Hourly Rate vs Project Pricing: finding your best fit for success

Hourly rate, or billing by the hour, is a straightforward approach: you exchange your time for compensation. For every hour worked on a project, there’s a fixed amount to be payed. This is the least profitable way to price creative work because it prevents freelancers from charging for the value of the work produced.

Billing by the hour presents an unfortunate dilemma, where increased efficiency becomes a financial setback. In this model, the more efficiently someone completes the work, the less money they make. This paradox discourages the optimisation of workflow and prevents the search for more efficient and straightforward solutions. Hourly prices penalise efficiency.

The subconscious answer would be to take longer on the project in order to earn more money, but this is disadvantageous for both parties involved. A prolonged timeline not only hinders productivity but also diminishes overall project efficiency. Moreover, the client may face uncertainty about the investment required, making it challenging to plan and allocate resources effectively. A more transparent and fair pricing model, such as fixed project pricing, encourages a collaborative approach, fostering trust and ensuring that both the freelancer and the client benefit from a successful and timely project outcome.

Charging clients an hourly rate can be beneficial for services that cannot be completed under a fixed price agreement. This model offers flexibility in scenarios where projects may evolve, and requirements might change over time. It provides a fair compensation mechanism for tasks that are inherently unpredictable or subject to adjustments during the course of the work. Additionally, hourly pricing allows freelancers to adapt to unforeseen challenges without renegotiating the entire project, ensuring a more responsive and adaptable approach to client needs.

These types of services can include:

• Changes: for specific small tasks such as extra rounds of changes on a project, simple design changes, minor content updates.
• Projects with evolving requirements: where requirements may change during the course of the work, and flexibility in billing for the actual time spent is necessary.
• Ongoing services: for services that involve ongoing support, maintenance, or other activities where time is a critical factor, such as website maintenance.

Fixed project pricing offers considerable advantages in providing both clients and freelancers with clarity and stability. This model allows for a detailed project scope with a predetermined cost, ensuring that clients are well-informed about the products and services they will receive and the associated investment.

Unlike hourly pricing, where time is the primary factor, fixed project pricing shifts the focus to efficiency and results, providing a clear incentive for freelancers to deliver quality work within the agreed-upon budget. This approach is particularly beneficial for clients with predefined financial constraints, offering a stable and secure option.

However, the key challenge lies in establishing a well-defined scope upfront to prevent unexpected complications and misunderstandings by clearly communicating any additional charges for changes outside the agreed-upon scope to ensure a smooth project execution.The most significant challenge with fixed pricing is ensuring that the scope is well-defined upfront with the client; otherwise, it can result in significantly more work than expected, potentially leading to a financial loss for the freelancer.

Fixed project pricing proves advantageous for services with a clear and predefined scope. This model is particularly suitable when projects can be precisely outlined, providing clients with a transparent understanding of the products and services to be delivered at a fixed cost. It ensures a stable and predictable budget for clients while offering freelancers the assurance of fair compensation for the agreed-upon deliverables.

Fixed pricing can be used for:

• Clearly defined projects: when the project has well-defined parameters and a clear scope of work, such as developing a brand identity.
• Specific deliverables: for projects where the deliverables are specific and can be outlined in advance, such as developing marketing collateral.
• Routine design services: for routine design services that have a standardised process, such as creating business cards, social media graphics, or website banners.
• Client budget constraints: when clients have fixed budget constraints and need to know the exact cost upfront, fixed pricing offers predictability and helps clients plan their expenses.

A good mix of hourly and project rate pricing can be the best solution. For new project scopes, fixed project pricing work exceptionally well for both clients and freelancers. For maintenance work, small edits, or changes, hourly rates provide security to ensure small jobs are profitable and manageable. Each project and client relationship may have unique considerations, so it’s crucial to assess the specifics of each situation before deciding on pricing models.