I usually recommend against charging hourly except in the circumstances mentioned in the previous lesson. The average person understands hourly pricing, and tends to expect to be quoted hourly. They think, "Okay, you spent this much time on it, you should make this much money." But remember, your work has value beyond the time you spend doing it.
Hourly pricing punishes you for being good at what you do. If I can make something in an hour and I charge $150 an hour, and somebody else takes four hours to do the same thing and they also charge $150 an hour, then that person is going to make more money than I do even though they’re probably not as good at it as I am. And that's not really fair. Yes, sometimes higher quality can take longer, but in my experience, experts are experts not just because they’re good but because they’re fast. (I can run a marathon in a week but no one’s going to give me a prize for that, right?)
Charging hourly also locks you into tracking and reporting time. Now I do recommend tracking time for your own education, knowledge, and ability to plan your business, but I find reporting time to clients kind of a pain. My work hours are a little bit weird so sometimes I squeeze in half an hour early in the morning or in the evening, and I don’t love showing clients when I’m working because they may assume that I’m available for things like phone calls, which I’m not.
Another problem you sometimes have when charging hourly is when the client realizes that they are paying for your time, and they suggest, "Well, let me save you some time and do some of it myself." Which is not going to be helpful 99.9% of the time. If they could do it well themselves, they wouldn’t have hired you in the first place. Or they will say things like, "Okay, well, can you just not do this part?" But if that's an essential part of your process, you're not going to be able to do as good of work without it.
Here are some alternatives to hourly pricing.
Flat Rate
You can just set a flat price for the entire project or specific tasks. This is how I do the vast majority of my projects, whether they're web design or copywriting. The key to making flat rate work is very, very detailed scoping, which is some of that non-billable time that you need to build into your prices. Get really detailed upfront about what they need you to do, what things they already have, which pieces they want to keep and which ones they want to change, establishing rules on how quickly they're going to respond and give feedback, that sort of thing. Keeping all of those lined up is the key to making flat-rate pricing work. You can also use fees to enforce those terms of service, such as late fees, project rescheduling fees, and that kind of thing.
Per Item
Depending on what you're doing, you can charge per-word, per-page, or per-item. If you were an invitation designer, you could have a flat design fee, and then you price invitations, save the date envelopes, per-item based on your cost of materials. A lot of publications or content writing gigs offer a per-word rate: 10 cents a word, 15 cents a word, up to $2 per word and beyond for the really big outlets. If you know how much time it takes you to turn out 500 words, you can use your client hourly rate to calculate out to X dollars or cents per word. The advantage of per-item pricing over flat rate is that, if you do it correctly, you should get paid more money for more work. But you can run into some of the same pitfalls with per-items as you do with hourly pricing. Sometimes clients will give you a bad first draft as a way to “save” on words or time. But it turns out you can't really use any of this and you just end up wasting time reading their stuff. Or they'll try to cut out some other content that's actually important because they want to pay for fewer words. So just approach with caution.
Day Rate
Day rate is a variation on the flat project or task price. It's similar to hourly pricing, except you're selling preset chunks. So instead of trying to sell four hours to this person, and two hours to this client, and two hours to this other client, you just go ahead and block out eight hours. They buy all of it, or they buy none of it.
A lot of wedding and editorial photographers will book based on day rates, because their work is involved enough that they're not going to be able to book two clients a day. Even if the shoot only takes six hours, they can’t take another client that day so the client has to book the whole day.
The process of acquiring a project doesn’t always scale proportionally either. You might have to spend 2 hours selling a 2-hour project, or you could spend the same 2 hours selling a larger, 4-hour project. The day rate basically serves as a project minimum to help you keep your unbillable time profitable.
Day rates are also useful if you're not 100% sure how long something is going to take. Sometimes I've presented it as, “I can help you set up this online ordering system. I think it will take about four hours, so here's my half day rate. If it goes more than that, it's going to bump up to the full day rate.” Again, I can't sell an hour and a half to somebody very easily. So if a client needs more than my blocked chunks of time, they have to book the whole day with me.
Day rates can also function as a project maximum. Maybe you take a project that is less than ideal but not so awful that you don’t want to do it at all. You sell the client a VIP day rate where you sprint through a specified chunk of work for them, which again takes very precise scoping ahead of time, and then you’re off the hook.
Retainer
Retainer is basically a recurring contract, and having one or more retainers can really help stabilize your income. The key with a retainer is that it's paid up front, rather than afterward. The client is paying to reserve, or retain, a set amount of your time. Retainers are commonly based on time but it could also be deliverable-oriented. Let’s say you're a social media strategist, and you're on retainer for 30 posts per month. And you're paid a certain amount for that.
Two key points for retainers:
- They’re paid up front.
- Use it or lose it.
Because again, they're committing saying, "Okay, I'm going to have 15 hours of work for you this month." So they pay for that. If they don't use it all, that is time that you're not going to be able to book somebody else for. If they want to reserve that time, they have to pay for it up front, because the time that you spend working on their work is time that you cannot spend finding new clients, working on other projects, or just taking care of yourself or other responsibilities. The point of a retainer is that they're reserving that block of time ahead of time, and whether they use it is their responsibility.
