Freelance Rates: Charging hourly vs. Flat Rates

I recently stumbled upon a great article titled Hourly vs. Fixed Pricing over at Freelance Switch. There is a pretty decent discussion of the topic in the article’s comments area. The comment that most closely matched my views was one by Mave Gibson (I charge hourly and bill bi-weekly). When I asked Mave for permission to reprint her comments about charging hourly rates here, she also sent me some comments about flat rate pricing that she had made on a private forum.

So I give you the best write ups I’ve seen for how to charge clients, whether by the hour or using flat rates, straight from Mave. Enjoy!

Charging hourly

I generally charge hourly and bill bi-weekly.

1] at the beginning of a project, I give the client an estimate of the hours (and therefore cost) to complete the project. they are made aware that I am charging hourly, so that anything above the estimated # of hours will be billed hourly.

2] during the course of the work, I regularly update them on where we are at in terms of hours, and what is left. I warn them if any delays or changes in scope are likely to affect the # of hours it takes. if they accept this change in cost, we move forward with the changes.

3] invoices are payable within 7 days of receipt. for new clients or slow payers, a deposit (based on a percentage of total # of estimated hours) is required before work can start.

In the rare cases when I do work fixed-rate (and that generally only happens for a] retainers and really large, long-term projects or b] clients who are working with a fixed budget), I always ask for some $ up front. even in the case of fixed-rate pricing, I am still billing based on hours spent. I’m just calculating beforehand how many hours it will take.

I have tried so many different billing methods over the years, and this one is by far the best balance between giving clients something to budget a project with, and giving me assurance that I will be paid for what I do. I am not a bank, willing/able to extend credit to clients for work being done, and that’s what it basically amounts to if I work now and get paid later.

This method also puts the responsibility for scope change squarely where it belongs: with the client. they are made aware, throughout the course of the project, exactly how each change in the plan will affect the price. over time, if the client is a regular, it means that a client learns to rein him/herself in, and it also means they develop a real sense of the value of my time and effort. clients become more efficient, waste less of my time, and have a greater respect for what exactly goes into what I do.

As for "the honesty model", I think that is a given when working for an hourly rate. we charge for what we did. rarely - rarely will that be less than what was estimated for (clients love to expand projects as they go along), but when it does happen, of course the client is charged for actual hours spent. and in reference to the hints about "time management" and "being forced to work efficiently", are we seriously sitting here implying that those who charge hourly are going to waste project time? I take exception to the idea that freelancers need to be "made honest" in terms of hours they charge for or how hard/fast they work. something about that really turns me off. we are professionals, not schoolchildren.

If anything, I think the opposite is far more common: giving clients a lot more than they paid for. I think most freelancers are too client-driven, and don’t think enough about protecting their own interests. we habitually under-bid and under-charge. we regularly put in more hours than we bill for, just so we can add that "extra touch" that will wow the client and make the project more portfolio-worthy. we are ridiculously accommodating, and bend over backwards to give the client whatever he/she wants, regardless of how tricky it is to plan, execute and bill for. if anything, we need to learn how to protect our interests and draw fair boundaries around how we work so that our bank accounts and schedules aren’t adversely impacted by the way we work.

– Mave Gibson

Flat rates

As a designer, the hourly rate system isn’t suitable for all the work I do. When you are doing design work (and really - most types of contract work), you should generally also be charging for value and usage rights. The value gained and the rights purchased are of equal importance to hours worked when determining a fair price. People who are used to wage work (i.e. $x/hour) - most of the population - tend to think in terms of their hourly work when determining the value of contract work, and that is a huge mistake. There are publishing rights, usage rights, modification/alteration rights, sale of source files, etc. to take into consideration, and if you aren’t charging for those things, it’s your loss. A writer, illustrator or photographer is well familiar with these issues. Graphic designers need to get with the program too. These are legal issues as well as $ issues.

Because these costs are important, yet can’t easily be factored into an hourly rate, for most projects I bill flat rate with a tight cap on versions and revisions (usually 1 - 3), beyond which the client is billed at my hourly rate. I get half up front, and depending on the size/length of the project I will get further installments at various milestones, the final amount at the end of the project. With smaller projects it’s 50% up front, 50% at the end. The first installment is paid BEFORE any work is begun, and the final payment must be received before delivery of final work and transfer of legal usage rights. Invoices are generally net 7 or 14 at the most, and there’s a fee for late payment that accumulates over time if a payment is overdue.

The bottom line is, if you want to make a living as a contractor, you need to really cover your own ass and make sure that you have the proper systems in place for billing, contracts, usage rights, etc. to run your work as a profitable and reputable enterprise. There hasn’t been a client born who will (or should) look out for this stuff for you. Inform yourself about your rights and responsibilities, and bill/act accordingly.

I hope this info is helpful to others. I really recommend Graphic Artists Guild Handbook: Pricing & Ethical Guidelines http://www.gag.org/pegs/index.php for those in design-related fields. Also, most professional associations AIGA, GAG, etc will have helpful information on contracts, best practices and legal issues.

– Mave Gibson