Freelancing: Hourly Rate vs Flat Fee
Hourly rates are pretty. They look great on paper, and can be multiplied by the amount of time worked. We love to look back and notice that our hourly rates have climbed, too. But as most freelancers would tell you, projects often work on a set fee, and you can find yourself racing the clock to complete all the work in the allotted time. The longer you take to get the work done, the lower your hourly rate turns out to be.
I find that there’s a fairly even mix of clients out there, with some wanting to know my hourly rate and others assuming I charge by the project. In my experience over the years, many industries are drifting toward the project fee model. There are a number of reasons why, and I think all of them are good principles for freelancers to remember.
What Are You Selling? Can you tell me what you’re selling? If you’re a photographer, maybe you would say that you’re selling photographs, right? On some level, I sell logos. My friend Dave sells words, typed out professionally and ready for use by his clients. Consultants sell solutions to their clients’ problems, and personal chefs sell meal preparation.
What my clients aren’t buying is my time. Sure, the services they are hiring me to perform take up time on my schedule, but they don’t come knocking on my door asking for bundles of time. No one says, “Can I buy six hours of your time this month?”
No, clients come to us for solutions to their problems, and products that we can create. They aren’t buying our time in 60-minute chunks; clients are paying for our skills and experience and guidance. Those are intangible deliverables, but also central elements to what we provide.
Why, then, do we sell ourselves in time-based increments? Does two hours of my time get a client less of my experience and expertise than five hours? No. Time seems to be more about complexity, really. More complex projects take longer. A client shouldn’t be paying me to complete the project in five hours because their budget doesn’t allow for six. Ideally, the client should pay for the solution to their problem, and my fixed rate should more than cover the amount of time it will take me to do the job.
This is all very philosophical, I know, and most likely not very practical. But I think it is very important to attribute value to our work. Some clients view freelancers as a lesser breed of service providers, when the fact is that some of the most talented people in a variety of fields work as freelancers. The risk is falling into the trap of hourly pay and the never- ending chase for more hours or a higher rate, or both. The benefit to charging a service fee, rather than an hourly rate, is that our clients begin to value our services more. The more valuable we become to our clients, the happier they are. And happy clients are a good thing.
Raises Based on Merit
One of the biggest benefits to charging a flat fee for a service rather than an hourly rate is that it’s a great way to earn a pay raise naturally. The better you get at performing a particular service, the less time it may take you. If your flat fee remains the same, but you complete it faster, you have more room on your schedule for other paid work.
As the time it takes you to complete a certain type of project drops, you hourly rate (should you desire to do the math and see what it is) will climb proportionally. Now, this is not justification to get sloppy and rush your work. That’s a path that can only lead to upset or unsatisfied clients, or mistakes that ruin projects, or both. No, this is about getting faster at something purely because you’ve gotten better at doing it. It’s a mentality that rewards growth. In a traditional job, we would expect our boss to reward our performance with regular pay raises. The better we get that job, the more the boss should pay us. And for many people working in the corporate world, that’s the case. Work hard, gain experience, and get paid more as a reward.
For freelancers, though, it doesn’t seem possible at first glance. We don’t have bosses to hand out pay raises. We are our own bosses. And while it might look good on paper to declare that we have a new, higher hourly rate, we still need to find clients willing to pay that rate before we can truly earn more. At least, that’s what we think.
Flat fees make it possible to earn that pay raise naturally. If the service that pays $500 used to take you five hours, and now it takes you four, then your hourly rate has climbed from $100 to $125 per hour. And you managed to do that while avoiding raising your prices. Not too shabby.
One of the most common questions I’ve been asked over the years that I’ve co-hosted the Home Work podcast (a podcast for people who work from home, on the 5by5 Network) is what method I use to track my time. This stems from freelancers being slaves to the hourly rate, and because of that, they need to monitor each and every logged minute so that they can bill their clients accurately.
This highlights one last benefit that freelancers get when they charge flat fees: less administrative headaches. I don’t have to push a button whenever I start a project, and then push it again to stop the timer. I don’t have to log that time on a spreadsheet somewhere, or spend an hour each day adding hourly design line items to on-going invoices. I don’t need to report in to my clients about how many hours I’ve used, and how many are left.
Charging an hourly rate means that when you and the client agree to work together, you’ve also settled on a maximum amount of time you will spend on the project. If it takes you longer, you run the risk of billing your client more than they can afford. And that introduces stress and friction into that client relationship. Flat fees, though, are a known variable. You’re going to charge Mr. Smith $600 for a particular service. You’ll be invoicing him 50% at the beginning, and 50% at the end. Everyone knows when the money is due, and no one is left wondering what’s going on. There’s less chasing, less worry, and less frustration when someone fails to deliver what’s expected, when it’s expected. Hourly rates might sound fancy, like some kind of financial bragging right, but they’re full of complexity. Flat fees are simple, and for a busy freelancer, simple is always better. Less time doing administrative things like logging hours means more time doing paid work.
I like paid work. Don’t you?