One of the most important decisions you’ll make when it comes to pricing your services as a freelancer is whether to charge hourly rates or per project. Both approaches have their pros and cons and understanding them will help you make an informed choice that aligns with your goals and values.
In this article, I’ll compare both methods of pricing (and a few more at the end) to help you decide how to charge for your services. I’ll go through the advantages and disadvantages of each, and I’ll also outline a few specific situations where you might want to use one over the other.
Should Freelancers Charge Hourly Rates Or Per Project?
Deciding between hourly rates and per project pricing ultimately depends on your preferences, the nature of your work, and your target clients. Some freelancers find a combination of both methods works best for them.
For example, you may charge an hourly rate for tasks that require ongoing support or consultation, and charge per project for larger, more defined projects.
Reflect on your strengths, work style, and the types of projects you undertake. Consider your financial goals and the level of flexibility you desire in your schedule. Experiment with different pricing models, gather feedback from clients, and make adjustments along the way.
Remember, there’s no one-size-fits-all approach, and what works for others may not work for you. Let’s quickly compare the two charging systems, and then talk about what each one is best for.
Hourly Rate vs Project Pricing Compared
|Offers transparency to clients, as they can see how their money is being spent
|Provides a fixed price for the entire project, offering predictability for both parties
|May limit income potential if you become more efficient and complete tasks quickly
|Incentivizes efficiency and allows for higher earnings in less time if you can do things well and fast
|Some clients may be concerned about unexpected extra costs for revisions
|Provides clients with a clear understanding of the project’s cost upfront
|Requires diligent time tracking to ensure accurate invoicing
|Eliminates the need for time tracking, allowing you to focus on delivering results
|Allows for flexible billing based on the actual time invested in each task
|Provides flexibility in pricing larger, clearly defined projects
The Pros Of Hourly Rates
Firstly, hourly rates provide a transparent way of billing clients. They can see exactly how much time you’ve spent on their project and what they are paying for. This transparency fosters trust and ensures clients have a clear understanding of the value they are receiving for their investment.
This is why you’ll see a lot of clients opting to pay per hour as opposed to per project.
Hourly rates also allow you to ensure fair compensation for your time and expertise. By tracking your hours diligently, you can be confident that you’re being compensated for every minute you invest in a project.
It’s crucial to set a rate that reflects your skills, experience, and the market value of your services. You shouldn’t just think of how much your time is worth, but also how much your skills are worth.
If you provide ongoing support or consultation services after completing projects, hourly rates are a suitable choice. You can bill clients for the time spent addressing their questions, providing guidance, or making revisions.
Hourly rates work well for tasks that involve continuous collaboration and communication with clients. This can be ideal for upselling extra services to clients after completing the initial project.
The Cons Of Hourly Rates
One of the main drawbacks of hourly rates is that your income potential can be limited. As you become more efficient and experienced, you may complete tasks more quickly, resulting in fewer billable hours.
This can restrict your earning potential unless you increase your hourly rate to compensate for your expertise. When your hourly rate reaches a certain point, it can become off-putting for some clients (more on that later).
Some clients may hesitate to work with freelancers on an hourly basis due to concerns about cost overruns. They may worry that the project will take longer than expected, leading to higher expenses. This can create challenges in securing clients who prefer the predictability of fixed project pricing.
Time Tracking Challenges
Charging hourly rates requires diligent time tracking to accurately invoice clients. Keeping track of every minute spent on various tasks can be time-consuming and it’s an additional thing to think about when you’re working.
Plus, discrepancies or disagreements over billable hours can lead to disputes with clients.
Lack Of Incentives
Working on an hourly basis may lack the same level of motivation to work efficiently and quickly as per-project pricing can offer. Since you’re compensated solely based on the time you spend working, there might be less incentive to streamline your processes or find ways to deliver the same quality of work in less time.
The more you work, the more you get paid. This can be both a pro and a con.
Clients Focus On Hours Rather Than Results
Finally, hourly rates can sometimes lead clients to focus more on the number of hours spent rather than the actual results achieved. This can undermine the value you bring to the table, as clients may question the significance of your expertise and the outcomes you deliver (I’ll talk more about value-based pricing later).
The Pros Of Project Pricing
Predictability For Clients
Project pricing provides clients (and you) with a clear understanding of the total cost of a project upfront. This predictability helps them plan their budgets more effectively and eliminates any concerns about unexpected extra costs.
Many clients appreciate the transparency and certainty that project pricing offers, especially if it’s a particularly large or long-term project.
With project pricing, you have a fixed price for the entire project, regardless of the time it takes you to complete it. This incentivizes you to work efficiently and find ways to streamline your processes without compromising on quality.
For this reason, charging per project can put you in control of your actual hourly rate. If you work faster, you earn more per hour. However, you must balance quantity with quality!
Focus On Results
By using project pricing, you shift the focus from the number of hours you work to the results you can achieve. Clients are more concerned with the outcome rather than the number of hours you put in. This approach allows you to concentrate on delivering high-quality work and exceeding client expectations.
There is another pricing method that’s even more focused on the results, and I’ll talk about that later.
Project pricing simplifies your billing process. Instead of tracking hours and generating invoices based on time, you provide a single price for the project. This streamlines your administrative tasks and frees up time that you can use to make more money!
The Cons Of Project Pricing
One of the main challenges of project pricing is scope creep. Scope creep refers to the gradual expansion of project requirements beyond the initial agreement. If the scope of the project increases significantly without a corresponding adjustment in the price, you may end up doing more work without fair compensation.
It’s therefore crucial to define project boundaries at the start of the relationship and set clear terms to mitigate scope creep.
Uncertainty In Pricing
Determining the appropriate price for a project can be challenging, especially if the scope is complex or not well-defined. Under-pricing a project can lead to financial strain, while overpricing may deter potential clients.
Striking the right balance requires careful evaluation of the project’s requirements, your expertise, and the market rates for similar projects.
Risk Of Underestimating Time & Effort
If you underestimate the workload when using project pricing, you may find yourself working longer hours than anticipated without appropriate compensation. Thoroughly assessing the project requirements can help mitigate this risk.
When An Hourly Rate Is Best
There are a few situations where an hourly rate is clearly the better option. Let’s take a closer look at a few examples.
If you primarily undertake small, ad hoc tasks that require ongoing support or consultation, it may be best to use an hourly rate. This includes services such as providing technical support, troubleshooting, or offering expert advice on an as-needed basis.
Charging by the hour allows you to track the time spent on each task accurately and bill accordingly. Without clearly defined projects, you can be more flexible with this pricing method as a freelancer.
Complex Or Variable Projects
For projects with intricate requirements or varying levels of complexity, hourly rates offer flexibility and adaptability. When the scope is uncertain or subject to change, charging by the hour ensures that you’re compensated for the time and effort invested in handling evolving project demands, no matter how long it takes.
If your work involves frequent collaboration and communication with clients, an hourly rate can be beneficial. Examples include projects that require extensive meetings, brainstorming sessions, or continuous feedback exchanges.
Charging by the hour ensures that you’re compensated for the time spent on collaborative efforts, rather than just the work you’re doing on your own time.
Initial Planning Phases
During the early stages of a project, where discovery, research, and planning are crucial, an hourly rate can be appropriate if you’re directly involved with these tasks. These phases often involve exploring the project requirements, conducting market research, or creating a detailed project plan.
Charging an hourly rate allows you to account for the time and effort invested in these essential preparatory stages.
Projects With Unpredictable Time Requirements
If you’re working on projects that have unpredictable time requirements, charging an hourly rate can be more advantageous. This includes tasks with variable workloads or tasks that involve working with external factors, such as coordinating with third-party vendors or waiting for client approvals before proceeding with the work.
When Charging Per Project Makes More Sense
While hourly rates have their advantages, there are situations where charging clients per project offers a more suitable pricing approach.
First up, when things start getting more expensive, it may be easier for your client to accept a big project fee rather than a high hourly rate.
Let’s say you offer website design services, and you provide a package for $1,500. This provides your clients with a fully functional, multi-page website that caters to their ecommerce needs.
This website is worth it to them, as it allows them to set up their digital shop and start making money through it. It’s therefore an investment.
But imagine you predict it will take 10 hours to complete this website, as while it requires your expertise and isn’t ‘easy’ by any means, it isn’t a super complex or time consuming job. This would put your hourly rate at $150.
This might deter that same client that was willing to pay $1,500 for the finished website. A lot of this comes down to human psychology, but also just because it’s easy for a client to then worry about runaway costs or extra revisions.
Therefore, for expensive projects (the exact meaning of which will vary by industry), charging on a per-project basis might be best.
Clearly Defined Projects
If the project has clear deliverables, milestones, and a defined scope, charging per project is often the preferred choice. When you can accurately determine the tasks involved and estimate the effort required, project pricing provides clients with a predictable cost upfront.
When clients have a fixed budget in mind and want to know the total cost of the project from the start, per project pricing is ideal.
This pricing model allows you to provide a fixed price that aligns with the client’s budget constraints, making it easier for them to make informed decisions and plan their finances, rather than worrying about how many hours it’s going to take.
If the primary focus is on achieving specific outcomes rather than tracking hours, project pricing is a better fit. This includes projects where the value you provide is more important than the time you spend. Clients are more concerned with the end result, and project pricing allows you to emphasize the value you bring in achieving their desired outcomes.
Other Ways To Charge Clients As A Freelancer
In addition to hourly rates and project pricing, there are other pricing models you can consider as a freelancer. Below are a few alternative approaches to charging clients.
Per Word / Per Page
If you specialize in writing, editing, or content creation, you can charge clients based on the number of words or pages produced. This pricing model is commonly used in the publishing industry or for specific writing assignments. It allows you to quantify your work based on the volume of content you deliver.
For more info on this, check out our guide to setting your freelance writing rates.
Retainer agreements involve charging clients a fixed monthly fee for a set number of hours or services. This pricing model is often suitable for clients who require ongoing support. Retainer agreements provide stability and a predictable income stream, while clients benefit from having your expertise readily available on an ongoing basis.
With value-based pricing, you set your prices based on the perceived value of the outcomes or results you provide to clients. This approach requires a deep understanding of the client’s goals and the impact your work will have on their business.
Performance-based pricing ties your fees to specific performance metrics or outcomes you achieve. This approach is common in marketing and advertising, where you may charge a percentage of the client’s revenue generated from your campaigns.
Performance-based pricing aligns your compensation with the measurable impact you deliver. However, it works both ways, and if you underdeliver, you don’t get rewarded as much.
Hourly Rate vs Project Pricing: Which Is Right For You?
There is no one-size-fits-all answer to this question, as hourly rates suit some freelancers while project pricing is better for others. However, using the guidance above, you should be able to decide which pricing method is right for you!
If you want more guidance on this topic, check out my article on how to set prices as a freelancer.
Chris is the creator of Freelance Ready. He originally started freelancing (on Fiverr) while at university, writing and editing website content. He created this website to share his freelancing experience and help others on their own self-employed journeys. He is now a freelance SEO consultant and content editor. You can learn more about Chris here.
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