4 mins read
Introduction
One decision that freelancers commonly face is whether to use Per Hour Rates or Per Project Rates. Both methods have benefits and drawbacks. The final decision on which method works best also depends on a number of factors, such as the project scope, the experience and skillsets of the freelancer and the characteristics of the client.
In this post, we’ll compare the two methods by discussing the factors that should be considered.
Per Hour Rates
Using Per Hour Rates is essentially selling time for money. Freelancers get paid for each hour worked. For example, if a freelancer’s rate is $60 per hour and it takes him 100 hours to complete a project, then he is paid $6,000. Many clients are familiar with this method and want to know (1) the hourly rate, and (2) the estimated number of hours required to complete the project.
Project Pricing and Scope
Freelancers are paid for the number of hours spent on the project: This may seem fair to you, but it may not seem fair to the client. For example, should you bill time for research or speaking to your client on the phone? It is important to agree with the client on what is billable and what is not. This will significantly reduce the potential for disagreements and misunderstandings.
Clients may not be sure how much they will have to pay for a complete project: This may cause them to overthink the details of the contract and be reluctant to engage the freelancer. Freelancers should develop a way to accurately estimate the final cost based on your hourly rate.
Clients may benchmark a freelancer against others by their hourly rate: The client’s judgement can be clouded as it is hard to compare different freelancers as each have different levels of experience and efficiency.
Project Management and Execution
Freelancers are penalised for being efficient: If you work very fast, you get paid less for the project because you spend less time doing it.
It is hard to estimate price for big projects: The more complex the project, the harder it is to accurately estimate the number of hours required to complete the project. This could result in either charging the client more than originally estimated or the freelancer doing extra work for free. Either way, it is not good for the freelancer.
Scope-creep is limited: It is easy to adjust to changes as the client is simply billed for the number of extra hours required.
Freelancers can consider using Per Hour Rates if,
the project scope is unclear;
the freelancer is inexperienced or works slowly;
the freelancer is good at tracking time.
Per Project Rates
Using Per Project Rates means working with the client to define the project scope and agreeing on a price for the delivery of the entire project.
Project Pricing and Scope
The deliverables are clear to the freelancer and the client: The client will know how much the project will cost and provide assurance that the project will be delivered on time and on budget. Freelancers must map out as many aspects of the project as possible so that the price and time required can be estimated accurately.
Focus is on the deliverables: This helps the client to focus on the progress of the project rather than the time taken to complete each phase.
Price may seem high: Total project price may initially seem large compared to an hourly rate.
Project Management and Execution
The freelancer is rewarded for being efficient: If the freelancer is able to complete the project in a shorter time, the freelancer is essentially paid more per hour.
Client may be unhappy to hear that request is out of scope: Scope changes are common and often advantageous for the client, but this does not stop most clients from being unhappy about it. Freelancers should work with client upfront to clearly define the scope and how changes to the scope will be charged.
Spend less time tracking tasks: This frees freelancers up to work on the project instead spending time on time-tracking.
Freelancers can consider using Per Project Rates if,
the project scope is clear;
the freelancer works fast and is confident of completing the project on time;
the client is on a strict budget and is risk-averse;
the client has no idea of the amount of work involved to complete the project.
Conclusion
There are benefits to both pricing methods and choosing a suitable method really depends on the characteristics of the freelancer, the client and the project.
Finally, always keep the client in mind as they compare different freelancers and make the final decision on who is engaged. Freelancers who are able to see things from the clients point of view will have an advantage.