Home Uncategorized Why Freelancers Should Never Charge Hourly Rates (And What to Do Instead)

Why Freelancers Should Never Charge Hourly Rates (And What to Do Instead)

134
0

If you’re reading this, you likely feel a little uncertain of how you’re charging your customers.  Freelancing can be an amazing opportunity, but if you aren’t pricing your services correctly, you will be doomed from the start. 

You knew the value that they brought and getting the site up faster helps you start making money again more quickly. 

This freelancer gets it. 

They know that they are good and they know they can do quality work fast. 

If you freelance, your rates should always be going up as your skill set and resume grows.

Let’s say that over the course of 2 years, you can now do work twice as fast. 

If you charge hourly, you’re now providing better work but making less! 

You could of course double your prices to compensate (which would still mean you’re earning the same amount as you did 2 years ago by the way, probably even a hair less with deflation) but now you might be losing sales to competitors just because of price. 

Congratulations, you’re better and your pay is worse. 

On the flip side, if you charge on a project basis, you can now do twice as many jobs in that same amount of time. 

2. Hourly Billing Limits Your Earning Potential

Keep the example above of the 10 minute, $500 project in your mind please…

Now, tell me this, what are the odds that you’d hire this same person out of all of the candidates if they said they charged $3,000/hour?

Probably zero!

But guess what, you just did (essentially) and you’re happy and the freelancer is happy.

The freelancer couldn’t get many jobs for $3,000/hr, but they can get tons of jobs at the $500/project offer they gave you. 

Paying $500 for the desired solution is just more appealing on the surface. Ironically, the hourly option is often more cost effective for the buyer, but that doesn’t stop them from choosing the project basis. 

If the freelancer charged a “reasonable” rate of say $100/hour, they’d have made a whopping $16.67!

10 mins @ $100/hour = $16.67

$500 > $16.67

Sorry, that was a bit patronizing, but it seems many freelancers don’t actually understand simple “greater than” math when it comes to pricing their services. 

3. Hourly Billing Puts You AGAINST Your Client

Not only does hourly billing punish you for getting faster (as mentioned above in point one) it creates an uncomfortable dynamic between yourself and the buyer. 

They want you to go fast and might even try to micro-manage the project. 

You want to do the job right and you also want to make money. 

The buyer might be apprehensive of you and assume you might try to milk the clock or spend time on things that aren’t within the scope of the project. 

As a freelancer, you might be tempted to work more slowly (this is unethical in my opinion, but it happens) or spend too much time on things that don’t really need done. 

I for one don’t like this. It can create tension and leads to clients getting all up in your business. 

Project (Results) Based Pricing

Hopefully I’ve convinced you that hourly pricing sucks for entrepreneurs. 

Saying something sucks isn’t constructive, so here is what I recommend you do instead. 

Charge on a per project basis. 

What Is a Project?

A project is simply the completion of a set of goals/tasks. 

Projects can be broken down further into “milestones” or “benchmarks.” These are common in development projects. 

The beauty of milestones is it allows buyers the flexibility to manage a project step by step. This typically results in much better quality in the end. If the quality of the first milestone isn’t met, the buyer can withhold payment until it is completed as agreed upon. 

Since the project is organized into pieces, the buyer has the flexibility to fire the freelancer if the work didn’t go as planned (perhaps it was delivered too slowly, communication was poor, etc) and they won’t have much difficulty transitioning the project. 

Here are some examples of projects you might complete…

  • Write 2,000 word blog post on the benefits of walking everyday ($300)
  • Create a 3 step sales funnel in Clickfunnels ($2,000)
  • Create an infographic showing facts about crime rates in different countries compared to the United States. ($400)

Here are some examples of projects with milestones.

  • Project: Ghost write a Kindle ebook on tiny homes (writing)
    • Milestone #1: Create book outline ($1,000)
    • Milestone #2: Write Chapter 1 ($200)
    • Milestone #3: Etc.
  • Project: Create software for house flippers to analyze profit potential
    • Milestone #1: Create non-functional mock up ($1,000)
    • Milestone #2: Create off server functional software ($2,000)
    • Milestone #3: Etc.

In the milestone type project, payment is only made as each milestone is reached. There is no large upfront sum paid and there is much more flexibility for both parties. 

So, what should you charge for a project?

Ok, I said I was gonna make it easier for you, but it is still tricky. 

Here are some principles to follow that will help your pricing decision.

1. Your project price should be more than what you’d make if you decided to charge hourly

So, let’s say that you have been charging $100/hour and you can complete the task on average in about 3 hours. 

Your project basis should be more than $300. 

In the example above, I’d recommend charging between $400-$500.

2. Your project cost shouldn’t be the “cheap” option among your competitors. 

I’ve gone so far as to say this… 

If you’re the cheapest option in a service based business, you’re in the wrong business. 

LEAVE A REPLY

Please enter your comment!
Please enter your name here