3 Alternatives to Charging by the Hour
When it comes to how to charge for your creative work, there are a lot of different voices saying different things, and it can be confusing to decide what’s best. I know that all you really want is to earn what you’re worth while protecting yourself against crazy clients who ask for 17 revisions of their business card design. Surely that’s not too much to ask.
In general, I prefer project fees over hourly rates. I think it creates a professional and smooth client experience, and even more importantly, prevents you from being overly scrutinized by your clients. On the other hand, charging by the hour can work well in situations where the scope (or the client) are unclear or unpredictable.
Instead of attempting to declare a winner in the debate, I want to give an overview of some practical alternatives to charging hourly as well as some guidance on how to make these alternatives work for your business.
Alternative 1: Project Fee
What is it? A fixed dollar amount for completion of a specific scope.
When can it work? This works well when you are working on a well-defined service with which you have a lot of experience. For example, many graphic designers are comfortable packaging branding/logo design in this format. My Thrive Program is an example as well.
What are the benefits? The biggest benefit of a project fee is the ability to price your services based on the value you are creating, not on the hours you are spending.
For example, my CPA charges $350 to file my taxes. I’m speculating here, but it probably takes her 30 minutes, which puts her at a whopping $700 hourly rate. I am willing to pay a premium for her time because having my taxes filed on time and correctly is valuable to me.
How can you make it work? To make a project fee work for your business you have to protect yourself against the risk that the work will take more time and effort than you anticipate. You can do that by doing the following.
Make your scope of work more detailed. Include details like number of meetings, number of revisions, and types of deliverables in the contract.
Track your time internally. Even if you aren’t charging by the hour, you need to understand how long client work is taking you so that you can ensure ongoing profitability and fair pricing.
Manage your clients confidently. Real talk: people don’t read their contracts. You will have to speak up when your clients request things that go beyond what is included in the contract.
Manage your projects actively. In my own business, my most unprofitable projects are the ones where I let the client drive the process. You are the service provider, and you need to manage the project according to how you work best.
Alternative 2: Hybrid (Project Fee + Hourly)
What is it? A hybrid pricing structure is when a portion of the project is billed as a project fee and another portion is billed hourly.
When can it work? A hybrid pricing structure works well for projects that have distinct phases. For example, many interior design projects have a conceptual design phase, that is fairly predictable, followed by an implementation phase, which is extremely unpredictable.
What are the benefits? A hybrid pricing model allows you to approach different parts of a project in different ways. It also gives peace of mind to clients who might be uncomfortable with the uncertainty of an hourly rate.
For example, a lot of my clients (and maybe some of yours) are sure about one part of the scope, but uncertain about the rest. In those situations, it’s helpful to assign a project fee to the part of the project that they are sure about, while leaving the rest of the grab bag of tasks that they “might” want to do “later” as optional additional services to be provided at an hourly rate.
How can you make it work? The same strategies listed in Alternative 1 will help you be successful implementing a hybrid model. In addition to these, you should:
Educate the client. The hybrid model isn’t as common as other alternatives. Be prepared to explain why this approach benefits the client.
Be clear when one phase ends and the other begins. The client should not be confused about which phase you are in. If they are being billed by the hour (when a week ago they weren’t) they need to know.
Alternative 3: Retainer with Hourly Limit
What is it? A retainer is a fixed fee, usually charged on a monthly basis, sometimes with a cap on the number of hours included.
When can it work? Retainers work well for services that will require a high degree of ongoing collaboration with the client, specifically, long-term services that are implementation-focused (e.g. social media management, digital marketing, content creation).
What are the benefits? A retainer allows you to reap the benefits of charging by the hour without causing the client anxiety about the price. It also allows flexibility to do whatever needs to be done to make a project successful, even things you didn’t anticipate. If you decide to include an hourly cap, it also protects against the risk of clients being overly-demanding.
My brother is a partner in a digital marketing agency that exclusively uses a retainer model. It allows them to do a deep-dive into the client’s brand, voice, and existing marketing before they ever design any new campaigns. Since they are under retainer, they have the flexibility to design the best possible campaign based on the results of that deep dive instead of trying to guess in advance what type of campaign will work best.
How can you make it work? The following strategies can help you successfully implement a retainer model.
Manage the client well. If the client is using up the retainer hours with endless meetings and revisions, let them know.
Choose a minimum duration. Make sure you have a minimum duration that will help you do the work well, ideally, at least three months.
Track your time internally. If you end up exceeding the required hours, and intend to ask the client for more money, you’re going to need detailed documentation. Protect yourself by tracking your time internally.
Be prepared to revisit. At the end of the retainer agreement, if the client wants to continue working with you, be prepared to take a hard look at whether the project is profitable at the existing rate or if an increase will be required.
Do What Works for YOU
There are a lot of alternatives, definitely more than what is described in this post, but ultimately you have to decide what is best for your business.
How do you charge your clients?