Photo by rick.

A note before we get Will’s post started: winners of our birthday bash competition will be announced tomorrow! Now, for our regular programming… — Skellie

Although many experienced freelancers generally price on a project basis, there is still an hourly rate lurking behind their calculations, much of the time. We tend to derive those project rates from estimates of how much time a standard project typically requires. And we bid on new projects, that don’t fit established patterns, or tweak our project rates to fit unusual situations, all relying on some concept of an hourly rate — even if we don’t share that with the client.

Especially when you are new to freelancing (although it’s a lingering issue even for people who have been at this a while), the question of where to set that hourly rate consumes a lot of mental energy, and generates much stress.

Now, I’m not about to tell you what you should charge per hour of your time for the kind of work you do. But even more fundamental than the question of your “hourly rate” is the question of whether you calculate your bids based on your rate, or on your rates.

The Multi-Rate Trap

Many of my freelance colleagues charge differently, on an hourly basis, depending on the activity involved. You can find writers who charge, say — just using round numbers, completely fictional — $100/hr to write original content, but who do basic copy editing for $50/hr. Perhaps a web designer charges one hourly rate, even if buried in a project quote, to design a website from scratch, but a lower rate to review or tweak an existing site.

And, naturally, clients and prospects pick up on those practices. I have had clients ask me about my research rate, as opposed to my writing rate. I have fielded inquiries about what I charge to produce online documentation or other technical services, as opposed to what I charge for instructional design.

When I was new at this business, I would have given different answers to those various questions. My project bid would have involved estimating hours spent in a each of several different activities, and applying the appropriate hourly rate for each of those categories to generate a total.

Those were the bad old days.

The Good New Days

These days, I charge one flat rate for an hour of my time. No matter how I spend that hour or what I’m doing for you, you will pay the same. (I will mention a couple of exceptions in a moment, but they’re pretty clear.)

Why did I switch to a flat rate, collapsing the rate schedule behind my project calculations to a single number I can write on the back of a postage stamp?

It wasn’t just because it makes estimating projects a lot easier. It was mainly because I wanted to make sure clients were using me for my most valuable skills, as well as helping ensure that I spend more of my time doing the more rewarding aspects of my work.

Strange to say, I finally recognized the problem among my best clients, who really liked my work. They liked the way I worked so well that they wanted to use me to solve a broad range of problems for them, sometimes slipping tasks to me that should have been done internally, in their own organizations. Rather than wrestle with their own bureaucracies, or because they didn’t like the quality of service they got from internal resources, they would throw a few more bucks my way to get it done quickly and correctly. And these minor services that weren’t part of my core offering, not part of what really made me valuable, got charged a lower rate.

But I gradually realized the insidious effects of this scheme. Allowing clients to buy cheaper chunks of my time to clean up their minor messes really took away time I could have spent ghost writing the Great American Novel, and applied that time to sharpening pencils.

Money and Interest

As clients bought more of my time for less expensive activities (because it was convenient and affordable), I made less money than I should have. I had allowed my clients to capture hours at a lower rate, hours that I could be selling — either to them or to someone else — at a higher rate.

Just as bad, sharpening pencils is not all that interesting. I was devoting more time to things I didn’t really want to do all that much, at the same time that I was crowding out opportunities for other clients to give me interesting things to do. My time is finite, meaning I had less time for the “good stuff,” which was bad for profits, and bad for one of the main incentives for going freelance in the first place: namely, being able to work on interesting things.

Eventually, I raised my pencil sharpening prices to match my novel writing prices. Clients quickly learned either to go back to internal resources, or to hire other people with different skills in different price structures, to handle those tasks. Or, if they were desperate or in a hurry, they swallowed hard and paid me novel writing rates to sharpen their pencils. That still wasn’t interesting, but it happened a lot less often, and at least I wasn’t losing money on the deal anymore.

Don’t Blame Your Rates . . .

If you’re new to freelancing, you may be horrified by the notion of turning away an hour’s earnings, no matter what the rate. The truth is, the issue here is marketing. Just because you’re not willing to put in the effort to find projects and clients who will pay the rate for your best skills is no excuse for accepting a lot of low-skill work at a low rate.

In other words, most of the time when I hear freelancers worrying about the business that higher rates will drive away, they’re really saying they’re not willing to do the work to find the clients will pay the rate that they deserve.

Over the years, I have learned to pass up “opportunities” to do uninteresting work for uninspiring pay. And I have learned that if that means my income sags, in a given month, the problem is my own marketing efforts, not my rates.

The Exceptions and Fine Print

When I say I charge the same rate to any given client, no matter how I spend my time working for them, that is not the same as saying that I charge every client the identical rate. In fact, my rates do vary somewhat among my clients.

• I have some clients who have given me steady work for 15, 20 years or more. I have tended to raise my rates less rapidly for them, over the years, rewarding them for their loyalty, as well as for being easy to work with. They get a little discount from my standard rates (but they see only one rate for an hour of my time, no matter what I do).

• Some clients are just a pain to work with. Everything is a struggle, and the job isn’t any fun. Those clients get charged a higher rate, basically a “nuisance surcharge.” And if they continue to be annoying, raising rates significantly is an easy and diplomatic way to get them to go work with someone else. (It can actually be quite fun to see how far you can push it before the tipping point. Not speaking from experience or anything… — Ed)
  

The one exception to flat rates within a client is when, given the quantity of work and the schedule for the project, I know I am going to be putting in unusual hours. For example, not too long ago a medical school department at a nearby university discovered that they needed to create a massive document spelling out all of their instructional objectives, year by year, for a couple of dozen courses in one of their residency programs. They were under pressure because without this document, they could not maintain their accreditation.

But they had neglected this project for a couple of years and now needed it completed in a matter of weeks. It was obvious that I could produce the required product only by working long hours, through the weekends, and through a major holiday that fell in the middle of this project. In that situation, I negotiated two rates, the second, higher rate kicking in to cover the weekend and holiday work.

Such deviations are rare, but I only deviate upwards, not downwards, from my standard rate in these situations.

Does It Work?

It works for me. I haven’t been the least tempted, after many years of this approach, to go back to a multi-rate approach. And I accept the responsibility of doing the marketing work to sell my most valuable skills, letting go of easy money for simpler tasks that undercut both my revenues and my enjoyment of my work.

It makes preparing bids a lot easier, and it makes it easier for clients to invest their money in me in ways that will generate the greatest return for them. My clients are happy, I’m happy, and when it comes to the hourly rate schedule, I won’t be going back to the bad old days.