Last updated on January 23, 2023
When most of us head out into the world of freelance or small business, we have approximately 1% of the information that we need to price ourselves accurately. I touched on this topic briefly at the Creative Freelancer Conference, and have had several requests to tackle it more deeply. The process is more complicated than you’d think, all because of that sticky issue called taxes and the complexities of spousal income, deductions, and a dozen other factors. But let’s start with the easy stuff: flat-rate pricing vs. hourly pricing.
Flat-Rate Pricing
I bid on everything on a per-project basis. While this price is loosely based on a minimum hourly rate — a number that I won’t go below — it’s primarily based on an understanding of what the completed project is worth to the client. Hourly pricing will not work to your benefit unless you work slowly. It does not value your skills, expertise, and speed as you become better at what you do.
For purposes of easy math, we’ll assume that you bill at $100/hour because zeroes are easy to understand. A client may value that case study project at $2,500. If you’re new to this kind of project, maybe it will take you 25 hours to complete. Cool. You net out at your standard hourly rate.
But let’s say that it’s a project that you’re really experienced with and can do it faster, better, or with fewer revisions. Maybe in reality, that project only takes you 15 hours to complete. If you bill on an hourly basis, the client is actually paying less for your speed and expertise, getting the finished product for $1,500. However, if you billed at a flat rate, the client would still get what they wanted at a price that they think is fair, but you would net $167/hour.
Hourly Pricing
Of course, it takes a while to understand what a project is worth to the client, and in the interim you need to rely on pricing that is based on a minimum hourly rate. Even now, years into my independent business operations, I still track my hours for every single project so I can determine whether or not I’m billing accurately for each client.
I’ve reached the point where 99% of my pricing is accurate: I earn fair rate, and the client pays a fair price. Everyone is happy. Occasionally, though, I stumble across a new client who is an outlier. Maybe they require more meetings than most. That eats into the profit margin. Maybe there are more interviews needed to get the requisite background information. Maybe there’s additional research required. Whatever the reason, I track my hours and know to revise my estimate accordingly for the next time.
Stay Tuned!
Next week I’ll talk about the complexities of how to establish your minimum hourly rate.
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