Which billing method is right for you?

Which billing method is right for you?

Patrick Dodd's Layout avatar

One of the biggest invoicing decisions for a freelancer is whether to bill by the hour or by the project. Each method has its devotees — and for good reason. There are distinct advantages (and disadvantages) to both. Finding the right method for you could depend on everything from your personality type to your particular craft. And choosing the right billing method could also mean the difference between just scraping by and thriving. Here are a few things to consider when deciding between the two.

By the Hour

Charging by the hour is by far the most common billing method. When you charge by the hour, you can be sure you’re never giving away your time for free. Even if a project goes out of scope, you will continue to be compensated fairly.

billing1

On the flip side, billing by the hour is essentially an incentive to be less productive than you otherwise could be. After all, the slower you work, the more money you make. Not only is this approach bad for your craft (not to mention your soul), but your clients may catch on sooner than you might think.

Other considerations include…

Advantages:

  • You have less of a need to be pinpoint accurate with your time estimates.
  • You experience less stress over crazy client demands.
  • Your client understands exactly what they’re paying for: your time.

Disadvantages:

  • The client doesn’t know up front exactly how much a project is going to cost (greater chance they might balk at the final price).
  • Your income is limited by the number of hours in the day.
  • The amount you’re paid might not reflect the total value of your work (for example, logo design or more idea-based work).
  • It’s not always clear what is “billable” time and what is not.

billing2

Billing by the hour can be especially detrimental to guilt-prone freelancers who feel bad about working long hours on a particularly difficult job. It’s easy to sell yourself short. Fudge your time a bit to make the final price more palatable for the client.

By the Project

The alternative to billing by the hour is to bill for a project as a whole. Charging a flat rate removes much of the uncertainty for the client, making it easier for them to agree to the price — even if that price is higher than what you would have made billing by the hour. Of course, while it takes away much of the risk from the client, it transfers a lot of that risk onto you. The project goes out of scope? There are more revisions than you expected? Suddenly that hefty paycheck you were looking forward to isn’t looking so hefty anymore.

Other considerations…

Advantages:

  • You can charge higher rates without the client balking.
  • You charge for the true value of your work, rather than the time it takes you to
  • produce it.
  • The more efficient you become at your job, the more money you can make.

Disadvantages:

  • Poor estimates can cut down your hourly rate fast.
  • Clients might not understand why you’re charging them for revisions.

billing3

Charging by the project can be especially detrimental for new freelancers who don’t yet have a good sense of how long it takes them to complete a job. Most freelancers err on the side of estimating too small of a project rate because they hope to make the price more acceptable to the client… only to find out later that the job they thought would take them 30 hours actually took 100. Ouch.

Often, the best solution to this billing question is to use a combination of the two: bill a fixed rate with the agreed understanding that any additional work will be charged hourly. By laying out exactly what the client can expect for their money, and exactly what tasks and unforeseen circumstances will cost them extra, you can have the best of both worlds: the incentive to work more efficiently without the fear of unexpected revisions pulling the financial rug out from under you.

Comments ( 0 )

Join the discussion