When you start as a freelancing, you no doubt will be charging hourly. It ensures that you are getting paid for the hours you are putting in, no matter how many hours that is.
It's also a straightforward transition from a regular salaried job where you're getting paid by the hour, so it feels obvious to charge for work at an hourly rate. That's the massive positive of working at an hourly rate; you can figure things out as you go and you're not necessarily in a rush to get the work done.
But, there are 3 crucial problems with hourly based pricing.
Freelancers and studios benefit from taking as long as they can to get more money for the project, and in the same way they are punished for doing the project faster as they will make less money.
The goals of the freelancer and the client are not aligned with hourly billing, in fact they are directly opposing. Clients want you to go fast, and you want to go slow.
Your client in reality doesn't care about how much you charge per hour, they only care that what they get is worth the final price that you charge them.
In this way, hourly pricing is problematic because the client doesn't know much the project will cost, so they have no idea if it's actually going to be a reasonable price once all the work is done.
Because of this, they are taking a gamble when they take someone on at an hourly rate, especially for large scale projects that could go on for weeks on end.
And finally the third problem with charging hourly is that when you send off your invoice, it can take weeks and weeks to get paid. That means there's a lot of waiting between doing the work, and getting paid for that work.
Compare this to project pricing, in which you will get paid a deposit at the start of the project at either a third of the price, half of the price, or the whole project price upfront. For this reason, your cash flow is being seriously handicapped by using hourly based pricing.
So let's put hourly billing aside for a second and look at the flip side of the coin: project pricing.
With project pricing you are giving a fixed price upfront to a client for the scope of the work to be done. You'll usually get an outline for what needs to be done, and translate that into a set price where you can figure out a cost so that the client will get plenty of value for what they are paying, and you will be getting paid a fair amount for the amount of work to be done.
Once you've got a project price approved, the motivations of the client and the freelancer or studio are aligned. The client wants the work done as quickly as possible, and you want to do the project as fast as possible, ensuring that the quality of the work is still high.
But, project pricing only works when the scope of the work is fixed. The problem arises when you give a set price for a project in which the work is not clearly defined, and the client keeps adding more and more work, which is often referred to as "scope creep".
This means to use project pricing, you have to have a pretty good understanding of how much work is going to be involved, which only comes around after doing enough of a similar kind of client, which you might think of as niching, or specialising in an industry.
In-fact, once you understand the scope of work that you do for your specific niche of client or industry, you could even display a project price on your website for a fixed scope of work.
For example, you could put up a project price for a five page website for restaurants with specific features suitable to restaurants in specific. That way clients can decide before they even talk to you whether your price is suited for their budget, which straight away gets rid of time wasters who don't have a reasonable budget.
So, if you or your client don't know what the full scope of the work is going to be, and they are happy to work through the stages of the project with you, then that is the perfect example of when it makes sense to use hourly pricing.
But, when the client knows exactly what they need, and you can refine their needs into a specific scope of work that is similar to projects you have worked on before, you have a perfect candidate for project based pricing.
Either way, take your time when you think about how you price your work, as what you decide to upfront will dictate what you are sticking to for the whole project.
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