To Charge Per Hour, or Not To Charge Per Hour

August 22, 2005 | 31 Comments

Philip posed a new question in the last topic, let’s take the time to answer his questions.

Now, maybe this is a whole different topic, big enough for its own post (up for it Bryan?), but what’s the normal method of making money for those of you out there? When creating a website for a client do you charge a single flat rate with very specific details on what you will and will not do, or do you charge per hour after discussing the budget with your client? If it�€™s the former, how do you decide on a price?

Personally, I have always charged a flat rate depending on the complexity of the project. I first take the client through an little questioning progress to find out his needs. Don’t be afraid to ask for budget numbers, if the client is really ready to go through with a project, they should have a number in mind. The reason I have never charged per hour is because I don’t like timing myself, I think I should give myself enough time to get everything done. Also, I don’t wish to overcharge/rip-off the client if I happen to take longer than usual on any single portion. You don’t want to be stuck in a situation where the client has gone over budget because you’ve taken too long. It’s a hard decision, because on the other hand, you can undercharge the client for work that takes you twice as long as you had planned.

Concerning pricing, usually the market would drive it, but there is no real market information when it comes to freelancing. I usually start out at a flat rate, let’s say $500 for a basic design. Then I go up from there as the project gets more complex.

There’s really nothing else I can say on the topic since I have never charged an hourly rate as a freelancer (when I was working for The UPS Store, the rate was like $60/hour), but I’m sure others can enlighten us on their experiences.

Filed under: Business

Comments

1. James Archer said:

I do a lot of work with subcontractors, and to be honest, I’m always annoyed when I send an RFP and get back a bunch of guys telling me how much they charge per hour. I don’t really care what they charge per hour, because I have no idea how fast or slow they work relative to anyone else.

They can tell me how many hours they think it might take, but because they’re developers or designers rather than project managers, those numbers may be wildly inaccurate. In addition, that puts an unfortunate skew toward those who underestimate, because their prices look better.

As a client, I never pay a designer or developer by the hour. It’s all project work.

From the prospective of a provider, I do the same for my own clients, because they shouldn’t be afraid to ask me something, make a phone call, etc. because they think I’m going to bill them for every minute; and because I don’t like having any incentive for me to fluff up the project and make it take longer.

Project-based pricing all the way, baby.

Posted on August 23, 2005 12:04 AM | #

2. Jon Hicks said:

I find pricing per hour only really works well for small jobs, and things like corrections (more print design that one) or support. Something as big as a website I always do as a flat rate.

Posted on August 23, 2005 01:40 AM | #

3. Matt said:

Depends entirely on the client. As a freelancer I prefer to give an estimate and then charge per hour. There is nothing wrong with giving your estimate and then after a few days when something crops up which will change that saying so.

As a subcontractor for someone I charge absolutely everything by the hour and just keep them updated on how long i’ve been working on each project.

Both they and I get a feel for approximately how long things take.

I find the problem with charging per project, is that on the longer project, where one deems it necessary, the margin of error increases. Thus it is easier to over or undercharge. When you have less practice at estimating how much work is involved in a project this can be a serious problem (especially if you undercharge).

Posted on August 23, 2005 02:20 AM | #

4. Jeroen Mulder said:

I try to base my flat rate on an estimation of how long the project will take times my hourly rate. At university we’re encouraged to keep logs of the work we do and analyze them afterwards, so we can get a good idea how long a certain task will take to accomplish in a given situation.

If my estimation is too high, the flat rate would be too high and I could always surprise the client with a nice discount. If my estimation is too low, I hope I’ll find out early on in the project so I could discuss changes – if not, it’s entirely my problem.

It’s hard, but as a student I still have the freedom to experiment a bit. It’s hard, but as a student I still have the freedom to experiment a bit. Perhaps I am fortunate enough to not need to feed a family. :-)

Posted on August 23, 2005 03:23 AM | #

5. Jonathan Snook said:

Both when I’ve freelanced and at work, there’s times where either one is appropriate. I agree with Mr. Hicks in that a well-scoped project is normally charged at a flat rate (although I base that flat rate on how many hours I think it will take times the hourly rate). Support or small stuff is done at an hourly rate.

Posted on August 23, 2005 04:26 AM | #

6. George said:

I think it depends on how much experience you have. If you have this habit of filling a timesheet on how much time a typical task takes to be accomplished, then after completing this task several times in different projects you will have a pretty good idea what time does it take to be done. For your next projects, you can rely on your experience and give accurate estimates.

My observation is that people with more experience giver more accurate estimates.

When I began freelancing several years ago, I would give a flat rate for a project, having no idea how much will it take to complete and hoping everything is going to happen as I envisioned in the beginning. Now, I estimate how many hours will a project take, give the client hours estimate and my rate per hour whit the clause “If a significant change request occures, estimates and accordingly project price will change too”.

What I always include in my hour rate is the time for communication and bug fixing (appr. 30% or more of the total project hours, depending on the client).

Posted on August 23, 2005 04:39 AM | #

7. Jens Meiert said:

I define a fix price, and then flank this by deduction (if any initial time limit exceeds) as well as demanding a bonus (if the project later reaches defined criteria, such as a certain increasement in sales, PIs, popularity). This way, my client can be sure that he actually gets quality (less risk otherwise) - and it’s a good feeling for all parties. […]

Posted on August 23, 2005 05:35 AM | #

8. Scott said:

It’s definitely true that your estimating skills improve over time, but as Jon said, typically it only works out charging by the hour for small projects where they’re more managable and less likely to turn into a train wreck where you (the designer) lose your shirt on the deal. Larger projects are better charged by the project - just make sure to keep track of exactly what is and, even more importantly, what isn’t included in your initial estimate so that you can reflect any changes accordingly.

Assuming at least 25% to 30% time for communications, email, general project management as George mentioned is also a good idea. Some clients require more management than others.

Also bear in mind that most, if not all clients, whether on purpose or not will try to take you for every nickle’s worth of work they can get for free. Certainly the ones that haven’t learned the real value of good design.

Posted on August 23, 2005 06:02 AM | #

9. Justin said:

Flat rate for the initial project, hourly rate for minor updates.

I’m kind of shocked you put hard numbers in your blog post. I remember when I first looked around at pricing information, everything I read gave me the impression that it’s pretty much illegal to discuss numbers at all, since we’re all basically competitors.

Posted on August 23, 2005 06:27 AM | #

10. Jonathan Snook said:

There’s nothing illegal about posting how much you charge. It’s illegal for a bunch of people in the industry to dictate an (hopefully heavily inflated) price. Besides, it’s irrelevant to discuss actual hourly rates because going rates depend heavily on region, experience/expertise, and type of work. NY and LA will likely be more expensive to hire than New Dehli. The more experienced you are and hopefully more expertise you have then the more you can charge. And finally, doing Oracle and Java programming can fetch you more than just doing HTML ever could.

Posted on August 23, 2005 06:37 AM | #

11. Bruno said:

I usually justify a fixed rate to the client by presenting a breakdown of how many hours I estimate each section of the development will take.

That seems to make the most sense to the client. IMO!

Posted on August 23, 2005 07:27 AM | #

12. Jose da Silva said:

It depends of the work to be done, if it’s a ocasional job, i use a price per hour, altough if it’s a job that requires more than one development, i prefer to use a fixed price fot the job.

In one or other way i use always a caculation number hours * pph, where pph is price per hour, i modify the pph depending on the number of hours to spend on project.

Posted on August 23, 2005 07:59 AM | #

13. jimmyd said:

I charge per hour (with two available rates, one for 1099’s and one for cash).

I have references to back up my speed and turnaround on project work.

I dislike trying to quote a project from a 20,000 foot level because no project is ever “set in stone”.

It’s just how I do it and I do pretty fine for a small-town market.

Posted on August 23, 2005 08:09 AM | #

14. James Archer said:

A few folks have mentioned here that they’re wary of projected-based pricing because of the potential for scope change, but that’s where some project management skills are necessary.

The scope should be clearly defined before you price a project. If necessary, you might even suggest a separate pre-project (scope discussions, information architecture, planning, etc.) so that the project is well-defined enough to give a quote on it. I’ve done this on some large projects and nobody’s ever had a problem with it, since it’s necessary and transferrable anyway.

If the scope changes significantly, you should have no problem going to the client and asking for more money. Over the past few years, I’ve had very few “nightmare” projects, simply because I spend the time up front to define the scope and inform the client that price is based on the scope, and if one changes so does the other.

Posted on August 23, 2005 08:50 AM | #

15. William Stewart said:

My clients are usually more comfortable with a set price than they are with an hourly rate. When I do have a set price, I make sure they know if the specifications change, my fees do as well.

If I charge an hourly rate, I will promise my fees will not go over a set amount.

Posted on August 23, 2005 09:06 AM | #

16. Aaron Gustafson said:

Ditto on the flat fee for most things. I usually base my estimates on rough hours I think it will take to complete the project (based on previous ones). I also usually work on retainer for most clients (especially on the first project), charging a quarter of the estimated total up front and then additional quarters as the retainer is used.

In some cases, if the project ends up moving more quickly, the final bill is even less for the client as I don’t charge for unused time (which keeps them coming back). So I guess my approach is really somewhat of a hybrid.

Anyway, I agree with Jon that per-hour billing is really best reserved for support and design/content tweaks. Depending on how far out of scope a change is, it may become an hourly thing tacked onto the original estimate or have its own budget and scope document created.

Posted on August 23, 2005 09:25 AM | #

17. Dale Cruse said:

I used to charge per project. And because my clients always asked more of me after the site went live, I consistently lost my shirt.

These days I charge purely by the hour. 100%. And I’m prospering. My current crop of clients each requires LOTS of maintenance work - updating content, adding products, etc. And I’m happy to do it for them.

Some of you may consider updating a site as “small stuff.” I couldn’t disagree more. It may be small TO YOU, but many times, for your client, fresh content is what separates them from their competition. Or helps them gather sales by introducing a new product. That isn’t “small stuff” to me at all.

I’m fine with keeping track of every little thing I do - and my clients appreciate seeing how much time things took.

Posted on August 23, 2005 09:57 AM | #

18. Travis Chillemi said:

I, like most people here, quote a price rather than charge by the hour. The key for me is in the planning. I try to be as specific as possible in the contract to avoid ‘scope creep’.

Another idea is to add a ‘buffer’ in the quote. And tell the client you are doing so. I will usually bid the prject, and then bid an additional 10 hours that the client can use in anyway they see fit. Sometimes they use it to add a feature, make content changes, or train them on how to use the CMS. If they do not use the time, I refund them the money.

Posted on August 23, 2005 11:22 AM | #

19. Gordon Ross said:

I think a crucial distinction that needs to be made is the difference between the external representation of your fees (“Mr Client, that website will cost you $10,000”) and the internal economics of your effort (“I just worked 1000 hours on that website, basically reducing my hourly wage to $10/hour”). Charging per project vs charging by the hour is really about how you sell your services to your client (external representation). And there’s good arguments for both, depending on how your client wants to engage your services.

Revealing your hourly rate to your client may or may not be in the context of a fixed-bid project (versus a time-and-materials project, should you be so lucky to get one): “I’ve got a 100 hour project and my rates are $100/hour and this website is going to cost you $10,000 and not a penny more (unless you change the scope half-way through, then I’m going to re-estimate and we’ll need to have a heart-to-heart discussion about featuritis…)”

How you came up with that final number (the relation of your effort to your client’s costs) is the crux of how much you want to make, what you consider profitable, how you define your own productivity, etc.

Posted on August 23, 2005 11:27 AM | #

20. Danielle said:

I’ve always felt I have more flexibiltiy if I charge per hour… but I’ve known designers who do both. I guess it’s just a personal preference.

Posted on August 23, 2005 11:40 AM | #

21. Peter said:

Cash Flow Cash Flow Cash Flow!

I have just switched to a hourly pay model. I give an estimate of how many hours the project should cost. Take a 20% deposit on the work. Once the 20% has used up the hours alloted. I bill the client every two weeks for the hours spent on the project.

If you keep a good log of your time spent, this turns out to be a wonderful way to keep a steady flow of money coming in. Also prevents the client from dangling a huge % check out at the end for more work.

:) My First Comment

Posted on August 23, 2005 12:06 PM | #

22. Jonathan Snook said:

Peter: You can accomplish similar on a fixed-price project by setting milestones and requesting payment upon completion of milestones. From a project management point of view, it also allows you to get clear sign off at each stage of the project.

Posted on August 23, 2005 04:43 PM | #

23. Sara White said:

I usually charge on a per-project basis unless I’m doing a really small job. I find that it’s more straightforward to get all the details of the project and set a fixed rate for it, using the contract to make sure the scope can’t change too much without the price changing too. I also prefer this approach because I’m horrible at estimating how much time I’ll need, and I’m worried that if I estimate too high I’ll scare the client off, and if I go too low then I’ll be losing out on money I otherwise could have had.

Posted on August 23, 2005 05:07 PM | #

24. D Alexander Carlin said:

I charge by the hour, with payment requested every two weeks.

When I was just starting out, I got screwed too many times by clients to charge by project anymore. Now I provide an estimate and get a retainer (based on an in-dept client meeting) beforehand.

And I’m not sure why it’s taboo to let your hourly rate be known–mine is $98 per hour for most web development (design, XHTML, and CSS) work. It’s more (as Mr. Snook noted) for more difficult coding work.

Posted on August 23, 2005 09:12 PM | #

25. Keith H. said:

I use a combination. I estimate about how many hours it will take me to complete a project and then I apply an hourly rate. So the project is a fixed rate, but arrived at by applying an hourly rate. I imagine its what most of us do when we are detrermining what our flat/fixed rate will be anyway.

Of course scope changes and change orders are charged are charged using the same method. I also offer 6 and 12 month maintenance contracts. Kinda like a retainer for changes and updates. You have to be very clear in defining what is maintenance and what is new development though.

I’ve done some experimenting and found that whether I include the hourly rate in the contract or not, most of my clients have only really paid attention to the bottom line.

Posted on August 24, 2005 06:41 AM | #

26. Daniel Schutzsmith said:

Jim makes a very valid point in regards to scope creep. I’ve always found the defining the number of design comps, rounds of revisions, and providing a complete milestone schedule outlining deliverable and client feedback deadlines keeps the project going smoothly.

Posted on August 24, 2005 06:47 AM | #

27. Philip said:

Bryan, thanks for taking this up! I didn’t stop by right away again so I’ve had to catch up with some comments! But I’m glad to read what others have said.

One thing that doesn’t make sense to me is that most people here seem to do hourly rates only for small projects, and they do flat rates for a big project. To me, that’s backwards. I would reverse it. The small projects are the ones that I can accurately estimate. It’s those big ones that have these unexpected quirks, and they aren’t always added features by the client, but issues in the design or programming that takes me an extra amount of time to find the answer to. The chance for extra time and the unexpected grows with the size of the job, so why put yourself in a position to get caught by doing a flat rate?

I currently charge by the hour. When I talk with my client, we discuss what they need and based on my past (but small) experience, I estimate the cost. I always try to give them a high end estimate, especially since I’m still new to this game and am not as accurate as I could be. So that gives the client an idea of the cost. I also ask for a budget so I know how fast I need to work, and where I can and cannot spend time.

I am, however, open to doing a flat rate. But I would be inclined to over charge just to make sure I don’t get screwed over by something, being it a design change request, or a CSS bug in Mac IE that I have a horrible time squashing.

I suppose that is where contracts come in, and I’m realizing more and more that I need to be doing these more structured and formal.

When I charge per hour though, one thing I don’t do is write down every little thing I do in relation to the job. I don’t clock in to read and reply to a client’s email. That’s too nit-picky and Scrooge like for me. It’s just part of good customer service.

I am beginning to do like Peter. Come up with an estimate, require a percentage up front, and go from there. Depending on the size of the job I would ask for recurring payments. This came out of dealing with clients who wouldn’t always pay on time. Which, hey! came out of not doing contracts.

Fortunatly, while I’ve been working with websites for years, I haven’t been doing it professionally for very long and can afford to have a learning curve like this right now. And the good thing is I’ve got places like Asterisk to go to so I can learn quicker!

Posted on August 24, 2005 12:22 PM | #

28. Matt Heerema said:

The wisdom shared here is helpful. Here is what I do personally.

Quote a flat rate with well definited parameters for the work, and then charge per hour (between $45 and $75 depending on who I’m working for) for anything beyond that.

I require a 25% deposit up front to start the work (50% for really small jobs), and then require the rest based on how long the job will (should) take. either payment in chunks along with deliverables, or typically just “balance due on completion”.

Not necessarily the best way of doing it, but it seems to work for me.

Posted on August 24, 2005 01:53 PM | #

29. jimmyd said:

Ya know, ultimately, it’s the customers call. If they request an hourly rate or project estimate, would any of you say no because you prefer one way or the other? :)

Hey, as long as you’re gettin’ paid, it all works out. :)

Posted on August 25, 2005 10:47 AM | #

30. Nick Bouton said:

Good post - I used to charge mainly hourly rates, but with the hit the web development market took the last couple of years, I can’t charge my eye-gougingly high rates anymore. The other reason for going hourly at the time was because I was dealing with a lot of seat-of-your-pants projects with very little planning involved on the client-side.

However, recently I’ve stopped taking projects where the client has no idea what they’re after. This has helped a lot, in that I can actually estimate properly. :) So I’ve switched over to a flat-rate per project, which isn’t nearly as bad as it used to be.

Huzzah for clients with initiative.

Posted on August 25, 2005 04:58 PM | #

31. dmr said:

Does anybody else use the book for this:
http://www.amazon.com/exec/obidos/tg/detail/-/0932102123/qid=1125067763/sr=8-1/ref=pd_bbs_1/103-2209207-0292653?v=glance&s=books&n=507846

I generally like the guidelines and shoot for around $55-85 an hour for design (graphic, html & css, some php). Typically I charge by the project but arrive at that number with a rough estimate of time.

Posted on August 26, 2005 08:00 AM | #