There are several ways to charge for your services and choosing how you are going to bill clients should be an informed decision so your business can be sustainable and thriving.
More and more freelancers, agencies - services providers, however, prefer to charge by the hour. The proponents of “billable hours” believe it is the best way to charge for services in terms of profitability and transparency. Οn the other hand, there are also those who believe that it actually damages efficiency and the market as a whole for a variety of reasons.
In this article, we will explore both sides of the argument and present to you the benefits and drawbacks of each option. It is then up to you to decide which suits your business needs and style.
Hourly rate advantages & drawbacks
- Getting paid for actual work - From the professional’s point of view, hourly charge is the best option in terms of cash flow efficiency and profitability. Even if the customers change their minds in the middle of a project, you get paid for all the time you spent working for them. Fair and square!
- It is easier and more simple to calculate work hours and get paid for your efforts since there are numerous time tracking and billing applications available out there, such as Elorus. Hence, you can rather focus on your customer's needs and let the app do all the administrative heavy duty for you.
- As far as freelance billing is concerned, getting paid for the hours you have worked offers many benefits productivity-wise. Being aware of how much certain tasks take to complete, thus what price to charge for them, gives you the ability to sign better contracts. Not only are you more productive but you can ultimately increase your revenue.
- Customers are less likely to become “scope creeps” if you have agreed upon hourly billing for every feature/task their project entails. As a result, your projects will be carried out on time and you will get paid for what you actually delivered.
- Billing your hours progressively makes it easier for you to organize your time in a way that brings you more clients but, at the same time, more work-life balance.
- Customers seem to prefer a flat fee because they know how much it will cost them in the end. They feel more financially secure when they can plan their expenses beforehand.
- If you are highly efficient in managing your time, applying an average hourly rate results in you not getting paid for your skills but solely for your time. In this case, you might want to consider charging more per hour but be careful not to become unaffordable compared to the competition.
- Deriving from #2, you might be led to do things more slowly and this can be counterproductive in a number of levels.
Charging per project
- When you choose to charge projects independently of time spent, you are essentially getting paid for the value you bring to the table. This sends a powerful message to your clients that they will be receiving more than just your hourly price.
- Charging per project is actually easier for the customer to understand and accept without them worrying about budget overflow issues.
- If you are experienced in your field and get things done in half the time compared to others, your effective hourly rate is getting higher.
- Your quotes instantly become more clear and precise which benefits both you and your clients. This, in turn, makes you more attractive to reluctant clients.
- The fixed pay rateis a more flexible option in case you wish to raise your prices when you decide it's time.
- You are not entirely protected from customer demands that make the project to run much longer than supposed to. This is also true in cases that changes in scope are necessary for the project’s delivery. Charging per project will not compensate you for the time spent tweaking things or redesigning features at the last minute.
- You have to map out every single detail before finalizing the quote you’ll give to your client. Eliminate the possibility of underestimating how long the project will take or its intricacies, which is somewhat impossible because you just never know!
- The client might not understand why you charge 100$ for a Facebook banner and some thousands for leaflets. In some cases, hourly payment is more appropriate, so the client knows exactly how you price your work.
So, which one is best?
The truth is that there is not a single option that is absolutely better than the other - it clearly has to do with your preferences and goals.
Freelancers seem to prefer the hourly billing and customers expect that from them in the majority of cases.
Project billing is great for juniors who seek customers as they cannot provide specific evidence for the value of their time.
Moreover, the billing method depends on where you are and what you want to accomplish in the future. If you have discovered you prefer putting in long hours and finishing your tasks as quickly as possible, maybe you should consider project billing, as with hourly billing you might actually lose income.
We suggest you take a look at the way you work and your field’s common practices. Check out what the rest of your competitors are doing and decide where you see yourself and your business. And never forget, you can also establish your own style and even use both ways of billing, depending on the project or even customer.
No matter what you choose, it is always helpful to track the time you spend on certain tasks so you can be able to estimate your deadlines and productivity levels.