Why I No Longer Charge By The Hour

When deciding on how to approach pricing for your business' services, you have a lot of decisions to consider. One of the most important factors is determining your hourly rate. Once that's accomplished, you'll have to think about how you estimate prices to clients. Do you charge by the project? Or, do you calculate price based on the number of hours required to accomplish the task?

When I first started freelancing I had a set hourly rate and used that to determine prices. I eventually expanded this to include an assortment of hourly rates depending on the type of service provided. Production work and meeting time carried lower hourly rates than creative direction and design. This worked out okay at first…at least I thought it did. But it soon became tedious, especially considering this was before the arrival of online project management and time tracking tools. Maintaining a spreadsheet with various formulas made me want to pull my hair out.

I can see how this approach might be critical for an agency where there are a lot of salaries to consider, and not everyone is on the same pay scale. Naturally, the agency needs to ensure that everyone’s contribution is beneficial to the financial success of the business, so different hourly rates make sense. But, for a one-person shop, this feels like overkill.

Having a few years experience under my wing gave me valuable insight into past projects. Accurate records of time spent enabled me to discover just how much time it really took to accomplish tasks. It also helped me see a progression of efficiency (or inefficiency).

I decided to experiment with charging set prices for certain services. I figured that the client would appreciate the streamlined billing, and if I sold my value to the client, they wouldn’t feel a need to beat me up over hours spent vs. invoice totals.

Reasons

his brings us to the reasons for project-based pricing:

  1. I believe that by using project-based pricing instead of hourly rates you are more effectively communicating your inherent value to the client. You are no longer being valued on how quickly you accomplish a task, and instead on how effectively you accomplish a task.
  2. Second, as you gain more experience and hone your skills, your efficiency should also increase, right? What used to take you eight hours may now only take you three. Should you be punished for being more efficient?
  3. I believe it’s more professional to provide project fees versus hourly prices. The client knows what they are in for (financially speaking). This puts the onus on you as the creative to ensure you are covering yourself in regards to revisions, scope creep and profitability. There’s less back-and-forth, less haggling over terms and, hopefully, fewer surprises along the way. With this said, I must stress how important it is to still keep accurate time records. This is really the only way you’ll know if you’re charging too little, just enough or even too much. Always be as diligent as possible to ensure you’re on track with expectations, yours and your client’s.
  4. I find that it’s actually easier to justify my pricing as I’m no longer just referring to “this many hours x this hourly rate.” I’m able to share my value proposition, experience, technical insight and overall understanding of the client’s needs.
  5. Not all clients are created equal. I mean this in a good way. Some logos have more inherent value than others. Some websites have more inherent value than others. When charging by the hour, how do you infer value into your service costs? Project-based pricing allows the discussion to focus on value and deliverables.

Exception

Yes, there is an exception.

I’m in the business of web design and development, and while all projects are quoted on set fees, I do use an hourly rate for monthly maintenance contracts. I feel this is appropriate since I have a strong understanding of the scope of work and client needs. I quote a set number of hours per month, and never do more than six month contracts, usually three month contracts. This allows frequent audits to ensure the price is fair for both parties.

Conclusion

Accurate estimates are crucial to profitable work. Project-based pricing works well for me, and for my clients. Your situation is most certainly different, and hourly rates may work well for you. The most important thing to take away from this discussion is to ensure you’re providing the most accurate estimates possible. It’s important for your success, your client’s success and the success of creative industries.

"I worked with Eric for several years on Cherry Creek North's website - he was hired to take care of our web development and maintenance. He is reliable, easy to work with, punctual, knowledgeable, and truly a great partner to have. I can't say enough good things about him. Our website was constantly evolving and he was able to help us from the littlest of updates to larger complex projects with a great attitude and viable solutions for whatever we put in front of him. I would work with Eric again in a heartbeat and highly recommend him!"
Kristi Omdahl, Vice President of Marketing, PostNet International Franchise Corporation

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