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Hourly Rates vs. Fixed Fees: How Should You Charge Clients?

Hourly Rates vs. Fixed Fees: How Should You Charge Clients?

When deciding what to charge, freelancers often ask whether it’s better to go with a flat fee or to charge for the time worked. Each has its advantages and disadvantages. A useful way to think about it is, as between you and the client, who should bear the cost of the project taking longer than expected, and who should benefit if the project is completed more quickly than expected?

Reasons to Charge Hourly

  • Estimating Skills – If you’ve been freelancing for a long time, you probably have a good idea of how much time it will take you to complete a project and roughly how much you should charge to ensure you make a profit. But if you’re just starting out, you probably don’t.
  • Insurance for Unforeseen Circumstances - If you charge a per hour rate, and you run into an issue that drags out a project’s completion time, you’ll get paid for those extra hours of work. But when you charge a fixed rate, overages will cut into your profits.
  • Transparent Pricing – When you present a client with a per hour rate, it’s easy for them to grasp what they’re paying for. When you give a quote for an entire project, it can be harder for them to understand how you got to your total.

Reasons to Charge a Fixed Fee

  • Your Efficiency is Rewarded – If you finish a flat-rate project more quickly than you estimated, the time you save means more profit for you.
  • Reassuring the Client – Your client may not be comfortable with the idea of paying extra for a project that takes longer than expected, particularly if they’re not that experienced working with freelancers in general or with you in particular. With a flat rate, they get the peace of mind of knowing upfront exactly what they will spend. For some clients, this reassurance will make it easier to hire you.
  • Simplicity – Charging for your time can end up being a logistical headache. You need to keep detailed records. This is especially important if you charge different rates for different skills, e.g., design tasks at $X/hour and development tasks at $Y/hour.

How to Choose

There’s no universal answer. There may be certain situations in which one method makes more sense over the other. Sometimes you and your client might decide on a hybrid approach — for example, charging by the hour but agreeing to a cap (a fixed upper limit). Consider the following items:

  • Experience - How quickly can you complete tasks and how good are you at estimating the  level of effort that a job will require?
  • Type of Project – How involved is the project? How long will it last? What skills will it involve?
  • Client – How well does the client understand his or her project’s goals? How well does the client understand the process of working with a freelancer?
  • Personal Preference – How organized are you? What’s your comfort level with risk? How many other projects do you have on your plate?

If you still can’t decide, our friends at the Freelancer’s Union have put together a handy guide that lays out scenarios where one costing method might work better than the other.

What’s your preferred costing method? Let us know by tweeting us at @Shakelaw.