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Pricing: Project and Hourly, like Peanut Butter and Jelly

Posted by Ilise Benun on

creative-truth

Should you price hourly or by the project? That’s a question I get a lot lately. Trouble is, it depends. And often the right answer is “both.” In his new book, Creative Truth, Brad Weaver (also a HOWLive speaker this year), outlines in his pricing chapter, when to use each.

Excerpted from Creative Truth, Start and Build a Profitable Design Business
By Brad Weaver

You don’t have to pick a single pricing strategy. A combination can work in both the long and short term. Project-based pricing and hourly billing are the two simplest models to both sell and manage. For anyone new to creative business, these two models are where you’re likely to land, and both are acceptable.

If you are a designer who works on technology projects, you may take a blended approach to your work. You could charge hourly rates for the technology development, but project-based pricing for your design work. The gist is that these two models aren’t in conflict, they can work together or be used on a client to client basis. Here are a few guidelines to help you determine which is best in certain situations.

Working with the same client on similar work regularly

How to price it: Hourly

Rather than trying to come up with project budgets over and over again, if you’re doing repetitive work for the same client it’s best to run a clock and invoice often. This relationship should transition into a retainer down the road, but for the time being hourly works great. You should have enough rapport with the client to be open about how long things will take, and they should have you situated well enough in their accounting system for frequent and on-time payment.

A project’s deliverables are unclear

How to price it: Hourly

Clarity is the ultimate weapon for accurate time estimates. If the client’s desired outcomes, or the actual solutions they’re asking to be completed, aren’t clear, then pricing hourly is the best way to protect yourself. Clients may push you to give them a fixed cost for something they can’t even define, and that is the worst situation to be in as a creative. Unless you can clearly state what will be delivered, how it will be formatted, when it is needed, and what it’s supposed to accomplish, you really can’t offer a fixed fee.

The client asks about money a lot up front

How to price it: Project

If clients come to you with a dollar amount from the start, or are consistently asking for a “ballpark price”, then hourly is going to be difficult. Giving price-conscious customers itemized receipts often results in them nitpicking the outcome. Since they’re leading with price, they have concerns about overages and what they can afford. Sending them into a project without complete clarity on what will be delivered for a set cost is a recipe for frustration.

The scope of the project changed several times when meeting with the client

How to price it: Hourly

Before you write that project-based proposal, stop and think about how the client is going to handle the scope of work. Indecision and unclear deliverables are clear signs that the client doesn’t know what they want. If you’re unable to get them to compensate you to write a detailed proposal after extensive interviews, then you’re likely to lose money with a project-based price. If you have already committed to providing a fixed fee to the client, you can either decide to walk away from the project or significantly increase your time estimate. You should also take the extra time to write an extremely detailed deliverables section in your contract.

It’s clear you can get it done faster than it should be

How to price it: Project

If you’ve done similar work in the past that you can repurpose, or if you’re providing something simple that makes a huge difference for the client, you should be compensated for your expertise and effort rather than your time. In addition, pricing by project means that if you can get it done faster, your profit is even higher, so you’re motivated to get it done. This is the initial seed for value-based pricing, and a step in the right direction.

You’re doing very complex technology work

Hourly

Project-based pricing can be wrecked by unknowns and technological hurdles. As you do more complex work for clients, it becomes increasingly difficult to estimate how long a project will take. In this case, some agencies with hundreds of employees and millions of dollars in revenue stick to an hourly-only billing policy. That’s perfectly fine. Often their hourly rate is $250 per hour or more, and no employee is making that much money, so the owners are making a profit due to the economy of scale.

While pricing can be path to success, it can also be a path to disaster—which Brad and I discussed in our recent interview on Averting Design Firm Disaster. Listen here.

Buy Creative Truth, Start and Build a Profitable Design Business here and read another excerpt from the book on the Creative Freelancer Blog.

The post Pricing: Project and Hourly, like Peanut Butter and Jelly appeared first on The Marketing Mix.


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