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Like most freelancers and small business owners, you\u2019ve probably agonized over a simple question: \u201cHow much do I charge for my services?\u201d<\/p>\n
On the surface, it seems like a simple question. You know there\u2019s going to be some variation between you and other freelancers due to your location, experience level, and skills, but you may never feel like you come up with a good number. When a client declines to work with you, you always wonder if it was because of your price. Were you too expensive for their budget? Or were you so cheap that they worried about quality?<\/p>\n
Plus, it\u2019s in the interest of both<\/em> parties to come up with an accurate figure. If the number is too high, the client will feel like you\u2019re taking advantage of them. If the number is too low, you won\u2019t feel properly compensated for your work.<\/p>\n So how do you come up with good prices to charge your clients? There are basically two models: fixed pricing and time-and-materials pricing. Each model comes with advantages and disadvantages, so you’ll need to choose the one that works best for you, but in this article we’d like to give you an overview of both options to help you decide.<\/p>\n Keep in mind, however, that you aren’t bound to one system or the other. Feel free to switch between these pricing models based on the types of clients you serve and the projects you work on. Now let\u2019s explore fixed price vs. time and materials pricing.<\/p>\n <\/p>\nLike most freelancers and small business owners, you\u2019ve probably wondered how much to charge for your services. <\/a><\/span>Share on X<\/a><\/span>\n Fixed pricing (or a fixed price contract, as some people call it) is when you deliver a product or service for a simple price that never changes. It may be paid in installments and usually requires a down payment to get started. Some freelancers break down the payments by date or project milestones. You can collect money at any time or in any way, but the final total amount doesn\u2019t change.<\/p>\n For instance, if you offer to build a website for $5,000, you\u2019ve given a fixed price. Your material and time costs won\u2019t change the price. If the website ends up taking twice as long as you expected, the price remains the same. But if you have the experience and tools to build the website quickly, you might make a lot of money.<\/p>\n Let\u2019s talk about the pros and cons of fixed pricing.<\/p>\n Fixed pricing is only right when you have a clear idea of the project\u2019s requirements, as an unexpected obstacle, challenge, or delay could disrupt your whole invoice. If the client isn\u2019t sure what they want or can\u2019t articulate their needs, it\u2019s best to stay away from this pricing system because there\u2019s a good chance your price will be inaccurate.<\/p>\n It\u2019s also useful when the client is upfront about their budget and you can tailor a service to meet those needs. If the client only has $1,000\/month for blog content, you can plan the kind of content that respects that limit without overextending yourself. Knowing the final total ahead of time gives you total control over the project.<\/p>\n First, in order to use fixed pricing well, it\u2019s important to only use it on projects that you understand well and have experienced in the past. If you\u2019re uncertain about how long a project should take, it\u2019s best to use the time and materials pricing model until you\u2019re comfortable with it.<\/p>\n If you\u2019re new to print design, you probably don\u2019t know how long it will take you to design a poster, so it\u2019s smarter to use the time and materials method. Over time, you\u2019ll get a better handle on what it takes for each type of project. You can eventually switch to the fixed pricing method.<\/p>\n Second, the fixed pricing method requires that you anticipate your expenses. You won\u2019t list these out individually on your invoice, but your figure should account for all costs. There are two kinds of expenses to consider:<\/p>\n Next, estimate how long you think the project will take to complete. You won\u2019t use your time as a basis for pricing, but you should at least use this method to come up with a bottom number. For instance, if a project will take 12 hours and you typically bill at $75\/hour, you must at least<\/em> charge $900+ your expenses.<\/p>\n If you can quantify your time, try to be as conservative in your own favor as possible. Add in a few buffer hours for good measure. Expect that the two-hour job will take three hours. Expect the 18-hour job to take 23 hours.<\/p>\n But since you\u2019re using the fixed price method, your final number doesn\u2019t have to be a function of your time spent and hourly rate. You can add as much as you like based on the value<\/em> you\u2019re providing to the client.<\/p>\n For instance, you may only want to charge $2,000 to set up an ad campaign, but if you expect that ad campaign to create $500,000 in revenue, you should charge much<\/em> more because it creates a lot of value. That client will be happy to spend $10,000 or $15,000 to make half a million. This is called value-based pricing<\/a> and it\u2019s a key technique of some of the most successful freelancers.<\/p>\n Most importantly, it\u2019s smart to streamline your fixed-price projects as much as possible by using tools that save money and time. Create your own website templates, load custom Photoshop actions, employ copywriting frameworks, etc. The less time you spend on a fixed-price project, the more you\u2019ll earn.<\/p>\n Time and materials pricing is substantially different from fixed pricing, but it\u2019s still a suitable billing method for many freelancers and types of projects.<\/p>\n Charging for time and materials is when you bill the client for all of your expenses plus an hourly rate. The hourly rate is based on the real time it takes to complete the project. For instance, if you agree to edit a podcast episode, you might lay out your invoice like this:<\/p>\n Time and materials pricing is best for any project where you can\u2019t accurately predict the time investment. This includes writing, artistic work (like web designs, videos, or print materials) and software development.<\/p>\n Use time and materials pricing on long-term projects with dynamic requirements. For instance, a client may want you to start working on their website before they know how many pages you\u2019ll need to build. Since you can\u2019t predict the scope of the job, you can\u2019t give them a fixed price.<\/p>\n Most importantly, this is a good billing system<\/a> if you\u2019re a new freelancer who isn\u2019t comfortable giving out prices yet because you don\u2019t know a) how long jobs take and\/or b) the value of your skills. It\u2019s simpler and safer for everyone if you just say, \u201cI\u2019m $50\/hour plus expenses.\u201d<\/p>\n There are two components to charging by time and materials: 1) Coming up with the right hourly rate and 2) being accurate and transparent with your time.<\/p>\n Calculating your freelance hourly rate<\/a> is a big topic, but generally it makes sense to start with the amount you expect to make and work backwards. If you want to earn $100,000\/year, for instance, you would have to charge about $48\/hour if you planned to work 40 hours\/week for all 52 weeks of the year.<\/p>\n But you won\u2019t work that much. You\u2019ll need sick and vacation time. Plus you won\u2019t bill for 40 hours\/week. Some of that time will be spent sending proposals, managing your accounting, and marketing your business. It\u2019s not all billable time.<\/p>\n So if you plan for two weeks of vacation, a week of sick time \/ personal time, and about 30 hours of billable work each week, you would have to charge about $68\/hour to earn $100,000\/year.<\/p>\n That\u2019s quite a difference, but only if you never take off holidays, never spend days traveling, automate as many tasks as possible, and have a full pipeline of work. Realistically, you need to charge around $85\/hour to make your $100K.<\/p>\n If you aren\u2019t comfortable making that calculation yourself, look at successful freelancers who work on projects similar to yours. Ask them what they charge for their work and whether they think that number suits them.<\/p>\n Once you know your rate, your next step is to manage your time<\/a>. Being honest and transparent about your time is good for you and<\/em> the client, so you\u2019ll want to take steps to keep everything simple and clear. But you don\u2019t<\/em> want to spend a lot of time on this. If you spend one to three hours per week just tracking your own time, you\u2019ll have to raise your rate that much more.<\/p>\n The solution is time tracking software<\/a>. This kind of tool tracks your time in every application while you work on projects so you have an accurate record, but only if you use the right tool.<\/p>\nFixed Price<\/h2>\n
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<\/p>\nPros of fixed pricing<\/h3>\n
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Cons of fixed pricing<\/h3>\n
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Who is it for?<\/h3>\n
How to do it right<\/h3>\n
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Time and Materials<\/h2>\n
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Pros of Time and Materials Pricing<\/h3>\n
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Cons of Time and Material Pricing<\/h3>\n
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Who is it for?<\/h3>\n
How to do it right<\/h3>\n
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