Charging Project Pricing Versus Hourly Rates
Want more pricing help? This is day three of our five part series on pricing clients. You can find the rest of the articles on the Pricing Bootcamp splash page
So you’ve met with the client, have the design brief in hand, and you’re ready to sit down to start pricing things out. But wait! Before you get knee deep in the numbers there’s still one more decision to be made. How will you structure the pricing? Will it be hourly or a fixed project rate?
In this edition of the Pricing Bootcamp series, we’ll be discussing the pros and cons of each pricing model. It’s not that one is always better than the other, but it helps to understand which scenarios could benefit from their respective strengths. We’ll start with the hourly rate.
If You Use Hourly Rates…
The first of the two most typical pricing model is the hourly rate. This is the one you’ve probably had the most experience with, especially if you’ve ever worked in retail or a similar paid-by-time job. You get compensated for the time spent on a project, but the total length may not be clear. 
Strengths of Hourly Rates
As a freelancer, an hourly rate assures that all time spent working gets compensated. If there is a delay or sudden addition of workload, you don’t need to worry about losing money. It’s very easy to calculate the work versus return.
From the client’s perspective, an hourly rate might give them a finer amount of control of expenses. Progress and total funds can be monitored and adjusted as the project unfolds.
From my own personal experience, tight budget clients tend suggest an hourly structure for just these reasons. This model is also ideal for consulting or other administrative tasks where speed is irrelevant.
Weaknesses of Hourly Rates
With an hour by hour structure your actual timetable is often much more transparent. This isn’t always a bad thing, but it does open up the possibility for scrutiny of your time management. A budget-concerned client may even pressure you to be increasingly more efficient with time if they fear money is getting wasted. As a result, you may find yourself having to justify hours spent on design, back-end work, and other steps along the way.
A hourly rate is flexible in the sense that you are always compensated for your work, but it’s much less flexible in the negotiation stage. By the nature of the model, it may be hard to cut down a price without undervaluing yourself. Let’s say you come to a client with an hourly rate that exceeds what they would be able to pay for their project. Do you tell them to scale back their project scope? Or do you give them a discounted rate?
Efficiency is not always directly rewarded, because it’s easy to lose money simply by being faster than anticipated. If you find yourself blazing through project after project at lower rates, you’ll have to make some adjustments…
Watch Your Speed
As you become more efficient and finish projects faster, you will need to up your hourly rate. As your value and expertise increases, so should your price tag. Clients may question the high hourly rate, but this is where efficiency is rewarded.
Twice the cost and half the time is exactly the same as the reverse when it comes to hourly rates. This is where experience works in your favor. The client is happy because you’ve completed the job quickly at the same rate as lower priced competitors, and you walk away with more time to pick up additional projects. Everyone wins.
If a client gets hung up on what they perceive as a high hourly rate, this would be a good point to bring up. You’re not selling them on the price — you’re selling them on your expertise to finish the project quickly and well.
If You Use Project Pricing…
The second pricing model is a fixed price, paid based on the result. This is a little more straightforward than hourly in certain regards — you’re essentially getting paid for the results. Not counting deadlines, the time spent does not matter as long as the end goal is met. 
Strengths of Fixed Project Pricing
With a fixed pricing model set per project, you’re essentially charging a lump sum in order to reach an end goal. There is less of an expectation for time and budget management once the project is underway because the price has already been established. As a result you tend to have more freedom to manage the project without as much pressure to keep time at a minimum.
Weaknesses of Fixed Project Pricing
One of the added bonus of project pricing is that efficiency is not penalized. Payment is based on the result, so completing a project early would not cause a sudden dip in the value. On the other hand, if a project experiences severe delays and workload grows as a result, you’re already locked into a price even if you take longer than would be profitable.
The Choice is Yours
Don’t forget that you have full control of your own pricing structure. This means that you don’t have to commit to one model or the other. Try both! I always hated when articles didn’t give a clear cut direction in the end, but in this case there is no getting around it. This is just food for thought. Nobody can really tell you for certain what model will work better for your business.
Personally I favor the project pricing structure, largely because it allows for more flexible negotiations with less commitment of time. In tomorrow’s article we’ll be taking a look at some of those options when it comes to building quotes.
Want more pricing help? This is day three of our five part series on pricing clients. You can find the rest of the articles on the Pricing Bootcamp splash page
Further Reading
Here are some highlights on pricing conventions from around the internet.
