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Charging Per Hour vs. Per Project

Business | Oct 14, 2010

If you’re a corporate designer, you don’t have to worry about things like how to bill your clients, as you’re likely either on salary or have a predetermined hourly rate and regular work schedule.

But for freelancers, figuring out how best to charge clients for work completed can be a nightmare. After all, you want to charge clients a fair price, make a decent living, and get enough work so that you’re not struggling to find the next project.

In the world of web design, there are two basic ways most designers charge: per hour or per project. There are advantages and disadvantages to each method, and there are situations where one method works better than the other.

In this article, we’ve presented an overview of what’s involved in each method of charging, as well as what you need to consider when choosing a method.

 

Charging by the Hour

Charging an hourly rate is incredibly common in the world of freelancers, both for designers and other professionals.

It’s a pretty straight-forward way of charging. I just tell you I charge $X per hour and you either think that’s reasonable and agree to pay it or you don’t and you find someone who charges less.


Advantages to Charging by the Hour

As mentioned, hourly charges are very straight-forward. Some designers have a flat hourly rate regardless of the type of work they do. Others have different hourly rates for different functions (designing, coding, testing, etc.).

It’s easy to lay out for your clients exactly what you charge, and they often feel like it’s a more transparent way of doing business. It’s also a method clients are used to dealing with, as that’s likely how their lawyer, accountant, and other professionals also charge.


Drawbacks to Charging by the Hour

There are a few different drawbacks to charging an hourly rate. First of all, if you’re preparing estimates for your clients, they might be upset if the project ends up taking longer and therefore costing more than the original quote. It’s important to make it very clear to your clients that your proposals are estimates, and that if additional work and time is required, you’ll charge them more.

Another drawback is that a lot of clients don’t understand why designers charge as much as they do. There are tons of low-cost (and generally low-quality) “design firms” out there that charge next to nothing and put out inferior work. Clients will often sign on with these designers thinking they’ll save money, until that $20/hour web designer takes five times longer to do everything than the designer charging $60/hour. Unfortunately, there are clients out there who don’t realize that updating a few photos on a website shouldn’t take eight hours!

Clients may look at your hourly rate and the hourly rate of another firm and go with the one who’s rate is lower, even though the overall project price might end up the same. They often don’t take into account the added value one designer offers over another. And in cases where designers put their rates up publicly on their website, some potential clients may walk away without ever contacting you because they think your hourly rate is out of their budget.

If you’re not incredibly organized, charging by the hour can also be a logistical nightmare. If you charge an hourly rate, you need to keep track of how many hours you work on each project. And if you charge different rates for different kinds of work, you have to break down not just by project, but by task.

This can work fine if you’re one of those people who focuses in on a single project for an extended period of time. But if you’re the type of person who likes to work on multiple projects at once, billing by the hour can be almost impossible. Of course, some designers just estimate how much they’ve worked on a project, but it’s often easy to under-charge doing that, unless you’re taking time to estimate work spent on a daily basis.

 

Two Common Methods for Charging Per Project

When designers charge for the overall project, rather than just an hourly rate, they generally base that pricing on one of two things: either they base it on the amount of time the project will take (in effect, an hourly rate) or on what the market will bear.

There are pros and cons to both methods, though a lot of it depends on how the designer works and what suits their clientele.

There is a third, though not often used, method for charging per project. This would be charging “per page”. If your design clients primarily want brochure-style websites with only a handful of pages, this style of pricing can work very well.

It’s most commonly seen with rural web design firms who mostly deal with local clients who are only interested in simple websites. This type of pricing only really works for basic HTML pages, though, and can quickly become more hassle than it’s worth for sites that incorporate Ajax or are built on CMSs.

 

Project Price Based on Time

A lot of designers who quote on a per-project basis come up with their quotes based on the number of hours they expect a project to take them. They just don’t include that hourly rate on the proposal itself.


Pros of Charging Based on Time

As was already covered under the section above about charging by the hour, hourly rates are a relatively easy way to figure out how much to charge for a project.

If you’ve been designing for any length of time, you probably have a good idea of how long most aspects of a project will take you. If you know coding a new WordPress theme will take you two hours (once the design is done), then you just multiply that by your hourly rate and there you have a quote.


Drawbacks to Charging Based on Time

Of course, there are drawbacks to charging on this basis. With a straight hourly rate, you can adjust the number of hours charged based on the actual number of hours worked. If you’re figuring a project based on an estimated amount of time, it’s much more difficult to change that quoted price after the client has agreed to it.

Another drawback to charging based on time spent is that many newer designers won’t really have a good idea of how much time they’ll likely spend on a project. Sure, they might know how long it takes them to code a design, but they might not have any clue how much time they’ll spend going back and forth with a client on the design itself.

Even established designers can’t always be sure about things like that, as every client is different.

 

Project Price Based on Market Forces

Pricing a project based on what the market will bear often seems, on the surface, as something dishonest (to those who see the market as willing to pay way more than what a site is worth) or potentially damaging (to those who see the market as undervaluing creative work).

In truth, though, it can be the fairest way to price something, for both client and designer.


Advantages to Charging Based on the Market

When a client wants a website designed, they sometimes have a good idea of what it’s worth to them. After all, if they only want a simple brochure website, they’re unlikely to think that’s worth $10,000. They might only think it’s worth $300. Alternatively, if they want a full-featured ecommerce site, they might feel that is worth $10,000 or more. It’s all based on their perception of the benefits they’ll receive from having the site.

The majority of people are happy to pay what they feel something is worth. If they think a site is worth $10,000, who cares if the designer thinks they’ve only put $5,000 worth of work into it? If the client thinks it’s worth more than that, then why shouldn’t the designer be rewarded for the extra value?

Designers who charge less than what a client thinks a project is worth often lose out anyway, as the client will view their work as deficient in some way and choose a higher-priced company (going by the old adage, “you get what you pay for”).

The same thing goes for designers who charge more than what the market will reasonably bear. It doesn’t matter if a simple brochure site design will take 10 hours for a designer to create and they charge $100/hour. If there are twenty other designers out there who will do it for $500 or less, why would the client pay twice that? Sure, the designer who charges more might have a much higher skill level than the lower-priced designers, but how much of those extra skills will actually be used in the site design? If the client doesn’t see the extra value, then why would they pay for it?

If you charge based on what the market will bear, then you’re going to have happier clients. If people feel they got a good value, then they’ll be happy with your work. They don’t care that it only took you a week’s worth of work and you got paid $10,000, as long as they get their $10,000 of value out of it.


Problems with Charging Based on the Market

The biggest disadvantages to charging based on the market come into play when you’re working with simple websites and difficult clients. Let’s say you quote a client $400 on a simple brochure website, because that’s what you’ve found people in your area are willing to pay.

The client happily accepts that quote, finding it in line with what they thought they should pay. Everything goes fine until they start requesting change after change to the design you send them.

Pretty soon you’ve sunk fifteen hours into the design, and they still haven’t approved the design. What should have been a simple five or six hour project is taking way longer than anticipated and your hourly income is dropping dangerously close to minimum wage.

There are a couple of ways to deal with situations like this. First of all, be very careful of who you work with. If a client shows any indication that they’re going to be difficult before they actually sign a contract, politely decline the project. Alternatively, charge an hourly rate or make your contract much more specific on what’s included and what’s not (including how many rounds of revisions you’ll do before additional charges are incurred) for this particular project.

If you fall into the camp of designers that feels like charging what the market will bear is dishonest if the work itself isn’t that difficult of time consuming, you’ll have a different set of issues to deal with.

Here’s the thing to remember, though: people put a lot of stock into their perceptions of value. If they think something should cost a certain amount, and you come in significantly lower than that amount, they’ll start looking at why. It doesn’t matter that the reason might just be that you keep your overhead low and you’re very efficient and good at what you do. They’ll think that there’s something wrong with your work and will place more value on the firm that comes in with a bid closer to what they expected, regardless of whether that firm is actually better.

It’s to your own benefit to charge more if that’s what the client expects. Make up for it by exceeding your client’s expectations. Provide them with a flawless site, phenomenal customer service, and a great overall experience. If you’re still feeling guilty about it, offer them a discount on the final invoice, or on their next project with you. It’s better to have a client who’s happy and feels like they got what they paid for than a client who thinks you have some ulterior motive for charging so little.

Finding out exactly what the market will bear can be the tricky part in this kind of pricing scheme. One way to figure it out is to make sure you ask clients what their budget is. Or better yet, ask them what they expect a site like what they’re looking for would cost. Other ways include looking at what other designers in your area or industry are charging (you can find some of this information on sites like Elance.com by looking at what designers are quoting for different projects).

 

So How Should You Charge?

Deciding how to charge is going to be largely dependent on how you work. For some designers, charging hourly works well, because of the nature of their work. This type of billing works well for ongoing contracts, or for clients who have a tendency to make changes to scope midway through a project (no need to re-quote, just remind them that changes mean extra time).

Charging per project can work really well for designers who already have a good idea of what kind of time different projects require and how much value clients place on different kinds of work.

For new designers, though, it can be too difficult to quote a price that realistically covers the time a designer has spent.


Written exclusively for WDD by Cameron Chapman.

Can you think of other reasons why one method of charging for projects works better than another? Or do you have any other ways of charging for your own work? Share in the comments!

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  • http://www.niekolyslager.nl Niek

    If I work directly for a client, I always have a fixed price. They have no sense of design. But when you do freelance work for a company. It’s usually based on time.

  • http://www.niekolyslager.nl Niek

    They have no sense of design –> They have no idea how long something will take. They just want to know what it costs.

  • http://www.TheLongDog.co.uk Jason

    Interesting article and very timely for me.

    I just had a run in with a client who booked me for 10 days’ work, then wanted to pay for only half the time on a ‘per project’ basis, until legal opinion changed their mind.

    They still ended up only paying for 8 days as they felt they I should have worked quicker. Ok, maybe a brief, some deliverables and deadlines might have helped, but it’s yet again showed me how tricky client relationships can be – especially when the client, as you say, often doesn’t understand “why designers charge as much as they do” and often simply don’t understand what designers (in my case user experience designers) actually do.

    Despite my client saying they were happy with the quality of my work and that so was their end client, they still disputed the time, so I think it’s really important to marry expectations and deliverables to charging models and have this agreed up front.

  • http://www.gingerwench.com Ginger

    Charging design clients per project, with a per hour charge if that project goes above and beyond the agreed upon “package” is an option that’s worked well for me. Keeping the client well informed of progress, and giving them the opportunity to be involved in the design process rarely leads to a misunderstanding when it comes to said additional hourly charges.

    This was a good read :) Ultimately, I feel the billing process we choose should be determined per project, per client. Every situation is unique, and in my experience, clients enjoy feeling catered to in this way.

    ~Ginger

  • http://www.beebig.ro bbg

    i charge per project. it’s easier, becouse most of the time i dont have to explain why that project needs 5,10,20,30hours and so on…

    on the other hand, you’re right with the fact the client might compare your hour rates and the others, and go for cheaper one.

  • Meg

    Great article! I just recently completed a fixed price nightmare where I basically lost money every hour that I was working on the project. If you are going down the road of fixed price, be very selective with your clients and make sure you have the project requirements defined before you begin.

    I was originally excited about the promised opportunity to do a lot more work with the client but in the end it was such a bad experience that I don’t plan to work with him again.

  • http://www.chrismauck.com Chris Mauck

    Nice article, thanks! I can definitely relate to using various pricing models. I price a lot of jobs by the hour and some by the job based on assumed amount of time required and the client. I have the ‘joy’ of operating in nearly the middle of nowhere so my local clients want to pay local prices (and they like the phrase “by the page”). Please understand that any money is good money, but when you turn out the same, or increasingly better, grade of work for each and every client, the local market can make you feel like you are undervaluing yourself. I keep a simple instant quote on my site, but most of my clients come to me by word of mouth and rarely fill an online quote form.

  • http://kristinthinks.tildek.net Kristin White

    Very good comparison of options, thank you!

  • http://www.tolsmultimedia.com/ Ben from TOLS Multimedia

    Great stuff Cameron. I like the suff very much as i am in the same internet business. Actually you have quoted right that, it’s good to hire an expensive designer with less time rather than to hire a cheap designer for a long time period. It makes lot of sense for developing your stuff.

  • http://laroouse.com piyansitll

    very nice article thanks a lot

  • http://twitter.com/RobinThrift Robin Thrift

    This is a great article! It really made me think, which is great. For me as an very young developer it’s really hard to know how long a project will take. I think that charging by what the market bears sounds quite good to me, but I guess you need a lot of talking talent to do that…

  • http://tquizzle.com TQuizzle

    I thought I had a hard enough time figuring out how to charge already…thanks for introducing other things to factor in and making even more difficult!

    No, seriously – good article, good things to think about.

  • http://www.theprofitchef.com J. Warren Elias

    I’ve found a happy medium with a split menu. I have my ‘specialties’, or the packages that I find most clients interested in. These may include local directory SEO, Facebook business profile design, or installing WordPress within their domain. I leave these a flat price based on my known average time to complete the work. These items are most often a la carte to the core project, though. For instance, I may design a new website or business platform for a company, and they want to “throw in” a matching Facebook profile or have their website listed on the 20 most popular local directories that their customers use. A flat price on these items is easier for my clients to budget, in most cases.

    For the ‘heavy lifting’, I revert to my flat hourly fees. Most clients like this, as I remind them that the work is unique and, therefore, nearly impossible to fit into a neat price point upfront. If they pass my interview to determine that they will be a good fit for my work (and have taken the time to budget for the project correctly), then we settle in on a scope and contract so that I can get started. Hourly projects tend to move much faster as well – the idea of being billed hourly tends to make most people focus a bit better.

  • http://www.dealybug.com mtrang

    I charge by the project and anything outside of the estimated quote goes to hourly on top of the initial agreed total.

  • http://www.gillianpritchett.com Gillian

    I get to be the first comment – I’d better make it a good one ! (and hopefully with no typos !).

    I’ve Tweeted this post and put a link on my FB wall as it’s so so relevant to service professionals too. As a business coach and consultant working both online and offline the part where you talk about value is especially pertinent. I can research something in 30 minutes because I have good contacts, a student at $15 an hour could take a week to not even get the information SO do I charge my hourly rate, do I charge my hourly rate multiplied by the hours it would take someone without the contacts or do I charge what it’s worth to the client. Your post helped me towards answering this type of question.

    Quite simply an EXCELLENT post!

  • http://www.kerningandcoffee.com Brittany

    This is a really great article. Lately, I’ve started running into the last section of people listed under “Problems with Charging Based on the Market”. Some of my clients recently have decided that squeezing me for every penny of design work is what’s “worth it” to them. In cases like this, where I quote a flat rate, I write into the contract that there will be review points at each 1/4 of the project, so that we can come to agreements again and adjust the contract if needed. That way, I don’t get troubled by a client making so many changes I end up below minimum wage. I’ll adjust the contract as necessary. It’s worked so far!

  • http://m2ew.carbonmade.com m2ew

    As stated, charging based on time always seems to be an issue when you are unsure about the nature of the client. Even if the design process goes smoothly, there could be multiple adjustments needed once design has been converted to code. A buffer in your proposal budget may work for revision costs, but I find setting milestone payments in conjunction with a cap on the # revisions themselves will help. You’ll present a clearer picture to the client as to what they can expect when asking for adjustments.

    Here’s a great article on milestone payments:
    http://www.outlawdesignblog.com/2010/the-art-of-client-payment/

  • Kimberly

    I use a combination – I’ll quote on a project basis with a range of hours (say, 4-6 hours) that I think it will take me to complete the scope of the project (and using that to come up with the number). That way I have flexibility to brainstorm, concept and troubleshoot.

    Then, I state an hourly rate for additional work that goes beyond the original scope if the client decides to add on.

  • Kevin

    Anyone know what app is running on that ipad?

  • http://www.rawkmedia.com John

    Unfortunately, per hour can get out of hand if scope-creep happens. The best method is still per project but what a designer needs to do is productize or package their products to set expectations around deliverables of a consistent web design. Great article!

  • Kelsy

    Great article! I’m trying to get into doing freelance design work and one of my issues was trying to figure out how much to charge. This helps out a lot :)

  • http://www.bootcamp4me.com Lonnie

    I am not a designer but i have created my small business website using photoshop cs5 and dreamweaver. In dreamweaver cs5 i probably know the basics of web design but css still throws me. I was wanting for someone to take my ideas and code them and then create an inside page that i could just copy over and over and change the text on myself. Seems simple.. well after 2 design companies, 10 months and $1600 i almost gave up until i found a advertiser on here that converts psd into html for me.

    this article concerns me because if i just want someone to do a rss feed or something “i assume” small i am wondering how much they should charge me or how long it would take. The 2 “big web design” companies really jaded me on the whole situation. passing me from mock up guy, to flash guy, to implementation guy, to blog buy, to forum guy then to database guy.. next time ill walk down to the local community college and get a guy ready to graduate

  • http://www.vivoocreative.co.uk Web Design Nottingham

    Great read, we charge hourly, day and fixed depending on the project! For design only its usually a day rate, for fixing bugs etc its hourly and full projects its a fixed fee

  • Jason S.

    I usually charge per project with a revision phase charged per hour at the end of the project if needed. I also don’t take on small one time projects as it’s not worth the headaches.

  • http://designlovr.com ximi

    I charge almost exclusively on a per-project basis, even though I’m mainly doing front-end (and a little bit of backend) development nowadays. That means the concept of “revisions” is not really all that relevant.

    I think what is important when working on a per-project basis is to define exactly beforehand what services are included (ideally in a contract). For me that would mean to clearly state what functionality will be included in the end-product, what browsers are to be supported, etc. For a designer it might mean to determine the number and scope of revisions.

    I always stick to my original quote, unless the client requires additional functionality that wasn’t specified beforehand. In that case I “refresh” my quote accordingly – this also allows a client to decide whether or not he really needs (and can afford) certain, additional features.
    I do however add a little buffer to my quotes for bigger projects to cover all the small requests that don’t really justify a separate quote/additional costs, but do require a certain amount of time (e.g. change the order of the menu items, sort the posts by name rather than date, etc.).

    Either way, this was a great article!

  • http://www.sametomorrow.com/blog adam

    Good post and this is always an important topic. I’ve charged both per hour and per project and up to this date, sometimes I still wonder which way I should charge.
    I feel hourly is great and straight forward but it always leaves your wondering how much your going to end up making in the end and if that is enough or not. Project based at least you know how much you are expecting to make but then if the work takes longer you may end up screwing yourself over.

  • http://www.par4media.com Par 4 Media

    This is a very nice breakdown. It took me a while to figure out when and which method to use, but I find myself charging more by the project now, with hourly charges down the road for updates etc.

  • schinizel

    I charge per project…but…

    The estimate/charge is based on how much time and my hourly rate, however I stipulate that the cost won’t change, which adds a lot of accountability to my time estimates :-)

    This can/has gone horribly wrong, but only in the beginning of my career while I didn’t know much and poorly estimated. Now, I find no issues. As long as you are clear about the work you are doing and not adding anythign in halfway (for free of course) time won’t exceed cost.

    If something does take a bit longer than you expect, you add it as a learning experience and trust me, don’t forget about it the next time you need to do something similar.

  • http://www.webdesignerdepot.com Walter

    I’ve tried both and found that you need to customize how you charge based on the client and the actual project. Some clients just take a lot of time and others are faster.

    I don’t think there’s a ‘set formula’ that works best, I think we should continuously fine tune this to what works best at any given time.

  • http://rt-now.com/ Rob T

    I feel that paying by project is a much better idea for web designers. That way everything is laid out on the table from the beginning. Paying by the hour ads more variation and may or may not get your the ammt of money your looking for.

  • http://www.roundpeg.biz Lorraine Ball

    I work with small business owners, and I always charge by the project. Being a small biz owner myself I appreciate controllable expenses. I tend to run my business light and lean, and even a few hundred dollars more creates a ripple somewhere else in the business, so I like to be able to budget in advance.

    Even though they probably pay more then they would by the hour ( I build in the indecision factor) it is a controllable expense and they are happier at the end of the project

    I also als about their budget before I quote a price, telling them we can work at all levels…. Then they give me a ball park and I quote something in the middle, if I want to work at that level.

  • Kieran

    My agency charges by the hour (GB£65-ish), plus any direct expenses incurred in working for the client such as purchase of stock artwork and travel to/from their offices. Thus for each project we provide estimates (rather than ‘quotations’) based on specifications provided by the client.

    Except for web hosting and a few off-the-shelf services, we have no fixed price products at all.

    This works very well. Our projects are always profitable. Our clients focus on their core needs from the outset. And our final products are consistently of a very high quality as a result.

    We don’t win every lead, but very rarely does a customer leave us once they’re on our books.

    I have to say I don’t understand the price-per-project thing. Hardly any other type of consultancy — lawyers, accountants, marketing firms — uses this business model. It’s neither profitable for us nor good value for the client.

  • http://www.mgdesign.eu уеб дизайн

    Sometimes it is extremely difficult to find the right solution. 80% of the clients for web design services in my country are like “2400? Are you crazy? I know a student which will do this for 199,99″

  • http://digitalreaction.net rob torres

    Great insight, we are in the process of a massive overhaul of our pricing structure both per project and hourly…This gave some interesting perspectives we hadn’t thought of…

  • http://mypigsfly.com Julie

    I very highly recommend Freshbooks for keeping track of time & invoicing projects. Their motto is “Painfree billing” and it is TOTALLY true!

    https://mypigsfly.freshbooks.com/refer/www

    • http://digitalreaction.net rob torres

      We use Freshbooks and Julie is correct as it is awesome… We don’t use the time tracking feature though, but I would imagine it’s great as well…

  • http://sassmama.com Shelia Howe

    http://freelanceswitch.com/rates/
    This is an awesome tool to help you decide how much you NEED to charge per hour. Then you of course have to do all the guesstimating of the hours, and making sure the local market can support that.

    I charge a flat hourly rate no matter what I am doing. If I take time out of designing to do a Tarot Reading, the rate should be the same! It is still the same time, and as long as you can deliver on the goods, your rates should be the same across the board!

  • http://www.bebop-cafe.com BebopDesigner

    Brilliant article! Very useful insight for me, since I’ve just moved here and I need to scout a little as this is a different economy.
    I used to charge per project, using the hourly approach. I know how much time it takes me to do things. It’s worked for me because I always specify the number of revisions and the cost for additional revisions.
    This way, clients and I are on the same page since the beginning of the project.
    But when clients go creative and start changing their minds, we revisit the project document and negotiate adjustments. (most of the time they stick to the original plan)

    Thanks for sharing!

  • http://www.stellerdesigns.com Steller Designs

    So true! I started doing both – Charging an hourly rate, but also giving an estimate of how many hours it may take. Ex: 40-60 hours, at $40 / hr – gives everyone a better understanding of what we are looking at in terms of ballpark.

  • http://zoomicon.wordpress.com George Birbilis

    Note that a client may be inexperienced in the area and feel that X site is worth say an overpriced $10000. So you make it for them and all is OK, but later on they find out from others that they could have made the same for much less. Then you lose them as future client and they may also spread the word that you’re too expensive or a con etc.

    btw, I recommend FreshBooks (free for few clients/projects) and the fine Windows sidebar gadget that some law professional had made for it (free)

  • rajesh.chandrasuriyapandian

    Its very very useful for me. Because i am a website developer in php. Now some local projects comes to me. Using this article i find that How ll fix the price for per project. My suggestion is. Developer will quote the amount for per project based upon their Project requirement. Put the amount for each module and estimate the time for each module finally show the project time and cost sheet to customer. This will be very useful for every developer. After start the work , depends upon the customer trust , you can get the amount for each module or finally you can get the total amount for the project:)