Deciding on Project or Hourly Rates

ONCE AND FOR ALL

When I was first starting out on my own, I found that there was a big divide in the entrepreneurial community. It was on whether you should charge hourly or as a project.

People feel so strongly about this.

I had people tell me I was a complete idiot for charging hourly, and then I’d have another person tell me hourly was the only way to charge.

Every time I wrote a proposal, I felt like I was messing it up. (And according to at least 50% of the people I was talking to, I was!)

I have now made money on my services and expertise for years. Both as hourly and project rates. Guess what? Both can work. Choosing which one is best for you depends on the work, the client, and you.

Let’s walk through it.

When Hourly Rates Make Sense

You’re being asked for your time.

This one is obvious, but let’s name it. If someone is asking for your time, charge for your time. Don’t overcomplicate it.

You’re worried about scope creep.

Some clients will negotiate your scope down to get the price they need, and before you know it, little add-ons start coming in one after the other. It gets hard to say no to these, especially if you’re trying to protect your client relationship and give good service, so the easiest way to protect yourself is to charge hourly.

You don’t actually know how long this will take.

If you’ve never done this type of project before, or you’ve never tracked your time on a project like this before, charging hourly helps protect yourself from doing unpaid work.

Once you charge hourly once, use this data to determine an appropriate project rate for the next time!

You’re worried about the client being difficult

If your client seems like they’ll want lots of revisions, if they don’t seem to understand the amount of work that’s ahead of them, if they have multiple stakeholders who need to weigh in, charge hourly.

You have variable costs

Let’s say you bring on some contractors to help you deliver the work. If you pay them hourly, that means your costs are variable. Charge hourly to keep your costs from exceeding what you’re making on the work.

Warning: Manage and Communicate your Hours!

Just because you’re charging hourly doesn’t mean that you have a blank check. Communicate how many hours you think something will take so that your client can budget. Give them reports of how you spend your time, and as best you can, communicate if you think your hours will go over.

If you don’t have a tool to do this, I recommend Harvest. Easy to use, reports are excellent, and it has never let me down in six years. (Use that link and we both get $10!)

BTW, we talk about what to charge in Office Hours, which is for paid members and held once a month.

When a Project Rates Make Sense

You’re being asked to do something that you could do quickly, but takes others weeks.

If you’re more efficient at something than the average bear, you should recognize that efficiency in a project cost.

Let’s say it takes you just a few hours to figure out someone’s Instagram strategy for the month. It might take them an entire day. It doesn’t make sense for you to charge hourly for this; if you do, you’re penalizing yourself for being more efficient as opposed to capturing that hard-earned value for yourself.

There’s a clear deliverable and you have a process for getting it done

This point is related to my first one; if you’ve got a process, you know how to get there, and the deliverables are straightforward, project rates make sense. You benefit from delivering a lot of value at efficiency.

You know how long this will take you

If you’re worried that what’s going to be asked of you is actually going to take a long time, you should swing back to hourly. Nothing is worse than scoping a project that you assume will take you 20 hours, only to find yourself at hour 49 with no end in sight.

You have fixed costs

If you charge a project rate, make sure your costs are fixed. Any contractors you bring on should also be a project rate as well. There is nothing worse than paying hourly on a project rate and watching those hours eat into your margin day after day.

Warning: Be very clear on what a project DOES and DOES NOT include

If you charge for a project rate, you need to be very clear what this project includes and doesn’t include. Go over this with your client in the first meeting. Do not expect anyone to read your scope closely in an agreement or proposal.

Whew. That’s it for now. As always- let me know if you have any questions!

And remember hold Office Hours for paid members once a month, where we can figure out questions like these live. Even if you can’t make it, you can submit questions ahead of time, and I’ll always send the recording out afterwards.

Business [Comma] Woman is for anyone building (or thinking about building) a service business. Whatever you’re good at: accounting, tarot card reading, window washing, marketing, therapy - if it’s legal, we want you to make money at it. We focus on the stuff that gives entrepreneurs hives: getting clients, marketing services, selling services, pricing, etc. If this article resonated or was helpful, please share it!