Fixed vs. Hourly – The Rate Faceoff

Wed, Sep 9, 2009

Pricing

Fixed vs. Hourly – The Rate Faceoff

Fundamentalism can have its disadvantages in today’s world. Many freelancers will stick to their ideologies and never swim in different waters, perhaps fearing that they may try new things – God forbid! Some freelancers who charge fixed task-based rates will never charge to hourly and vice versa. I will, therefore, make the case for fixed rate, on the assumption that most freelancers charge hourly rates.

The advantages of quoting a fixed task-based rate as opposed to an hourly rate are:

1. Feels Cheaper

This plays excellently with client psychology as fixed prices will often sound cheaper than hourly rates. A client may be put off with the idea of a high hourly rate. For example a freelance designer may be asked to design a logo which takes two hours to complete and want $200 for it. Asking for $100 an hour may seem heavy to the client, however a fixed rate of $200 may sound more welcoming.

2. The Solid Client

Telling a client “My hourly rate is $x and this project may take me so long, however, if it takes longer I will be charging you for the extra hours” may seem too fluid for a client to be comfortable. A fixed rate however can be worked out as an average of how long it may take. If there is a project you think may take 30 hours, however it is possible to run on for up to 40 hours, you can charge for 35 hours.

3. Charge More

There can be many reasons for you not being fully motivated in a project and a higher price may help motivate you. It is possible in many situations to charge more than an hourly rate will allow. Some projects can have room for you to charge more, however, by charging an hourly rate their is now a ceiling on how far up that price can go.

4. “Free”lancers

Giving a quote in hours will restrict you. If you quote with five hours in mind, you must complete within five hours. This has now taken away the freedom why we became freelancers in the first place. You tried to be your own boss by ditching the 9 to 5 and move away from the rat race, unfortunately, to enter a new rate race with a new boss.

Conclusion

There are many situations in which an hourly rate will be significantly better than a fixed task-based price. These are the advantages, in my view, of the task-based pricing.

Do you agree or disagree? Let me know below.

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This post was written by:

- who has written 54 posts on Freelance Apple.

Shoaib Hussain is an web entrepreneur who was formerly a freelancer. He is the main writer and owner on FreelanceSchool.com and aims to enlighten young freelancers with his vast experience and deep knowledge. Shoaib Hussain also spends his time giving advice to budding freelancers and helping web businesses.

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22 Responses to “Fixed vs. Hourly – The Rate Faceoff”

  1. stk Says:

    On involved website projects, which we tend to attract, fixed rates are too abstract to compute and inflexible for the client. (Custom PHP, JavaScript coding, mySQL database work, inventive user-interfaces and such). There’s also the problem of scope-creep, whereby at a milestone meetings, the client might change their mind about the project direction, deliverables, design or scope.

    A lot of times, we’ll offer clients both options (knowing that some organizations need or prefer a fixed-cost), but we generally preface it with, “when we quote a fixed rate, it’ll be on the high side, because we have to anticipate and bill for possible problems, scope-creep, delays and such.” (If you don’t include this extra padding, we find we’re often underpaid, less receptive to scope changes, that we appear inflexible, etc.)

    Our experience has shown that hourly rates are the best deal for both parties. We get paid the actual time it took us to do something and one client doesn’t have to over-pay, to make up for another client who under-paid.

  2. Daquan Wright Says:

    I really agree that there is a time and a place for everything. I like charging (right now) fixed prices because as you said, hourly rates not only rush the developer (I mean what client wouldn’t if it’s based on hours) but it restricts you to a much tighter deadline as well. I enjoy doing my best work possible to not only improve my portfolio, but to help people with needs and working with a fixed price seems to keep me focused on the quality of work I do (at least right now).

    Keep in mind that there are many ways to bill though, you could do it by day, week, hours, monthly, or just a fixed price. I say a good thing to do is to put limits on the fixed price so a client doesn’t keep you going on and on with revisions. I think it’s safer to place the number of revisions possible in your contract and for how many pages you will do or revisions if you’re a graphic designer. There are so many intricate details, I often think about billing and what I should charge. Of course clients also need to measure the service they are getting, when it comes to a website there is more than just eye candy and HTML. There is the wire framing, analyzing and injecting business goals into the website, user testing, code testing, color testing, and ensuring that the content is valuable to users. All of this comes with a “good” website and this is why I urge people not to undercut themselves because all of that is worth a fair bit of money. Any client not understanding of these ideals probably isn’t worth the time and probably the wrong client for you.

    Perhaps listing your exact focuses on projects and what’s involved will create a sort of sympathy in a clients’ mind if the fixed price is high. Without a good foundation, the project would be poorly organized and this allows you to raise your rates as you gain expertise on other aspects of creating websites or applications.

    I’d much rather go with hourly billing after I have a tool to manage clients, have actual clients to manage, and am networking more often. I’d like to be better organized and have a rock solid schedule as well. If you’re doing hourly billing, you’ll definitely have to be more organized and work within the constraints of the deadline (no one likes to be surprised when it comes to “money”).

    Perhaps you could focus on big projects and let’s say a particular project takes one months time. You could charge $100 weekly ($400 for entire month). While this is a fixed price, you’ve also set a deadline and perhaps that will keep you focused. There are just so many ways to go about it, it fascinates me. For right now, I figure I’ll stick with a fixed price and make sure what I charge is based on the project at task and how much time it will require. I really need to analyze all the proper goals of a web development project and sort it out, after that it’ll be easier to include it in my cost (wire framing, observing business model, coding, designing, user testing, etc.).

    Another aspect of billing is where you live and this is something I’d love to see an article on. A developer in New York will not be doing work for the same amount as someone in China. So it seems billing isn’t all about the project, it must also be flexible enough to cover your bills. But where is the line blurred between billing based on a project and billing based on your location? If you’re paying mortgage, car notes, and other necessary bills I don’t see you working for cheap if you’re within the states.

    Nice intriguing article. ;)

  3. Kayla Says:

    I’ve experimented with both, and I still can’t always decide which is right. Right now I’m leaning more towards an hourly rate, but like you mentioned it always seems “unstable” to the client.

    I love the approach to this article on how the client/freelancer interpret different pricing styles. It’d be neat to see a post in the future that reflected on this and was more about the communication between the two specifically on the subject. I often times know how to price myself, but am leery about presenting that price to the client.

  4. Dave Sherohman Says:

    What about project size? The article and comments so far have been talking about 2 hour or 5 hour projects, but I do freelance software development. While ongoing maintenance requests may be in that range, new development projects typically run several dozen to a couple hundred hours. My gut feeling is that quoting $100/hour will feel cheaper to many clients than a flat $15,000 for the project, at least when you’re dealing with SMBs.

    And then there’s the question of scope. Particularly with larger projects, the project definition will often be fuzzy or the client will make assumptions that certain things are “obviously” part of the project, even though they’re not mentioned in any RFP, spec, proposal, contract, or other document. Quoting flat-rate means having to either inflate your estimates to account for an unknown number of unknown add-ons or wasting time arguing over what is or isn’t within the project’s scope. If you’re working hourly, though, then these issues go away – change the scope all you want, let the features creep; I don’t care if the final project looks anything like the original spec, just so long as I get paid for all the time that actually goes into it.

    Finally, there’s the client management aspect. When you quote a flat rate, many clients will feel free to call three times a day to make minor requests, see how things are progressing, etc. If they know that every minute you spend on the phone with them will be billed to them, that provides a powerful incentive for them not to waste your time like that.

  5. mich Says:

    Hourly:
    So as not to scare the client, I give my rate, an estimate of the hours, an estimate of the total amount, and we unoffically “cap” it. Then, when the scope changes, or you encounter unexpected problems (from their end), you kindly say: “this is going to put you over your budget limit. are you sure you want me to add this feature?” or the like.

    Fixed:
    Upon giving the initial quote, I felt that that scared the client more than giving an hourly rate, when the total feels justified. I have done this once or twice, and I wholly underestimated the number of hours, underpricing myself. Also, I felt more pressure to finish within the hours I had allotted myself, which is not always possible. The “scope creep” someone mentioned can be your fault as well as your client’s.

    I have done both, and would have to say I prefer hourly billing.

  6. Luke Says:

    I do fixed prices for projects and hourly for tiny maintenance jobs. Fixed prices allows you to charge more.

    It’s hard to justify a high hourly rate, but if you can show the client that the value of what you are providing is higher than your price, the customer will buy, regardless of what your hourly rate works out to be.

    As Freelancers, our value is not our time, it’s the results we provide. Our pricing should reflect that.

  7. Timbothecat Says:

    One of the things I’ve always found with setting an hourly rate is that the more experienced/quicker you become, the less you will feasibly be paid. This can of course be offset by increasing your hourly rate as you become more proficient, but many designers/developers are reluctant to do this.

    I know a number of people who charge based on value added. One guy in particular charged $17,000 for a website and won the bid against two other designers who charged $3500 and $5000. Why did he win? Because the client perceived that his expertise would add this and more to the business’ profit margins. He kept a professional appearance throughout and the client felt the whole time as though he was getting someone who, “really knew their stuff”. It didn’t hurt that his company delivered a first class, standards compliant website, which lead to further business through this client.

    The point is though, that there are a number of ways that you can do this, it’s all about finding what you and just as importantly, your clients are comfortable with.

    All the best,

    Tim.

  8. Jamie Says:

    Hourly is generally best for a lot of the work I do. (and cheaper for the client 80% of the time)

    As a software developer I don’t always know what it’ll take or the environment I’ll be working in. PHP in particular is an absolute disaster, every host has different properties and problems.

    System admin/troubleshooting is impossible to assess the time it will take (how can you? 90% of the work is finding out what the problem is)

    It often takes longer to estimate the amount of time something will take than it does to actually do the work. Accepting a project, going in, THEN discovering the problems (like the client expects you to install on several servers instead of one) is an issue. If you change your mind and back out, you could get a bad rep. If you proceed anyway, you can easily end up working for $0.50/hr.

    The standard formula of taking a good guess at the time, and then doubling it usually works out about right, the problem is you’re often going up against people who don’t have the business sense to do this.

    Quoting a fixed rate is often a recipe for disaster.


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