How To Decide When To Get Paid By The Hour Or By The Project?

There are several ways to charge for your services. Some professionals prefer getting paid by the hour, others by the project or monthly, etc. Choosing how you bill clients should be an informed decision, so your business can be sustainable and thriving.

More and more freelancers and agencies charge by the project – services providers; however, prefer to charge by the hour. The proponents of “billable hours” believe it’s the best way to charge for services in terms of profitability and transparency. On the other hand, there are those who believe that it damages efficiency and the market as a whole.

In this article, we will explore both sides of the argument, and discuss the benefits and drawbacks of each option. It is then up to you to decide which suits your business needs and style.

Hourly rate advantages & drawbacks

Pros

1. Getting paid for actual work. From the professional’s point of view, the hourly charge is the best option in terms of cash flow efficiency and profitability. Let’s say your customer changes their mind in the middle of a project. Getting paid by the hour ensures you get paid for all the time you spent working for them. Fair and square!
2. It is easier and simpler to calculate work hours and get paid for your efforts, since there are numerous time tracking and billing applications available out there, such as Elorus. Hence, you can rather focus on your customer’s needs and let the app do all the administrative duties for you.
3. As far as freelance billing is concerned, getting paid by the hour offers many benefits productivity-wise. Being aware of how much certain tasks take to complete, thus, what price to charge for them, gives you the ability to sign better contracts. Not only are you more productive, but you can ultimately increase your revenue.
4. Customers are less likely to become “scope creeps” if you have agreed upon hourly billing for every feature/task their project entails. As a result, your projects will be carried out on time, and you will get paid for what you actually delivered.
5. Billing your hours progressively makes it easier for you to organize your time in a way that brings you more clients. And more work-life balance!

Cons

1. Customers seem to prefer a flat fee because they know how much it will cost them in the end. They feel more financially secure when they can plan their expenses beforehand.
2. If you are highly efficient in managing your time, applying an average hourly rate results in you not getting paid for your skills but solely for your time. In this case, you might want to consider charging more per hour. Be careful not to become unaffordable compared to the competition, though.
3. Deriving from #2, you might be led to do things more slowly. This can be counterproductive on a number of levels.

Charging per project

Pros

1. When you choose to charge projects independently of time spent, you are essentially getting paid for the value you bring to the table. This sends a powerful message to your clients that they will be receiving more than just your hourly price.
2. Charging per project is actually easier for the customer to understand and accept without them worrying about budget overflow issues.
3. If you are experienced in your field and get things done in half the time compared to others, your effective hourly rate is getting higher.
4. Your quotes instantly become more clear and more precise, which benefits both you and your clients. This, in turn, makes you more attractive to reluctant clients.
5. The fixed pay rate is a more flexible option in case you wish to raise your prices when you decide it’s time.

Cons

1. You are not entirely protected from customer demands that make the project run much longer than supposed to. This is also true in cases where changes in scope are necessary for the project’s delivery. Charging per project will not compensate you for the time spent tweaking things or redesigning features at the last minute. Getting paid by the hour is much safer in such cases.
2. You have to map out every single detail before finalizing the quote you’ll give to your client. Try not to underestimate how long the project will take or its intricacies. This is actually extremely unlikely because you just never know!
3. The client might not understand why you charge 100$ for a Facebook banner and some thousands for leaflets. In some cases, hourly payment is more appropriate, so the client knows exactly how you price your work.

So, should I get paid by the hour or by the project?

The truth is that there is not a single option that is absolutely better than the other. It all has to do with your preferences and goals.

Freelancers seem to prefer getting paid by the hour, and customers usually expect hourly billing from them.

Project billing is great for juniors who seek customers, as they cannot provide specific evidence for the value of their time.

Moreover, the billing method depends on where you are and what you want to accomplish in the future. If you have discovered you prefer putting in long hours and finishing your tasks as quickly as possible, maybe you should consider project billing, as with hourly billing, you might actually lose income.

We suggest you take a look at the way you work and your field’s standard practices. Check out what the rest of your competitors are doing and decide where you see yourself and your business. You can also establish your own style and even use both ways of billing, depending on the project or even the customer.

No matter what you choose, it is always vital to have full control over your projects and track the time you spend on every task so you can be able to estimate your deadlines and productivity levels.