A common question in the freelance world is whether you should charge your customers by the hour or by the project. Both have pros and cons and depend on many factors including the type of services you provide. This article explores both pricing methods and will help you identify which solution will work best for your freelance business.
Setting your prices can be tricky, especially if you’re just starting out as a freelancer. There is no right or wrong way to set your rates, and your pricing method may change throughout your career as you gain more expertise and customers. Ultimately, it is up to you to decide which pricing method would work best for your business.
Charging by the hour
Charging by the hour is common for freelancers. Depending on the services you provide, you may also charge by the day. This means setting a rate for each hour (or day) you work on a specific job for a client.
You will need to record the precise amount of time that you spent working on the job and include this information on your invoice.
Advantages of charging by the hour
Most businesses that hire freelancers are familiar with paying “by the hour”. It is simple for them to understand how much they are paying for the amount of time you put in.
This also means that if the client requests further edits or more work to be done, this will incur an extra charge.
Charging by the hour is usually simpler than charging by the project as you won’t need to calculate the income vs. time to determine a project rate.
If you decide to charge by the hour, you should consider using a time-tracking tool that can easily record your precise working time.
Disadvantages of charging by the hour
If you’re experienced in your field, you will likely be able to complete a project twice as fast as other freelancers. Therefore, you may lose out on money because of your speed, productivity, and knowledge.
In addition, if you’re hired for a long-term job, your customer may feel apprehensive when seeing months worth of costly work being charged by the hour. If the job will last longer than a week or two, you may want to consider charging by the job instead of by time.
As you can imagine, there are thousands of freelancers that will do similar work as you do. For shorter jobs, customers will likely try to find someone who has a low rate to minimise their costs. You should consider whether you can compete with the lower hourly rates of your competitors.
Charging by the job
Charging by the job (or project) is more common in long-term or complex technical jobs. This means that you set the fee for completion of the entire project rather than the time you spent completing the project. You should use your hourly rate as a guideline for setting the project fee.
Advantages of charging by the job
Charging by the job means that you can focus more on quality rather than racing against the clock. If you’re experienced in your field, you won’t be penalised for your speed, and will likely be able to make more money than charging by the hour.
Charging by the job is becoming more common in the freelance world, and good clients would prefer quality work over speed. It is also easier to record this pricing method on your invoices.
Disadvantages of charging by the job
Some clients may think the fee you are charging for the job is too high - even if it works out to the same price as if you were charging by the hour. Sometimes it might be difficult for new clients to wrap their head around this amount, so you should include information on how you calculate your job rate.
In many cases, clients ask for edits or further work to be done, in addition to what was initially discussed. You should always have a clear contract that states what is included in the project fee, and how much you charge for additional work.
If you are a new freelancer, you may miscalculate how long the project will take you to complete. You may end up working extra unpaid hours if you underprice it.
Using both pricing models
The great thing about freelance work is that it’s flexible. You work for yourself and can make changes as your business grows. For some projects, you can charge by the hour, and others you can charge by the job.
The more experience you have, the more you will understand what works best for you and your freelance business. Experiment with different pricing methods and ask some customers about their preferences.
Summary: Should I charge by the hour or by the job?
How you charge your clients is completely up to you. It may vary depending on the services you provide, how long each project may take, your relationship with the client, and how much experience you have.
What works for you may not work for other freelancers. Since freelancing can be unpredictable at times, you should also consider if your cash flow may be a problem when choosing a pricing method.
Regardless of which option you choose, Debitoor can help you create professional freelance invoices in less than one minute. Give it a try with our 7-day trial