I think it also depends on the type of work you do: charging per-project is probably more suited to smaller projects and per-hour better for longer projects.

For anything longer than around 2-weeks I charge per-hour; that’s long enough for the client to change their mind and alter the scope :-). The longer the project, the harder it is to accurately estimate how long it will take (and the bigger risk the freelancer takes).

Time & Materials + Fixed Price are not the only options though. It’s worth googling “target cost” and “target scope” models, as they give you a bit of middle-ground / flexibility.

There is another benefit to task or project-based fees: you can create packages/bundles/subscriptions for them and turn them into branding opportunities. You can use them to have better and faster answers to client questions than the next freelancer. You can use them to set yourself apart. I wrote about this on Freelance Folder a little while ago, here. I think you’ll find it complements Skellie’s wonderful article.

Excellent article! I’ve never really thought of charging by task, which is fairly ironic, because that’s how I break things up to get them done. I think this article may have changed the way I do work.

*Scurries of to his legal dude*

Excellent article, Skellie! I couldn’t agree more. Charging hourly just makes no sense in most cases. The product we are selling isn’t our time, it’s our expertise, insight, experience, etc. and the value to the client. There have been some good articles on the subject recently (most notably one by Chris Haddad and a webinar by the folks from Marketing Mentor), and I think it’s an issue many freelancers should really put some thought into.

The most common concern that people put forth when considering ditching hourly rates is, “What if the project drags on? I won’t get paid for every hour I work!” and to that I say - “That’s what a contract is for!” No-one in their right mind would quote a flat rate without qualifying it with limitations on what the client is getting for that rate. When I quote for a job, I quote for a set number of versions and rounds of revisions. Anything above that is charged extra (you can provide a flat rate for extra versions if you like, or quote at the time based on the circumstances). The contract should state that the amount quoted is for the scope and timeline specified, and that changes in scope, delays, rushes, etc. could result in extra fees.

Clients like knowing exactly what the project is going to cost them. It helps them to manage their budgets, and the specifications around versions, revisions, scope and timeline help them to keep focused on the goals of the project, rather than indulging in the temptation to micro-manage and endlessly tweak. Those who do decide to take things further don’t mind the extra expense, because they have a clear sense of what they are getting for their money.

Another important factor to consider with regard to hourly rates is that for many freelance projects, there are cost considerations that go beyond simply the “work done”. Licensing fees, purchase of source files, etc. should also be taken into consideration, and I’m constantly surprised at how few freelancers even think about these things. If you are just selling your work outright for an hourly rate, and sending your client source files as a matter of course, I guess that’s your choice but to me that seems like madness. As a professional it’s in your own best interest to make yourself aware of your rights & responsibilities, and the terms and conditions of a good, strong contract.

The GAG Handbook: Pricing and Ethical Guidelines is a priceless resource that designers, illustrators, web designers, etc. should definitely get their hands on, and it covers all of these details and more.

When it comes to pricing, one of the smartest moves you can make is to test your assumptions.

Heartily agreed. I’ve come to believe that in many cases freelancers who don’t have sound pricing structures, contracts and licensing agreements in place are those who are simply afraid to charge more, afraid to take on the responsibility of defining and outlining contract terms, afraid to take on the social awkwardness of creating a business persona and fostering those types of relationships, are afraid of being presumptuous, afraid of seeming unfriendly, afraid of scaring off clients, etc. etc. But it’s never harder than the first time. You will find that the thing holding you back most in these areas is not your clients, it’s you and your fear of stepping out of your comfort zone.

How we deal with these issues is easily as important as the work we do. These things will define our experience and our ability to prosper just as much as our skills and hard work.

In my experience, hour-based billing with a minimum project fee and a cap is the way to go. Hours logged show progress and that spread covers you when there’s more back and forth than anticipated.

My difficulty with this article and its suggestion is that it’s geared toward gigs that only take .5 or 1 hours. Yeah, it’s great if you can pad the budget and make more for the value you’ve provided in that hour. Apply this to a 30, 40, 60-hour project, though, with a lot more wiggle room and a lot more opportunities for the client to leave you twiddling your thumbs, and you quickly find your $5000 flat fee turning into $7000 worth of time. When that time cuts into another project’s schedule, you’re losing money.

Task based rates are great for small projects but for anything more than 50 hours or a week worth of work I would still stick with hourly rate.

Fighting the “feature creep” leads to soured relationships, where as an hourly rate promotes adding of features and in turn earns more for you, besides it is not that you are not required to give an estimate even when you charge by the hour but clients are more likely to come back to you if you deliver in less than what they anticipated - To make existing clients return saves you further more time and thus money.

Only one (or two) words of warning here. I have generally charged by the project, but you must block out how much time you think it will take you based on an hourly rate THEN calculate the total fee. On your contractual agreement (yes, even for a small job, something should be in writing and generally a ltter of agreement works just fine) there must be a proviso that holds the client to a maximum number of revisions/alterations (say three). IF the client goes over and above this number, a flat fee per hour should then be applied to your fixed rate. (This works well for identity programs and the like).
I always warn a client about this ahead of time (so that there are no surprises) and let them know that before I go ‘over time’ (or we are getting close to the estimated fee, and there have been some crazy changes and additions or alterations requested) I will provide them with a new estimate to take us to the end of the project.
Make sense?

This is how my entire markup team runs shop. We will take the same amount of time to markup up to 10 pages. So we offer package pricing, based on layouts, not pages. Then for any pages that do not fall into the packages but still need markup, we go with an hourly rate, but cap it at the cost of a new layout in the package. It sounds complicated but its really not.

My clients love it, because it protects them from under estimates and protects me from any free work.

Now the magic is when we charge for the value of a faster turnaround time. Like I said before, 10 pages takes the same amount of time, but if the client wants it in 24 hours, they aren’t typically thinking price anyway. We do a sliding scale based on layout and turn around time, and its been working wonders.

The faster we go the more we make, the happier the client is, and the entire thing is straight forward and clear to the client. Typically, clients feel that up front its expensive, but once they see the quality, and they have the peace of mind of fixed numbers, as well as knowing exactly when their markup will come in and the fact that our slowest turn around is 3 days, most of my clients feel like they got the best treatment possible and the cost matches the overall experience.

On top of being able to rock the clients socks off, it takes a load off of the end of project admin, by not having to submit an hours logged work journal, as well as not having to track the hours. That gets annoying, as well as working so fast that you feel cheated. There’s no reward for hauling through something and delivering early. With the way we are doing it and the way skellie talks about it, you have every reason to blaze on: profit is good, the client is happy with an early delivery, and the client will come back because they got a great deal.

I’m definitely on board, and am here to say that more often than not, pricing this way really makes sense and works out extremely well for both parties.

I tend to charge on a fixed price for certain projects and hourly rate for others. The fixed price is my preferred option, as everyone knows what it will cost from the outset. It’s also a great way to learn about charging the right amount, sometimes an expensive lesson, but you’ll soon learn how long projects really take and charge accordingly.

Great article, especially for those just starting out.

Thanks everyone — I’m glad the post was useful :). It’s something I do struggle with in my own business, so writing about issues like this is kind of cathartic!

@ Anna: Some great extra tips there. Thanks!

@ Mave: Thanks for the awesome thoughts and resources!

@ Alain: I’m not sure I understand what your issue is. You seem to be saying that freelancers can’t have any idea of the value they’re providing clients — something I strongly disagree with. You can’t put exact dollar values on it (and you don’t need to), but estimated value-to-client *must* be factored into your pricing. If you know the work you’re doing has the potential to earn a lot of money for the client, you can charge premium rates.

Let’s use the example of a web designer doing the same work for two different clients:

Client 1: Online checkout for Joe, who runs a small eBay store selling model trains. He doesn’t sell enough stock to turn over more than a few hundred dollars a week.

Client 2: Online checkout for a department store which is used to make hundreds of sales per week.

Now, both jobs might take the same amount of time, and they might be of comparable difficulty, but it doesn’t make business sense to charge the same fixed price for both clients. Client 2 has a whole lot more to gain, and will undoubtedly have a bigger budget available to make sure they get the checkout just right.

Factoring value-to-client into your pricing is not a separate third pricing method, it’s something you need to take into account when deciding on per hour or per task payment.

I only charge flat rate per-project rates. I don’t like the idea of having to watch the clock and then answering questions from the client “well, how do I *know* you took 10 hours for so and so…?”

Yea, just so isn’t worth the hassle.

The only hourly rates I charge is for website maintenance and I require a minimum of 2 hours.

I estimate by the hour then quote a fixed price. If I underestimate that’s my problem.

I definitely agree that task-based rates can end up making the freelancer more money while keeping the client satisfied with the value they’re receiving.

One way I’ve been trying to make sure I don’t run into the underestimation problem is tracking my hours for every project, regardless of whether I’m paid hourly. This is good for my business because it helps me see where my time is going in general — but even better for my pricing skills, since I can see my effective hourly rate exactly for all my fixed-rate projects. This way I have a reference point for future projects — if I end up underestimating, I learn what to charge for similar projects in the future.

Great appreciated article, very nice. In my opinion I rather prefer for a project base task…all my projects are not per hour coz I dont like it.. Nice thought their. great article.

I agree with Clara that it’s useful to track your hours even though you’re charging by the project. This helps make sure your fees are on target.

My projects tend to be big–200 hours or more. With regular clients, I don’t hesitate to use a flat fee. With new clients, I pay a lot of attention to how they behave during the scoping process. If a client looks like they could be high maintenance, I suggest they first use my much smaller consulting package to get their ideas in focus, and then if we click, we’ll do the big project. By that time. I’ll have a better idea of what it’s like to work with them and can set an appropriate project price.

I do a mix or hourly and task rates.

The problem with trying to do task-based rates for everything is that it only works if you have a very clearly defined scope of the project up front. In my experience too many clients cannot provide that. Often times it’s because they simply don’t know exactly what they want and so they cannot provide me with the info I need to know exactly how long it will take me. So while this pricing structure can be hugely beneficial, trying to move completely to task rates and no hourly rates at all will be a bad decision for most people (unless magically all of your clients are perfect). I think having a mix of the two is more flexible to cover the different circumstances you’re likely to find yourself in.

Klaus: All of your concerns about flat-rate pricing for larger projects (a huge chunk of what I do) can be easily addressed with some simple contract/payment terms:

a) the project last longer and you need a monthly cashflow (I usually do long running projects as “billed by day”, every month, just to ensure a steady cash-flow)

When taking on a larger, long-term project, it’s essential to get regular payments along the way. No one in their right mind would take on a project several months in duration and then bill after completion (well, I suppose there are some exceptions, but for the most part, no). Your contract should include payment terms, and those payment terms should outline when and how much you will be paid. If a project is longer term, then your payment terms should outline a regular schedule of partial payments. This is not just a cash flow issue, it’s a security issue. You don’t want to put yourself in a position of having done that much work and then get stiffed for payment by the client.

b) you can not control all aspect which influence the “finished” status (e.g. “we consider the logo finished when my boss likes it”)

You should never quote based on the client’s expectations, you should quote based on work you’ve done. If your quote is based on 1 version, 3 rounds of revisions, the work quoted for is finished once you’ve completed the 3rd round of revisions. If the “boss” isn’t happy with it yet, he/she will have to pay extra for more versions/rounds of revisions.

c) The outcome is not clearly defined (e.g. “overall improvement of the website”)

Again, your quote should be based on the service you are providing, not based on vague notions of what the client expects. Your contract should clearly define what services you are providing in your quote, and the limitations around those services, both in terms of scope and timeline. If you sign a contract charging a flat rate for “overall improvement of the website” then you are committing professional suicide. Your contract should state exactly what you are doing - regardless of whether you are charging flat fee or hourly.

d) you do not have a clearly communicated, upfront agreed “change request” procedure in place.

e) you don’t have the standing to enforce the change request procedure

This one just baffles me. The only way you will ever not have the standing to enforce a change request procedure is if you’ve been foolish enough to sign a contract based on vague, client-driven terms. If you’ve done your homework and come up with a solid, fair contract this should never, ever be an issue.

Hi mave, Since my case deals with website changes, I assumed hourly base is best since he is always adding and changing things. For print related work I can see giving an estimate and revision rounds.

At times a client like this does not care much about money and all they want it their way so let it be they can pay hourly.

If I was to set a new contract for this guy based on limited revisions then there is a good chance the next day he wants another contract for more changes, therefore making me go crazy.

Hourly for his case makes sense to me, correct me if I am wrong.

Thanks

Bejamshi: If you’ve completed the allotted rounds of revisions and the client still wants to tweak, then define how much it will cost them for each new round and quote it to them.

If the client is dragging the project on with endless nitpicking and you are concerned about the deadline, remind them that their inability to nail down their expectations could jeopardize the deadline.

Like several others here, and most of those with whom I work, I got to the point a long time ago where you couldn’t pay me enough to bill on a project basis. Why? Scope creep. If you’re doing a ton of graphic design then project billing makes more sense… artistic endeavors require a talent that’s hard to quantify. Actually pushing those pixels, however, is something a lot of clients liken to fiddling in Word or somesuch nonsense. (Thanks, Dreamweaver and Frontpage! Aaarrrggghhh!!!) So if they want you to move {x} over a little bit or change the way the site footer’s implemented, it’s nothing more than nudging a mouse. Right? (Right?!) And of course application programming just sorta happens, like stone tablets handed down from on high. Right? (Right?!)

It goes like this:

1. Work out your hourly rate. In case you need it, there’s an article on my site explaining that for a lot of folks, anything less than $40./hr. means living in squalor, somewhere off the beaten path.

2. In much the same way that Skellie suggests working out a quote, do it yourself. Voila, you’ve got a budget. (You’d also better have at least a back-of-envelope plan for how you’re going to meet or beat that budget.)

3. Once you’ve won the bid, write your specification and/or contract around that budget and the assumptions it makes, with the stipulation that if the budget is exceeded by more than {x}, everybody steps back and figures out why (even if that process only requires the five seconds needed to mutter too-damned-many-change-requests). And yes, Virginia, the assumptions are part of the specification.

Nice clients who quail at your bill rate simply need to be asked to wait for the bid/budget before they make a final judgement. Mean clients who do it can pretty well be pegged for jerks, and avoided.

The thing about time and materials billing is that it encourages honesty and transparency:

* The rate is an automatic, easily-judged metric for the operator’s evaluation of their skills; a combination of a high bill rate and solid quote is a strong signal that the bidder knows their stuff (or has access to subcontractors who do).
* Both client and vendor will know from the start what the burdens imposed by a change request will be, and frank disclosure of those burdens will be easier to make.
* It will be easier to set boundaries: the client gets a justification for each line item, while the vendor gets something back for being wrung out if a project goes non-linear.
* A measurable premium gets placed upon lack of focus (for the vendor, the risk of getting fired; for the client, the risk of going over budget). This will likely lead to a less stressful engagement for everybody.

Task based work isn’t only a more practical approach, but gives you work as a freelancer the ability to increase its value.

Hourly-rated work will undermine your ability to grow, since every time you reuse something you already have done you are making less money and lowering the value of your work when you should actually worth more because you can do more things in less time.

You are selling the product of your work, and not your work by itself.

As a freelancer, it isn’t important the amount of work you put into your work, how proactive you are or all of that, this is job-interview-stuff. What is important to your client is how much is worth the product that you are going to deliver for them.

As a software developer, I prefer hourly based work with defined billable periods (I invoice every x number of hours), especially for big projects. I have no problem with being open and transparent about my rates, and I keep a strict and accurate time log that I present to clients when I bill them. Others have suggested that charging by the hour means you can’t get away with jobs where you earn crazy hourly rates, but personally I don’t like doing this to clients anyway. If I can do something for a great price for a client whilst still earning my specified hourly rate, that’s fine by me.

In reality however, I usually quote on a project/task basis. For smaller jobs this is fine and it usually works out well, however bigger jobs have a nasty habit of being costly. During the quoting stage, other developers may not take into consideration all the *implied* functionality in an ambiguous specification, and their quote will be miles too low. You can be left in a situation where you must under quote or risk not getting the work. Actually, often it is better to not get these jobs.

The resistance to this idea baffles me. The key to this article is not simply “how to get a crazy hourly rate” by charging a flat fee.. it is more about Value.

If I shoot a photo for someone’s living room wall, or design a logo for a best friend’s house party as a favor does that have as much value as a photo for a national marketing campaign for a Fortune 500 company, or a logo for a Law firm? Hell no it doesn’t. Does it take the same amount of time? Of course. Should I charge the same hourly rate? No way.

Beyond that - people need to work smarter. If you’re doing a project that takes 200 hours, think about how many non billable hours go into landing a gig of that nature. Simply put charge based on value to the client. If its not valuable to the client, its probably not worth your time.

Professionals are paid a salary, in a sense this is a task/value based figure. If you want to take your self seriously you should be doing the same.

And on a final note, if you don’t believe this blog poster go to you’re library and take out any best business practices guide for independent contractors, freelancers, etc.. each and everyone of them will cover this same topic , with the same advice in the first few chapters. It is basic business school advice.

I, like Andrew, am also a software developer. I can’t see working with a fixed rate unless a project is extremely small (perhaps under 40 hours). Clients never know what they want, and unlike a graphic design, software can’t just be revised in a couple of hours if it isn’t right.

There are a couple of thoughts I think apply to software but not design: The only software worth building is software that hasn’t been built before. If you’re building software for the first time, you can’t know exactly how long it will take. Based on these two factors and clients who don’t know what want would send me running from a large fixed bid.

That doesn’t mean that I won’t give an estimate, and keep detailed records so I know when I’m getting close to the end of the budget.

i’m in the transition phase into flat based billing… it really seems to be an easier sale… most clients hate to hear my hourly rate & fear that projects could go wildly over budget that way…