Money

Don’t charge by the hour

When I started out as a freelance web designer back in college, I charged a very modest hourly rate. After my business became a full-time venture, I increased my rate significantly, because I found that people didn’t take me seriously when they found out how little I charged. Suddenly, just by charging more, I was able to more easily convey myself as an expert, and my business grew quickly… for a while.

The Problem

Eventually, my business reached the point where income growth became stagnant, despite what seemed like an ever-increasing workload. Furthermore, we continued to fight to win clients in spite of an extensive portfolio of quality work. I came to realize that charging by the hour was partially to blame. Here’s why:

It is a poor measurement of value

Clients aren’t shopping for the best hour of design time, they’re seeking a designer whose expertise will result in superior work. By charging an hourly rate, you are asking prospective clients to judge your capabilities based on an arbitrary number, rather than by paying attention to what matters most — your portfolio, your design process, and your professionalism.

It encourages clients to compare rates, when rates aren’t always comparable

If you work twice as efficiently as most other designers, your hourly rate does not mean the same thing as theirs. But how will the client know the difference?

It punishes you for getting better at what you do

After 10+ years in business, I’ve gained experience and got much better and faster at what I do. I can design and develop superior websites in a fraction of the time, and my programming skills have increased to the point where I spend more time using code editors than Photoshop. Furthermore, I’ve developed an extensive code library that our company can use to rapidly develop custom websites and content management systems.

Unfortunately, for many years this impacted our bottom line in a negative way. Our fees were based on an hourly rate, and fewer hours were required to complete projects, resulting in reduced income for the same amount of output.

It is more likely to lead to unpleasant surprises and billing disputes

Projects have a tendency to grow, especially due to inadequate specifications or planning. This can be a problem no matter how you charge for your work, but I’ve learned that it’s much easier to keep clients happy when they know exactly what their costs will be, even if you have to be a little more strict about changes in scope.

Inevitable rate increases give your client a reason to shop around

If you charge by the hour, it’s usually wise to notify clients whenever you increase your rates, especially if your contract specifies an hourly rate or requires you to provide such notification. There are two approaches to rate increases: you can(a) increase them a little every year, or (b) increase them dramatically on a less frequent basis. The problem with the first option is that clients feel like you’re constantly charging them more, and the problem with the second option is that you’re more likely to turn clients away due to sticker shock.

It encourages clients to bombard you with small requests

Most designers prefer to work on a limited number of projects at a time. By charging an hourly rate — particularly a low one — clients will feel empowered to prolong projects, or worse, send you frequent minor requests that distract you from bigger projects. In other words, you’ll run the risk of become an overworked order-taker as opposed to a designer.

The Solution

Breaking the cycle of working harder for less requires a change in mindset. Instead of charging clients based on your time and effort, consider charging clients based on the value they are receiving.

Here’s how:

1. Provide an exact quote for every project

This can be difficult at first, especially if you’re inexperienced and don’t know exactly how long a project will take. The key is to clearly define the project, including the responsibilities of both parties and a precise description of the finished work. You can, of course, base your pricing on the hourly rate that you want to make, but you don’t need to share that rate with the client. Early on, my rule of thumb was to estimate how long each component of a project would take, multiply it by the hourly rate I wanted to make, and then double it to account for unexpected challenges.

2. Charge for what the client is getting, not for how long it takes you

As time goes by, you’ll get more efficient, and hopefully you’ll be able to re-use certain design elements, code, and techniques. At this point, you need to start accounting for the value you’re providing by improving your methods and becoming more efficient. Clients care about what they’re getting, not on how much sleep you lose in the process of delivering it. Don’t be afraid to come up with a fair price based on either (a) the amount of time it would have taken you to complete the project from scratch, or (b) the realistic value of what your client will gain through your work.

3. Use an hourly rate as a fallback

Sometimes it doesn’t make sense to prepare a quote in advance of doing work, especially if a task will take just a few hours to complete. In this case, it can be useful to charge by the hour, and simply provide the client with a ballpark estimate in advance, if you feel that it’s warranted. Feel free to set your hourly rate higher than the effective rate you earn for larger projects, primarily to discourage minor requests, but also to compensate you for interruptions to your project schedule (and your cash flow, as a result).

4. Control the scope

When charging a flat fee per project, it’s crucial to avoid surprises and arguments about what needs to be done at what doesn’t. Make sure to submit a scope description and proposed schedule for each project, and tell a client immediately if they ask for something that you consider to be outside of the project scope.

It can sometimes be difficult to determine what falls within the scope of a project, but you can often do this by asking two questions:

a. Can this project be considered complete and satisfactory without what the client is requesting?

b. Is there any implication in the project description, or in past conversations with the client, as to whether a particular task or component should be included in the scope? For this reason, it helps to document phone calls and to keep email conversations handy.

A Final Thought

Prospective clients will always want to know how, and how much, you charge for your work. It’s okay to say “It depends” instead of providing a number. Often this will spur a more in-depth conversation, allowing you to gather more information about the client, demonstrate your expertise, and when appropriate, provide a rough cost estimate of the project as a whole — something that’s far more relevant and useful to the client anyway.

Remember, part of the benefit of being a freelancer or having your own business is the flexibility and control that it offers. Although I’ve found it beneficial to abandon an hourly rate structure, many others like the simplicity and transparency of it. So, if you prefer charging by the hour, then by all means continue to do it — and feel free to share your thoughts below.

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