Often freelancers ask me how do you set your prices? To be honest, this is a continuous game of pros and cons, it depends on the project, on the expected outcome, about how much time I would put into it.
In freelancing, there are few types of fee structures you can choose from:
- Hourly pay
- Per project
- Unit-based (this means pay per word)
Today let’s discuss if freelancers should charge per project, what are the advantages and disadvantages and what should you expect when you are using this fee structure.
So, what is pay per project?
Pay per project job is the work opportunity where the freelancer and his client agree to a fixed rate for the whole project. This is managed by setting weekly or monthly milestones, set completion dates, and a specific number of revisions.
This is one of the most common options of billing because it also takes into consideration the value you are offering.
The advantages of being paid a fixed rate/per project
- When using this method, it is way easier to raise your rate, it is more measurable and fits your customers’ needs as well. If you offer any add-ons, you put those forward for a specific rate. Let’s say you agreed to a rate of $700 for the project, in the middle of it the client wants extra features, which cost $200. In the end, you are making $900.
- When you complete the project, set a specific number of free revisions in place (let’s say one or two). Make your client aware that from the third revision up you are charging a specific rate.
- As the price is fixed, your customer will know exactly that the price he sees is the price he pays. There will be no surprises at the end of the project. This brings peace of mind for your client and knowing that they will afford it.
- This payment structure is great to use when you know exactly how long it will take you to finish a project.
- Another great advantage is that you don’t have to justify a rate increase like in the case of hourly pay.
- You can accommodate the service for any type of client.
The disadvantages of being paid a fixed rate/per project
- Project complexity: if you have a complex project, you can only approximate how long it will take you to finish it. You might end up working more hours than scheduled. Just for being time-consuming, it is already affecting your pay.
- If the scope and milestones are not defined properly, you will be left hanging around or going back and forth with your client until all is cleared up. Again, this takes a lot of your time.
- Some clients insist on hourly payment only, in this way they have access to more information on how you work. This is a sort of micromanaging.
- The price for a specific project is set based on value. Even if it takes you a few hours to complete it in the eyes of your client this is a complicated project. And the idea is that clients are willing to pay for things they really don’t understand or can’t do on their own. Make sure you do not make a huge difference in pricing that you will find difficult to explain.
- To some clients, the prices might seem high, and they would feel they get a better value with they go for hourly pay. Call it the psychology of numbers.
- The dangerous zone of pay per project is that your client might treat you as an employee, not a contractor and they will feel entitled to just throw work at you or micromanage you.
I know you will hate me right now, however, if you ask me which method to constantly use, I will say it depends on and that you should have a hybrid approach.
- Fixed-price projects tend to work better when you have some experience under your belt.
- I strongly believe that freelancers should try all the fee structures in an incremental way: hourly pay, pay per project, commission-based, unit-based, and so on.
- Make sure you are choosing the rate that you and your client are comfortable with.
- After testing it out, see which one works great for your freelance business.
- Everyone will provide you with different advice on what payment structure to use, however, know that one size does not fit all.
Fixed-Price Project Contract Tips:
- Always draft a short and clear contract before you start working on a project.
- Set expectations and prevent any misunderstandings.
- Never start working on a project without having a deposit of at least 20%. You can also stretch it like 50% when you start and 50% at the project.
- Make sure your contract has a due date for a deposit and a due date for the final payment. Why this matter? You will provide a quote for a client and he just disappears. In 6-7 months, he is back saying he is ready to pay. But hold on, those were the rates at that time, in 6-7 months your rates might have gone higher.
- Make sure you are mentioning the accepted payment methods: bank transfer, Paypal, Venmo, etc.
- Leave room for negotiation with your client, however, keep in mind that you don’t only have bills to pay, you need to make a living and plan financially for your future.
Which fee structure works best for you now?