![\"Hourly](\"https:\/\/www.bidsketch.com\/blog\/wp-content\/uploads\/2013\/03\/Hourly-vs-Fixed.png\")
<\/p>\nHave your gloves on?<\/p>\n
You’re going to need them today. That’s because we’re talking about something that’s been hotly debated among freelancers since the beginning of the profession.<\/p>\n
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Of all the topics related to freelancing, from sales proposals<\/a> to marketing<\/a>, there’s one that always gets people heated and is met with debate on all sides. This topic causes so much<\/strong> division that today we’re going to settle it, once and for all.<\/p>\n If we’re going to make progress on this incredibly important topic, we’re going to need to hear your opinion. So please make sure to present your perspective after I’ve presented the evidence.<\/em><\/p>\n So, what are<\/strong> the strengths for hourly rates and fixed rates? What are their weaknesses?<\/p>\n Below, I’ll show you the insightful cases made by two prominent freelancers who take opposing sides on the issue, and I’ll add my thoughts on each.<\/p>\n Let’s get this thing started!<\/p>\n <\/p>\n There are certainly some\u00a0amazing<\/em> benefits that freelancers can only access by charging fixed rates.<\/p>\n When you are getting paid for complete work and not for being “on the clock,” the experience is quite different for both you and the client.<\/p>\n My buddy Tom Ewer, freelance writer and founder of Leaving Work Behind, makes a very well-reasoned argument in this post<\/a> on how you should structure your rates…<\/p>\n When it comes to deciding\u00a0how<\/em>\u00a0you should price your services, charging by the hour is one of the worst mistakes a 1. It Limits Your Earning Potential<\/strong><\/p>\n If you charge by the hour, it will only be natural for you to work less efficiently than if you had priced on a per job basis. You can of course raise your hourly rates<\/a>, but you will still only have the same number of hours to work with (literally and figuratively).<\/p>\n If on the other hand you price on a per job basis, you are limited only by the speed in which you can complete your work. You will learn to work more productively, and in turn, will earn a higher equivalent hourly rate (and impress clients with your efficient style and quick turnaround).<\/p><\/blockquote>\n Tom makes a bold statement here, but from talking with him extensively on Skype, this system seems to work really well for him (note: he is a freelance writer who mainly works on blogging projects & content strategy).<\/p>\n From Tom’s perspective, if you can get a $500 job done in 2 hours, you’ll find yourself at a very respectable rate of $250\/hour.<\/p>\n If, however, you agree to hourly pay, you may have a hard time getting a “rate” similar to that, especially if you are new to freelancing and don’t have a lot of previous references or a strong personal brand.<\/p>\n Interestingly, Tom also argues that an hourly rate (while seemingly good for clients in the above example) is actually\u00a0bad<\/strong> for clients since it clouds their perception of value…<\/p>\n 2. It Clouds Your Clients\u2019 Judgement<\/strong><\/p>\n An hourly rate is a big psychological hurdle for many prospective clients.\u00a0The same job priced in two different ways can Let me explain. Say you\u2019re presented with the opportunity to\u00a0write a 1,500 word article on a complex and technical topic that you just happen to be well-educated on.\u00a0Given the nature of the content, the client is happy to pay $150 for the article. He assumes it will take 3 hours, and deems $50 to be a reasonable hourly rate (but you don\u2019t know that).<\/p>\n Consider these two different pricing approaches:<\/p>\n The client would happily accept option 1. He would almost definitely balk at option 2.<\/p>\n It\u2019s simple psychology \u2013 the perception of value.\u00a0Chris Guillebeau\u00a0touched upon this in\u00a0The $100 Startup. He paid $50 to a locksmith for an ultra-quick turnaround in an emergency, yet he felt shortchanged by the transaction<\/strong>. Chris remarked on his illogical reasoning:<\/p>\n “\u2026I realized that I secretly wanted him to take longer in getting to me, even though that would have delayed me further. I wanted him to struggle with unlocking my car as part of a major effort, even though that made no sense whatsoever. The locksmith met my need and provided a quick, comprehensive solution to my problem. I was unhappy about our exchange for no good reason.”<\/p><\/blockquote>\n Tom makes some solid points here, and his case for the client’s perception of your work is interesting in that I agreed with him (in general) when I evaluated the 4Ps of marketing<\/a>\u00a0\u2014 it’s far more important to sell on\u00a0perceived\u00a0value than anything else.<\/p>\n In the example I mentioned above (finishing a $500 project in 2 hours), the client will almost certainly balk at the idea of paying out $250\/hour (not premium clients, but many clients will feel this way).<\/p>\n However<\/em>, if they are getting $500 worth of value… why should they be mad?<\/p>\n If you like prefer a value-based\u00a0structure where you bundle the fee, this marketing proposal template<\/a>\u00a0uses that type of fee presentation.<\/p>\n Side note: What does value-based pricing look like? It’s a single fee, for all services. Here’s an example:<\/em><\/p>\n Marketing Campaign and Implementation – $_,___<\/strong><\/p>\n Delivery of service #1 Why should they want you to work more if you can\u00a0competently\u00a0complete a job in less time than expected?<\/strong><\/p>\n Tom argues that this limiting factor can clog up your time, whereas productive freelancers can benefit from fixed rates by doing great work quickly.<\/p>\n This argument is FAR from over though…<\/p>\n Definitely the most popular pricing option, hourly rates in turn offer some advantages that a fixed pricing structure can never touch.<\/p>\n When you are billed by your time, you control the rate and each hour of your time is now resulting in guaranteed (well, almost\u00a0guaranteed<\/a>) coin in your bank account.<\/p>\n Brennan Dunn, founder of Planscope and the author of\u00a0Double Your Freelancing Rate<\/em><\/a>, takes quite a different view from Tom on the supposed advantages of fixed rates…<\/p>\n Unless the estimate is perfectly accurate and the scope never\u00a0changes, there is a huge amount of risk for you in fixed bid\u00a0 Chances are, you assumed a lot of things when preparing an\u00a0estimate. A long book could be dedicated solely to\u00a0the art of the estimate (I actually recommend Agile Estimating and\u00a0Planning<\/em><\/a>).<\/p>\n But these assumptions will often lead us to oversimplify\u00a0a feature, and then spend a large amount of time getting it to be\u00a0in line with the client\u2019s expectations.<\/p>\n Conversely, the client likely\u00a0doesn\u2019t have a clear understanding of exactly what they ordered,\u00a0and thus will ask for a number of revisions \u2014 with each revision\u00a0taking more of your time and thus cutting further into your profit.<\/p>\n Highly subjective requirements, like design<\/a>, are most susceptible Brennan also makes some great points here, and there is even research that backs up his claims.<\/p>\n For instance, the Kellogg School has published multiple\u00a0papers<\/a>\u00a0that show we are generally very\u00a0bad<\/strong>\u00a0at predicting things like “productivity” for our\u00a0future<\/em>\u00a0selves.<\/p>\n So 3 weeks ago when you told yourself that this upcoming project would only take 2 weeks, you were overestimating your ability to produce.<\/p>\n Far more important than that,<\/strong>\u00a0you have even\u00a0less<\/em>\u00a0control over some of the wacky things that clients can demand midway through a project!<\/p>\n Most freelancers that have been doing this for a while have at least a few crazy clients that they can reference here as evidence.<\/p>\n While you can definitely get lucky with great clients, as I have with people like Ruben<\/a> and companies like Unbounce<\/a>, this is hardly the norm: client personalities (and expectations) are all over the place.<\/p>\n It is primarily for this reason that I agree with Brennan over Tom.<\/strong><\/p>\n (There, now you know where I stand :))<\/p>\n One thing to note here is that Brennan specifically cites web design<\/a>\u00a0as an industry where this can be a huge problem, and I think that this is where Tom’s advice may be more tailored to his own work and abilities.<\/p>\nThe Case for Per Project Pricing (AKA Fixed Rates)<\/h2>\n
\nfreelancer can make. There are two key reasons for this…<\/p>\n![\"Tom](\"https:\/\/www.bidsketch.com\/blog\/wp-content\/uploads\/2013\/03\/Tom-Ewer.jpg\")
And given that you only have a certain number of hours available in the day, you are essentially capping your maximum earning potential.<\/p>\nprovoke wildly different reactions.<\/p>\n\n
\nDelivery of service #2
\netc.<\/p><\/blockquote>\nThe Case for Hourly Rates<\/h2>\n
![\"Brennan](\"https:\/\/www.bidsketch.com\/blog\/wp-content\/uploads\/2013\/03\/Brennan-Dunn.jpg\")
pricing.<\/p>\n
\nto this.<\/strong><\/p><\/blockquote>\n
![\"Design](\"https:\/\/www.bidsketch.com\/blog\/wp-content\/uploads\/2013\/03\/Design-Hell.png\")
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