract to clearly state what’s included and what isn’t. “Project to include delivery of first draft and two rounds of edits. Additional revisions or work will be charged at $x per hour.”
When a Client Hires you to Step In and Cover for Someone
I have several clients who hire me to step in for a few hours each week to keep projects moving along while their employees are on maternity leave or if they are down on headcount. This kind of work is impossible to price by the project as the hours can shift from week to week. Pricing by the hour is often the only option and you’re unlikely to run into too much pushback on your rate since the perceived value of your work is high (i.e. the client really needs your help!).
The Bottom Line
There’s definitely a place for project-based pricing (especially if you’re dealing with a cookie cutter project). In my experience, however, hourly billing builds client trust (they come to realize the value that paying hourly gets them and have 100% visibility into where their money is going). Another major benefit is that you run less chance of running into scope creep and losing money on projects. You’re also doing yourself a favor, after all how do you price a flat project like designing a website or writing a whitepaper – each one is unique.
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