Project pricing vs. hourly rates

In response to a recent post about Raising your freelance rates,” commenter Mitch Devine of Love Hate Advertising asked for a followup about my philosophy of hourly rates vs. project pricing. So here goes!

First, I should say that I have no ironclad rules about pricing freelance jobs other than trying to figure out what the client is looking for. In the Freelance Forecast 2010 survey 70% of the clients surveyed preferred either a firm quote or not-to-exceed estimate—and only 6% chose an hourly rate—assuming the same overall cost.

Personally, my usual strategy is a not-to-exceed estimated range; in other words, I will put together a fairly detailed line-item quote that says the project will cost between X and Y, and will not exceed Y—if the project takes less time than my conservative estimate, I’ll invoice accordingly. (Behind the scenes, the reality is that I’m probably using an hourly rate to calculate the project pricing anyway!)

The not-to-exceed estimate has three benefits, in my experience:

  1. You’re providing the client the comfort in knowing what the top cost will be
  2. You’re giving the customer an incentive to be easy to work with (i.e., not going crazy with revisions or meetings)
  3. You’re setting yourself up with a stronger negotiating position than a take-it-or-leave-it bid, because you’re giving the client an option to remove certain elements if they’re price sensitive.

For psychological reasons, if you have a high hourly rate, that can sound worse than the equivalent project cost for a freelance job cited as a lump sum. People are scared (and rightfully so) of scope creep, particularly with freelancers, and can mentally deal more easily with specific numbers. That being said, if a client wants a specific, hard number, I will provide that to her. If a client wants me to do three hours’ worth of work at Z rate, I will do that for him. Again, the first principle always needs to be determining what is most appealing to the given client…and that’s a matter of listening to subtle (and sometimes not-so-subtle) clues during your conversations.

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Comments

  1. Susan Sheppard says

    Thank you for a very interesting post. How would you go about figuring a bid on something you have just vague information on? I proofread and was asked to give a price on reading new website copy, knowing only the subject (which I can’t disclose) and how many pages there would be, but not how much copy might be on each page, and not how difficult or not the copy would be to proofread: the copy isn’t in hand yet; even the company that asked for the bid hasn’t seen anything. But they wanted a price. I assume they’re looking elsewhere since I have not heard back from them in response to what I did send, but I want to figure out what I *should* have done! Thanks.

  2. Dr. Freelance says

    Thanks for commenting, Susan, and a great question — “vague projects” are a common challenge in the freelance world. Keep your eyes on the home page in the next few days, and I’ll give a shot at answering!

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