How to establish my rates: should I charge hourly or per project?
As business owners, we all have to decide early on how much we will charge for our services. Let’s be honest, this isn’t the easiest part of the business. Whether you are establishing your rates for the first time as you are just starting your new business or you would like to revisit your current rates because you don’t feel they are appropriate anymore, you are in the right spot! There are a few things you should take into consideration before finding the best rate for your offer. Let’s take a look.
1. Hourly vs Per Project
The first big decision you need to make is HOW you will be charging for your work. Will you either set up your rate on an hourly base or on a flat rate per project? Here are some tips on how to decide:
- Hourly:
Advantages:
You keep track of the hours you spend working for one client and you get paid for that work. This is straightforward and this is very valuable when you don’t know how long a project will take or if the client is picky and keeps changing their mind. It allows you to have flexibility while getting paid for every hour you are working.
Disadvantages:
Your clients might get surprised by the final number of hours you have worked on their project. Make sure to communicate ahead of time the maximum amount of hours you are supposed to work on it and keep them in the loop when you reach half your time.
You might also get pressured to work “faster” because they don’t understand why it took “so long”. On the other hand, if you work fast thanks to your experience and all the tools and techniques you have gathered over the years, you will not get adequately rewarded as you are just paid by the hour.
Keep in mind you won’t be able to scale as much. There is a cap at how much you can ask per hour without people starting to freak out. Your clients might not always understand the expertise and the knowledge behind your work, and if you charge a really high hourly rate, your clients might think this is way too much for one person.
Is this for you?
Charging hourly is best if you work by yourself on a project and if you are just starting. It gives you the time to understand how long you spend on each project. When you are just starting giving an estimate on how long a project would take is harder and can lead to either undervaluing your work or overcharging.
- Per project:
Advantages:
This is a transparent system for both you and your clients. They know precisely how much it will cost for the desired results. Their expectations are set from the beginning. It also gives you the flexibility to arrange your time as you wish without feeling like you have to report to someone else on why you spent that much time researching or planning.
This allows you to scale. There are just so many hours in the days and if you sell all your hours away, you won’t be able to scale as much.
Disadvantages:
You need to have a really clear idea of how much time and effort projects take or you might share a price and realize halfway in the project that it isn’t what you should have charged in the first place. Unfortunately, once the client agreed on a price for a specific result going back on your words isn’t going to be very professional (unless there is a definite change of direction and expectations).
Another aspect is that you will need to give a new estimate every time they want to add something or change something instead of just adding it on to your hourly workload.
Is this for you?
You have been in business for a little bit, you have a clear understanding of how you operate, how much time you need, how much cost you will have, and you don’t want to have to deal with explaining yourself on your schedule and time management once the project has started.
2. How to set up your rate
- Consider all your expenses & time
If it is your first time being a business owner and you are coming straight from being an employee, this might get a bit tricky at first. To find that sweet number, you will need to include in your rates ALL your expenses and take into consideration ALL the time you spent working on your business.
Your billable hours aren’t just made of the time you work directly on projects for clients. It also includes all the time you spend doing the followings:
- Invoicing
- New business proposals
- Working on your taxes
- Shopping for office supply
- Business travel time + fees
- Interviewing and looking for new collaborators
- Industry research
- … basically, everything that is connected to your business and that you wouldn’t be doing If you didn’t have your own business.
The best way to do it is to keep track of all your hours. We recommend using an app such as My Hours. Keep it open in your browser at all time and make sure to record all your actions. Be as specific as you can in the description so you can get a real good understanding of the time you spent on each task.
- Leave room for overachievement
Once you have taken into consideration all your time and expenses, make sure also to keep some room to overachieve your projects. What does that mean? Don’t try to be the cheapest possible by cutting it so short that you have no time for anything else than the strict minimum. Give yourself a little bit of room so you can over-please your clients and leave them feeling like you went the extra mile for them. This is only possible if you have room in your budget and your schedule to do it without you feeling exhausted and drained.
- Add a set-up fee
Something else to consider is adding a set-up fee to your invoices. You will soon realize that starting a new project takes more thoughts, research, time and energy that you may think. Doing the same project for a brand new client versus a client you are already working with is going to be very different. More admin to be done, more research, more time spent trying to understand the client’s ideas. Take that into consideration and add a set-up fee for all new clients.
Our team of marketing experts is here to support you. If you need advice on how to set up your pricing or if you need help showcasing your offer to justify your pricing, we’ve got you! A good branding and marketing strategy can help make the difference and gain trust from your future customers which will allow you to charge more.
Click here to schedule a Complimentary Brand Consultation. We’d love to help you share your gifts.