Calculating Rates: Hourly vs. Project-based

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How the heck do you set your freelance rates?

This is a loaded question that eventually all freelancers find themselves asking.

You might be a new freelancer and need to know where to start. You might be more experienced and not earning enough.

Either way, anyone asking this question probably has some deeper concerns:

• Can I get the rate I want?
• How do I charge a premium price for my work?
• How do I compete with other freelancers who charge next to nothing?
• What will the market actually bear?

Determine your base rate

The first thing you must do is determine your “base rate” - this is your lowest acceptable hourly rate, and this number is set in stone. You will never accept work for less than this amount.

To calculate this rate you have to consider, of course, how much your time is worth.

But a freelancer must account for much more than this as well. You have to figure in taxes, overhead expenses, account for non-billable working hours and then what about sick days, or vacation?

Your minimum hourly rate must absolutely encompass all of those things. On the bright side, I’ve put together a really helpful freelance rate calculator that you can get here.

Once you’ve calculated this amount, it can become a litmus test for all future potential projects. Does it qualify, or does it not?

Even if you’re charging a fixed rate amount for something, you probably have an idea of how long the project will take you, and you should be able to do a rough calculation to see if the project passes the test.

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Determine your premium rate

Now, just because you’ve calculated your base rate, doesn’t mean this is the rate you should be asking for. It’s just a number to keep you from making a bad professional choice.

The truth is, I wholeheartedly believe in charging premium prices for premium value work.

So let’s dig a little deeper:

There are two basic ways to charge for freelance work. 1) You can charge a fixed rate, per project price, or 2) you can charge hourly.

Charging Hourly

There are some valid arguments for why a freelancer might choose to charge hourly instead of per project.

Many new freelancers start out charging hourly. For one, it’s pretty hard to ask for a premium fixed price right out of the gate - a lot of new freelancers might not have the confidence or the experience to back that up.

Secondly, a lot of the time, new freelancers take on smaller projects for smaller clients, and charging hourly makes more sense in this case.

For quick, small projects, it’s easier to just charge by the hour. Not to mention, if you’re working with a small client for the first time, charging hourly can you give a concrete dollar figure to seek out should the project go awry.

Charging hourly for your first few projects is a good way to get your feet wet, develop your skills, and get a feel for how long different types of projects take you to complete.

But what happens when you start getting better? What happens when suddenly a Wordpress theme takes you 20 hours to develop instead of 40?

Are you going to accept half the money for what’s probably a better product?

One of the best arguments I’ve heard (and used) for charging hourly is scope creep.

When a project starts to take on a life of its own, and your client is demanding some serious revisions, it’s really great to fall back on your hourly rate and say “sure, I’ll make that change, another $50 please.”

If you’re charging per project, what happens when the project starts taking a really long time, and you end up losing money or falling below your minimum acceptable rate?

I’ll tell you what… if that’s the case, then you’re not charging anywhere near enough.

Charging a Fixed Rate

I’ll admit, it took me a while to hop over to this side of fence.

My feet were firmly planted in the “only charging hourly” camp for a long time, especially after a project for a client got completely out of control.

I was pretty heavily modifying and customizing a Shopify theme for this client. It was my first time building for the platform and there were a few kinks I had to work out.

The client and I completely finalized the design before I started: we did a round of wire framing and then we spent several weeks going back and forth with mockups, hammering out a design we were both really happy with.

I started building my customizations and then suddenly, the whole design was wrong. We had to start again. The whole thing got redesigned, out of nowhere.

If I had charged them a fixed rate fee, my effective hourly rate would have been reduced to almost nothing.

So then, when I landed another Shopify theme development job, I quoted the client around the number of hours the first job took me, and was waiting in anticipation for a large payout at the end.

This time I asked for a larger deposit up front, too.

But guess what? This client wasn’t nearly as picky. They didn’t really have any revisions. Also, because I’d worked out a lot the things I didn’t previously understand about Shopify, the project went considerably faster.

This project took me half the time and I ended up getting paid half the money, even though the work I did was better.

Then, shortly after, I was approached by a potential client who wanted a Shopify site too. He asked my fee, and I quoted him a fixed price that was 2x - 3x more than what I’d earned from each of my other Shopify jobs.

And he didn’t even blink an eye. I did the math, and even if the project took me twice as long, I would still be making double the hourly rate I’d charged my other clients.

This meant I didn’t need another client for over a month. Suddenly all that stress I felt about having to constantly scope and sell new clients disappeared (at least for a week! ha!).

Now I’m firmly in the “charge premium per project prices” camp, and I’m not looking back. I’m enjoying a lot more income, and have a lot less stress.

But aside from my anecdotal evidence, let me provide you with a few other arguments about why you should charge a premium, per project fee.

**Firstly, it’s actually an easier sell. **

Clients will know ahead of time exactly how much your work is going to cost, and they don’t have to worry about you randomly making up hours or inflating your numbers.

There won’t be any surprises down the road, and that creates a sense of security, safety, and trust that makes your clients happy.

You can paint a clear picture about what your client is and isn’t getting

I started packaging my work into “bundles” for my clients.

Now I do web development projects for a premium price and I include a custom design, a fully responsive codeup, a basic SEO workup, and 5 hours of additional support post project. All for a set price.

That’s a really good value to my clients, and it makes it easy for them to wrap their heads around what they’re getting and for what cost.

It also gives them a benchmark to use when comparing me to other developers. (Hint: My packages usually end up winning that comparison).

**But what about scope creep and the out of control revisions? **

I no longer allow that. My packages come with two rounds of revisions in which my clients can make adjustments or changes.

This is great because it makes sure that my clients get what they want, but it keeps me in control of the project’s flow.

I no longer kowtow to random and last minute redesigns. By framing your projects this way, you can create necessary boundaries that keep you in the role of consultant and expert, rather than employee or grunt.

So what can we take away from all this?

Here’s a summary:

• Calculate your base rate - your “minimum acceptable rate” - and use it as a litmus test for whether a project is worth it or not.
• When you’re taking on a big project, charge a premium per project fee. Don’t be afraid to effectively double or triple your hourly rate.
• Package your services into bundles that create clear and easy to understand value for your clients.
• Protect yourself in your contract by only allowing a certain number of revisions. Anything beyond that can be handled on an hourly basis, in addition to your regular fee.

If you want to get your hands on that nifty rate calculator, you can get it over here.

The calculator lets you estimate your yearly earnings based on a particular hourly billable rate.

You can learn how much you would need to charge per hour to earn a specific yearly salary.

It incorporates taxes and overhead, tells you how much you can actually keep of your paychecks to avoid a huge bill at quarterly tax time, and computes a true hourly wage based on how much you actually work vs how much you bill.

It’s time to bump your freelance income up to the next level. Are you ready?

Ashley Livingston: Front end developer, digital designer, crafty person, loves popcorn, cheese danishes, and goats. Find me at ashleythedeveloper.co