• Finance

Hourly rate or project fee: What makes freelancers more money?

We all know that figuring out what to charge is one of the most nerve-wracking parts about freelancing.

There are two main ways to charge for your work: per hour or per project. This has long been a topic of debate for freelancers. Will the client reject a high hourly rate? What happens if the project goes beyond a certain timeline? What method is more likely to be accepted by clients?

We’re not going to come down on a side, but we do want to tell you which solution is best for your type of work and project:

1. You have an ongoing or long-term project within a certain role.

Hourly. Don’t waste your time by trying to divide your work into projects and drawing up multiple contracts. It will be a hassle both for you and your client.

2. The project goals and timelines are fuzzy.

Hourly. This normally forces clients to focus and be more careful about what they use you for. If you charge them per project, you might have to suffer through project fuzziness for a while, since they have no incentive to speed up the process.

Charging per hour is generally a good way to make sure that clients respect your time and communicate only when they need to. In the long-run, this can save you time and money.

3. You charge different rates to different clients.

Project. I find it’s a big hassle to keep track of hours for multiple clients, and sometimes I end up underestimating how long something took me just because I didn’t have the patience to write down the 10 minutes I spent answering an email here and there.

Charging per project is also the easiest way to increase your rates and test out your market’s tolerance for higher rates. When clients refer you to another company, they usually mention your hourly rate. This could cause you to become pigeon-holed in your hourly rate. If you have a per-project policy, the clients both intuitively understand that your fee depends on a number of factors.

4. You want to make sure you’re compensated for scope-creep or midstream project changes.

Hourly or Project. It’s definitely easier to get paid for items that fall outside the original scope of a project when you charge an hourly rate. Additional projects are just covered on an hourly basis.

However, it is possible to combat scope-creep when you charge a project fee; you just have to be confident when you ask for a contract amendment or an additional contract to cover those expenses. But if you're the type of person who is nervous about going back to clients asking for more, be aware that you may lose money if you charge per project. (Or get rid of your anxiety: you deserve to make more if the project grows!)

5. Your client has no idea what you do.

Project. When you know your client doesn’t understand what you do, they’re going to look at the number of hours it took you to do a “simple thing!!?!” and balk.

While a project fee might lessen this client’s angst, it’s a good idea to try to educate this client about what you do and not keep them in the dark. This will make your entire relationship run much more smoothly.

6. You want to maximize your productivity.

Project. If you charge per hour, you’re incentivized to work at a ho-hum pace. If you charge per project, your income is only limited by how quickly you can finish the work. You’ll be incentivized to be more productive, figure out faster ways to do things, and use that extra time to find more clients.

7. You’re fast.

Project. Let’s say you hire someone to fix a problem with your computer. As you wait, you watch the person work on your computer. The problem is fixed in 15 minutes, but they slap you with a $200 bill.

Chances are you’re going to feel cheated. The truth is that you should be happy that you got your computer back sooner, and the computer is worth far more than $200 to you, but your perception of the value of that service was significantly diminished because the technician was fast.

As a freelancer, you shouldn’t be penalized because your skill level enables you to provide high value quickly. The client is more likely to accept your proposal of $200 for a project (that you know will take you 2 hours) than they would be to accept a proposal for $100/hour.

Hourly rates have a ceiling. Project rates have a ceiling too, but it’s much higher.

8. Your client is on a strict budget & is risk-averse.

Project. Most projects have a strict budget, and your client is already concerned about keeping within that budget. If you say, “I charge $50/hour, and this project will take between 10-20 hours,” they’re going to get nervous. “This project will cost $700,” sounds much more stable for clients who dread trying to go back to their Accounting department for a larger budget.

The best of both worlds?

Many freelancers decide to have a combination of these two systems so that they’re compensated fairly and stay flexible.

These freelancers have a project fee for the initial work, and a per-hour fee for any additional work outside of the original scope of the contract. This allows them to maintain all the benefits of project-based pricing and discourages multiple rounds of revisions.

Freelancers, how do you charge?

Other related articles:

How to charge what you're worth

Why do freelancers undercharge?