Trading the Hourly Rate for Task-based Pay: Should You Do It?
One of the smartest business decisions I’ve made as a freelancer is to stop charging by the hour. I want to take the plate and bat for this method — not because I’m trying to convince every paid-by-the-hour freelancer to do an about-face, but simply because I don’t hear a lot of discussion taking place about per-task payment and its pros and cons.
Throughout the course of the article I’ll outline the six strengths of per-task pay, then respond to a few of the questions and criticisms you might have. Let’s start with the pros:
1. You can charge based on value to the customer. Let’s say you’re a freelance search-engine optimizer. You see websites making the same mistakes all the time and can optimize any website for search traffic in an hour. If you’re charging by the hour, you might make $65 for your services. If your skills allow the website to make $50 more sales each week, your per hour price is just a fraction of the real value of what you do. You’re under-valuing yourself. A task-based price can help you change that.
2. It often sounds cheaper than it is. Let’s assume a simple logo takes you half an hour to make and costs the client $200. To the client’s mind, $200 for a finished logo is a lot cheaper than paying a freelancer the hourly-rate equivalent of $400 per hour (most clients would probably faint at the price!) I think a lot of clients will also compare the hourly rates you charge to the hourly rates they themselves make and think: “If I’m not worth thirty dollars an hour, you’re definitely not worth $70!” Separating payment from hours worked can help prevent that unfavorable comparison.
3. You’re rewarded for productivity. You expected that sales page to take four hours but you knocked it down in one. Congratulations? Not really. At $50 an hour your payment turns out to be $150 less than expected. If you’d charged a flat rate of $200 for the sales page, you would have earned $200 in one hour! Talk about a motivation to get things done.
4. You reduce unwanted variables for clients. Client Joe wants a Firefox extension to paste widgets on to other widgets. You give a rough quote of ten hours work, but warn that it could take up to twice that time. Joe is left not knowing whether the extension is going to cost him $700 or twice that amount. That uncertainty is the kind of thing that can cause a client to jump ship.
5. You can charge more for undesirable work. When offered a job you don’t particularly need, or a job you’re not excited about, you can charge a heightened rate to compensate by asking yourself: what kind of payment would it take to make this job worthwhile?
6. Flexibility is why we’re freelancers, right? Setting up timers and staring at a clock can feel a little like office work. If you’ve ever felt like you were being paid for the amount of time you sit in a chair, click the mouse and type, you can relate. The emphasis on time is one of the reasons I decided traditional consulting was something I didn’t want to be doing.
Here are my responses to some of the questions and criticisms a per-task pay model is likely to receive:
What about when a job takes longer than expected?
If you know your capabilities well and get a detailed briefing on the work you need to do, you’re more likely to find that you finish jobs early rather than late. If you’re unsure about a particular job, charge at a halfway point between on-time and worst-case scenario. If you expect a job to take 10 hours but feel it could go up to 15, charge the price you’d want if it took 12.5 hours, or if you’re really confident, 15. Clients won’t be looking over your shoulder as you work and will often assume that a high price means the job is really hard or time-consuming.
How do you work out what to charge?
My master negotiating tip is this: your initial price should be the most you think the work could be worth. If you’ve seen other web designers charge $1,300 for designs that are equal to yours, but you usually charge $700, don’t assume they’re doing something magical which allows them to charge that price. They’re probably just asking for it, while you haven’t tried. When it comes to pricing, one of the smartest moves you can make is to test your assumptions.
Should I advertise fixed rates?
My answer would be: not in every case. In the case of a service where only one price suits you (i.e., it wouldn’t be worth it to do it for cheaper, but clients probably wouldn’t pay any more) then advertising a fixed price makes a lot of sense. If your rates for a particular task fluctuate depending on the detail in the job, the type of client and potential business value, a fixed rate will only restrict you.
The best thing about determining your rates on a per-task basis is the flexibility: the freedom to determine a price based on how busy you are, whether the work is interesting or not, how much value the work could provide the prospect and whether the prospect is investing in a business or a hobby. It’s certainly less straight-forward than charging by the hour but, like many things, the elegance of the system can be very powerful if you know how to use it.
Image by Creative_photography.
Note: A few times a month we revisit some of our reader’s favorite posts from throughout the history of FreelanceSwitch. This article was first published March 14th, 2008, yet is just as relevant and full of useful information today.