Hourly vs. Fixed Rates … That Is the Question

By Josh Hoffman, Contributor, on February 27, 2017

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To charge per hour, per project or per month? It’s a question every freelancer has to tackle when striking out on their own. There are several strong arguments for hourly vs. fixed rates, but, when it comes down to it, most freelancers provide a service. And, since services take time to provide, freelancers need to leverage their asset of time to get the most bang (money) for their buck (time).

That’s why it’s most effective to charge per hour. Charging per hour is about more than just putting a value on your time, though. It’s about taking control of your time, and ensuring that your clients respect it.

Transparency Is Key

When giving a quote to potential clients, many freelancers tend to estimate how many hours a project will take them to complete, or how many hours a retainer arrangement will take month-to-month. While this approach isn’t totally ineffective, unforeseeable extras often arise, leading to more hours worked than originally planned. Or, clients may request additional work than was originally agreed upon later in the relationship, leaving freelancers between a rock and a hard place — forced to ask for more money than was originally agreed upon.

When you charge per hour, all of these potential issues are put to bed, so long as the client understands up front that any additional requests will come with additional pay — based on the amount of time it takes to complete them. In other words, charging per hour ensures clients respect your time. In fact, hourly rates are just as good for clients as they are for freelancers, because clients only pay for actual work done, rather than a fixed, pre-negotiated rate based on an estimate.

To effectively charge per hour without any hesitation or push back from potential clients, it’s important to build trust with potential clients before they decide to hire you. The most effective way to build trust at scale (with multiple potential clients simultaneously) is by developing a personal brand. This way, potential clients won’t think twice about paying you per hour, since they’ve already come to know and trust you before the working relationship begins.

What, and How, to Charge

Charging per hour doesn’t mean freelancers get to work as many hours as they want and charge the clients accordingly. Instead, it means developing systems to be as time-efficient as possible, and taking into account each potential client’s budget.

Whenever I have the opportunity to work with potential clients, I ask for their budget (whether one-time or month-to-month) and then divide it by my hourly rate. For instance, if a potential client has a budget of $2,000, and my rate is $100 per hour, I will make sure I can complete the project within 20 hours or less. If I determine 20 hours isn’t enough to adequately complete the project, I inform the potential client, and we negotiate from there.

Either way, I always estimate an extra 30 percent time to complete a project — all but guaranteeing I never exceed a potential client’s budget. For instance, if I think I need 15 hours to complete a project, I give the potential client a quote of 19.5 hours (15 hours plus an extra 30 percent) multiplied by my hourly rate. Then, when I finish the project in, let’s say, 16 hours, it appears as though I saved the client money (since I charge the client for 16 hours, not the originally quoted 19.5).

Define “On the Clock”

When charging per hour, I recommend billing by the quarter hour: 15 minutes is 0.25 hours, 30 minutes is 0.5 hours, 45 minutes is 0.75 hours, and so on. Every 30 days, I send my time sheet (a spreadsheet with columns for dates, tasks completed and exact hours worked) to the client, along with the corresponding invoice, to show transparency.

Now, you’re probably wondering: How do I know what hours to charge for, and what hours not to charge for? My criteria is as follows: I charge for “project facilitation” (any task that advances the completion of a project, or is in line with executing something for the client). This includes phone calls, meetings, emails and everything else that’s essential to facilitating and completing a project, strategy or task at hand.

However you draw the line between what you will and won’t charge for, be clear with clients at the start of the working relationship about what you consider “on the clock.” Whatever your stance on the hourly vs. fixed rates debate, transparency and upfront communication are integral to securing a productive and beneficial client relationship.

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