The Big Question: Fixed vs Hourly Project Pricing

by Karl Mamer - Published on 3/4/2010 5:09 PM

You should never lose money for doing work. Now given some cases you may do work for free for special clients or give considerable discounts for your work for charities or those that may turn out to be big referral plays, but the majority of the time you should be planning on making money off a job.

Often times in the web development field, graphic design, and other knowledge/skill based services, there are business owners or freelancers who often struggle with a pricing model that will work best for their business. There are typically two models to choose from when doing projects; by the hour pricing and fixed project pricing.

Charging Hourly for Projects

Hourly pricing is quite common for many developers and designers, where you would charge a by the hour price for what the work you are doing. A project comes in, say a logo design, and you provide a price for doing the project that would be in terms of hours and your hourly rate described or just an "I'll bill you for whatever time it takes" scenario.

In order to save themselves from under quoting, some may pad their hours to allow for some breathing room, however this could be seen as unfair for the client and may lead to someone else getting the order rather than you.

You may also at times just be selected for the project where you provide the work and the client then pays for the hours involved. You would just keep track of your time spent in a time sheet or time tracking software and send the client the list of hours when the job is done and you get paid.

The problem with hourly pricing for projects is that there is no motivation to get the job done. You take your breaks within your "working hour", chat with colleagues, and everything else, and it all gets handed down to the end client and could lead to arguments about what is considered a true working hour. This is why some have given up on the hourly rate and switched to fixed project pricing.

Charging a Fixed Price for Projects

Fixed pricing is charging your clients a set fee for work to be done, no matter how much time it takes or resources you use (paper, travel, electricity, rent, etc.). When the job is done you bill the client for the agreed upon price and get paid that price.

Charging a fixed price for projects usually comes down to trial and error or experience. You either get the quote right or you don't. For most workers that charge a fixed rate instead of the hourly rate have usually done so because they have learned from experience. For example, they have learned that a typical website would usually cost them $1000 - $700 worth of hourly time and $300 worth of resources.

In order to really be good at getting your fixed price charging right, you should collect a history of time sheets for all of the work that you have done in the past and average them out. Even using a project management system, such as BlueCamroo, you could establish the fixed price with your client and just keep track of all the hours you have spent and see how it all works out. Eventually things will work out for you and you can be sure that your client will be happy because they know up-front what it is going to cost them and know that they are getting the true value and you will be happy (most of the time) because your are being paid your worth and are able to cover your expenses.

Mixing them together

This is one last option that I thought I would throw at you. This is what I call the Honour System Pricing. When you provide a quote for a job you would quote on a fixed price + any additional hours that may be incurred. In this scenario your clients must trust you, otherwise it will never work. They need to know that you will not take advantage of them and bill extra hours on top of the fixed price for no good reason. However, if you are able to quote on this bases it will definitely be beneficial for all because your client stays happy because they have a pretty good idea that the fixed price that you quoted is what the project is going to cost them, and you will be happy because the times that you do happen to put more into a job than what you have quoted for, you will get paid for.

Many clients, with trust, will actually opt for this option because honest people don't like to take advantage of others - they don't want to take advantage of you and they don't want you taking advantage of them. And if you explain that often times during a job; specifications change, revisions get made to designs, or testing takes longer than anticipated, your clients will totally understand and will be willing to go by the honour system.

The other great thing about the honour system - it will also help ensure that your clients provide specifications, color choices, etc. that have been settled internally by them, before they pass the finals on to you.

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