The Hourly Rate Debate

| 24-min read

There is a thunderous debate about hourly rates.

Some say yes and some say no.

As usual, there’s no right answer. Hourly rates can sometimes be the best way to price your work for certain clients – especially the difficult ones.

But most freelancers use hourly rates for all the wrong reasons.

So in this preview of just one of the many essential freelance topics we’re covering at HOW Design’s 2nd Annual Creative Freelance Summit, which I am hosting, today’s episode is the beginning of my debate with Jamie Saunders and Karen Larson of Clear Brand Strategy.

We touched on these questions (and much more): 

  1. Why is there a debate about hourly rates?
  2. What are the pros and cons of hourly rates? 
  3. What are the alternatives to hourly rates?
  4. What goes into a project price? 

If you like what you hear, join us on September 14 and 15, 2022 for 2 half days full of money-focused ideas and strategies that will stop the stress and help you build a thriving business on your own terms. Details and registration at HOWdesignlive.com.

    In the meantime, listen here (and below) and scroll down for the transcript.

    If you like what you hear, we’d love it if you write a review, subscribe here and sign up for Quick Tips from Marketing Mentor.

    Read the transcript of The Hourly Rate Debate 

    ilise benun

    Hi there. This is ilise benun, your Marketing Mentor. And this is the podcast for you if, and only if, you are ready to leave the feast or famine syndrome behind, and I mean for good. 

    There's a big debate about hourly rates. Some say yes and some say no. As usual, there's no right answer. Hourly rates can sometimes be the best way to price your work for certain clients, especially the difficult ones, but most freelancers use hourly rates for all the wrong reasons. 

    In this preview of just one of the many essential freelance topics we're covering at HOW Design's 2nd annual Creative Freelance Summit, which I am hosting, today's episode is the beginning of my debate with Jamie Saunders and Karen Larson of Clear Brand Strategy. If you like what you hear, join us on September 14th and 15th, 2022 for two half-days full of money-focused ideas and strategies that will stop the stress and help you build a thriving business on your own terms. Details and registration are at howdesignlive.com, but for now, listen and learn. 

    All right, ladies, welcome to the podcast. Please introduce yourself. Jamie, maybe you go first.

    Jamie Saunders

    Sure. I'm Jamie Saunders. I am a creative partner at Clear Brand Strategy and I'm a former corporate marketer turned freelance marketing communications strategist.

    ilise benun

    Beautiful. And Karen, talk to us about you.

    Karen Larson

    I'm Karen Larson and I have been self-employed for over 30 years now or into my 30th year. I am also a partner at Clear Brand Strategy, along with Jamie. My core is I'm a designer, but being in the business for so long, I'm really, I would say, a design consultant and strategist that focuses on design side of things.

    ilise benun

    Maybe we can just lay out a little bit why the three of us and y’all, you two, are in an excellent position for us to do this Hourly Rate Debate, which is something we're going to do as part of the Creative Freelance Summit in mid-September. I'm really excited about it because there's lots of debate about hourly rates, but Jamie, you come to it both as a marketer and a writer too, right? You do some writing as well?

    Jamie Saunders

    Oh, yes. Mm-hmm. Yeah. That's part of the strategy. Well, that's not part of the strategy, but yes, I'm a writer and I also do the communications strategy. Karen and I partner on many projects, but then we each have our own side things that we work on independently. I do freelance writing outside of our work together.

    ilise benun

    I think the other thing that is especially relevant is your background and your history as a corporate marketer when you were the one buying the services and how that worked in terms of hourly versus project. I will want to get into that, but I think that's important, right?

    Jamie Saunders

    Definitely. Oh, definitely.

    ilise benun

    Then Karen, you come to it as a designer who's been self-employed for, as you're saying, more than 30 years, which is not nothin’. I'm sure there have been lots of painful pricing conversations and situations that we're not going to talk too much about the pain, of course, but I don't know. What would you add to your perspective on hourly rates?

    Karen Larson

    My perspective is that there's hourly, but then there's also project. How do you come to agreement with the customer, it's obviously key. So I think to talk about hourly rate is one thing, but then, for me, I think the conversation is, should you even be talking about hourly rates or should you be talking about per the project and what's best for everyone involved?

    ilise benun

    Why is there a debate about this in the first place? Maybe if we address that question first. What do you all think about why there's a debate?

    Karen Larson

    Well, I have to question, why is that? Why do people get hung up on whether they should be charging hourly? 

    My opinion is that, first of all, I think people are confused. Freelancers are confused about what they should be charging hourly. If they're going to charge it, what all should they include to come to the conclusion of what their rate is? 

    So, there's the breakdown of you have to figure out what your initial salary would be, and then taxes that you're going to have to pay, and your insurance and all your overhead and everything, and ultimately come to what your hourly rate is going to be. But I think that we hate telling clients what our hourly rate is because we don't want to scare them off.

    ilise benun

    Because usually, it's higher than they want it to be.

    Karen Larson

    Yes, because …

    Jamie Saunders

    Absolutely.

    Karen Larson

    Yeah, absolutely. Depending on who the client is, for example, if they are a corporate marketer—which a lot of our clients are—if they're a corporate marketer, they're getting paid a certain amount. If you tell them that your hourly rate is $120 an hour, let's say, they're going to look at you like you're equal to them and why would they want to pay that? 

    Whereas if you just come to an agreement on a project, per project price, that's something they can completely get their head around because most of the time, whether they're corporate or whether they're a direct entrepreneurial client, they have a basic budget in mind. It's a lot easier for them to swallow.

    ilise benun

    Jamie, why do you think there's a debate about hourly rates?

    Jamie Saunders

    I think because it can be super confusing, honestly, when to use hourly rates and when to use project rates. 

    For me, I think there's some tried-and-true things and these are not every reason why, but I think sometimes we come at it from, is it going to be ongoing, ad hoc work? Are these really long-term strategy projects? Is the project unfamiliar? Is the client unfamiliar? 

    For us, I may only be five years into my freelance career, but I have almost 20 years of marketing experience. Before I met Karen and I was new to freelancing, I did sometimes lean on hourly rates because it was easier and the clients I was going after understood that structure. I didn't really have a portfolio to justify big project rates. And I think hourly rates are great for unstructured jobs; jobs that don't have a clear definition.

    Then when you think about project rates, we tend to use them for well-scoped work. So, if you've met with the client, you have a creative brief in hand, you understand that there's a beginning and end to the project, or short projects or web projects, things like that. Then sometimes project rates are actually more appealing to budget-conscious clients because it infers to me some value. Because when someone sees an hourly rate, I don't know, to me sometimes it's harder for them to accept all that goes into the project because you feel like you're on the clock.

    ilise benun

    There's so many different pieces to this puzzle. I'm going to dig into a couple that I heard in what each of you are saying. 

    Jamie, it sounded like you're saying, especially at the beginning when someone is new, and I have a feeling that a lot of the people who attend ... I don't know if you can hear this thunder.

    Jamie Saunders

    Yeah.

     

    ilise benun

    When people are just starting out, that's when it's the trickiest and it's the most confusing and you don't have a lot of experience, and so there's so many different problems with it. But I think one thing I heard in what you said, Jamie ... I think the thunder is kind of an omen of some sort about hourly rates. [Laughter}

    Jamie Saunders

    I think so.

    ilise benun

    Right?

    Jamie Saunders

    Every time you say it, it's like …

    [Laughter]

    ilise benun

    I know. Okay, I'll try again. You said the corporate clients or some of the clients may not be open to the big budget, so if you charge an hourly rate, it's almost like you can hide, I'm not saying this is deliberate necessarily, but you can hide what the ultimate price is going to be in an hourly rate. Because when you quote an hourly rate, if you said $120, that may be a lot or a little to someone depending on how they hear it, but you're not also saying what it adds up to, or how many hours we're talking about, which is my main problem with hourly rates …

    Jamie Saunders

    Exactly, yeah.

    ilise benun

    ... that it's not a price.

    Karen Larson

    It's a very unknown.

    Jamie Saunders

    Exactly. Exactly. It's not a price. It's a weird conversation to have. For me, I went from earning a paycheck every month and having a set salary, and then going into freelancing, you don't have that security and you're creating your own security, so that's one issue right off the bat. 

    Then another thing is I had all this work that I was doing at my corporate job that I can't take in to really justify my personal portfolio, right, so …

    ilise benun

    Because you can't show it, you mean, or you can't talk about it?

    Jamie Saunders

    Yeah. You can talk about it, but it's not like … I was doing that on behalf of the company that I worked for. So, it's just one thing that I did for a very long time, if that makes any sense, in the same industry with the same projects, year after year. 

    In order to get work with different types of clients in different industries, I sometimes would lean on that hourly rate because I needed it to learn how long the different tasks and projects would take that clients would ask for, and then you can use that—the longer you go on, you can decide on what a profitable fixed fee is for that same work.

    ilise benun

    Because now you know how long it takes. Uh-huh.

    Jamie Saunders

    Exactly. Then you can just like, okay, that's where you can start capitalizing on it, a little bit, and adding in buffers, because I think the con of hourly is that you cap your earnings. You can only work so many hours in the day and you're being punished for your efficiency if you work quicker.

    ilise benun

    Exactly. The better you get, the quicker you get, the less you make. How does that make sense?!

    Jamie Saunders

    Exactly.

    Karen Larson

    Exactly.

    Jamie Saunders

    Not cool.

    Karen Larson

    Exactly. But I will say that I do have a couple of clients that I work hourly for and they are supporting … they’re clients that are other design studios, or they’re other marketing firms that I have had very long term relationships with. I do that work partially because I'm a little bit loyal to them because they've gotten me through different hard times with the recessions over the years and things like that. And that I don't mind, because I feel like they've done me a favor; I've done them a favor. So hourly rate does work sometimes and it does get you through the hard times.

    ilise benun

    When? Let's talk about when it works.

    Karen Larson

    I think with certain relationships, it works. First of all, there has to be a lot of trust on both sides to know that ... you know, I might go in with a lower hourly rate for those clients, but yet I know I'm going to get 20 hours of work out of a specific type of a project. I think there's enough trust on my side to know that it's going to be worth my while, but there's also got to be trust on their side to say, "Yeah, do this project and we know you're not going to take advantage of us." So, there's a little bit of a balance.

    But I definitely, for corporate clients and direct clients, I never use an hourly rate, ever. I might base, or Jamie and I, we base projects starting with an hourly rate. We think, okay, about how many hours is it going to take? And you look at what your hourly rates are and you start there, and then you add on all of the different project management that's going to come into play.

    Jamie and I joke. There's a term that I've used for a long time, a PITA client. They're a Pain In The Ass client and there might be a charge added on for that or a grief charge. So there's those type of things that you can't work into an hourly-rate situation. 

    But I do have a couple of clients that I do use hourly rates for and there's also another one, and we call this guy the Random Request Man. He's a current client of ours and you never know quite what you're going to do for him because he's always like, "Okay, I need this now. I need this now." And he honestly does not really care about what it's going to cost. He knows we're not going to take advantage of him. Again, there's that trust factor.

    Jamie Saunders

    Mm-hmm. With trust.

    Karen Larson

    We also charge hourly, just because there are a lot of random requests. It's really not a per project situation.

    ilise benun

    I think maybe the overall theme about hourly rates is that when there are lots of unknowns because it's a random request, or because it's a project where you just don't know all the specs yet until you get into it, or until you spend some time on it—and I think that's where people really struggle because, to me, this is related to the idea of speaking up and speaking for yourself and renegotiating if necessary. I also think that actually, doing hourly rates, pricing hourly, you must be an excellent communicator.

    Jamie Saunders

    Absolutely.

    ilise benun

    Because it requires communication about how it's going and how long things are taking. Oh, this is taking longer than we thought, or here's how much time we've used so far, or anything like that. You don't want to surprise someone with an invoice that says 300 hours at $120 because you just didn't tell them how many hours.

    Karen Larson

    Absolutely.

    Jamie Saunders

    Exactly.

    Karen Larson

    One of the things that I find with hourly is there are those random request people. That's something that you still keep in the back of your mind what the true value is of that job. So, if you know that let's say it's a $1,200 job in the scheme of things, and you spend eight hours on it or something, you know you're in range. But if you start spending 20 or 30 hours on it, you know deep in your gut that you are blowing the budget on this job and the client's not going to be happy. So just like …

    Jamie Saunders

    Exactly.

    Karen Larson

    … Ilise, you have to be a really good communicator. One of the things I always say is that no matter where you are in your career, you have to act as a consultant rather than a task doer, because if you can guide and manage the situation, you're going to maintain a really good solid relationship and build trust, rather than just sitting back and being a doer and thinking they're going to actually pay you for all the hours you've put into something that it's you when you've blown the budget.

    Jamie Saunders

    Yeah, and I think it's okay to push back, too, on the client and ask why. When they're asking for something that seems like it could get out of hand, you just know in your gut. When somebody's asking you something that doesn't really fall in line with their other work that you've done for them or other strategic thinking they've expressed to you in former prior meetings, it's okay to ask questions. “Why are you doing that? What purpose does that serve?” Karen and I are always thinking about our customer’s clients. Does it make sense from your customer’s perspective or are you just asking for this because you feel like you need to have it? If you can get that information, it can lead you towards a decision about how long that's going to take.

    ilise benun

    I think that often, again, when people are just starting out or young in their freelance business, they assume the client knows what they're talking about and what they need, and you soon learn that they really don't. They're …

    Jamie Saunders

    No.

    ilise benun

    ... winging it. My favorite situation is when a client says, "Here's a small project. It's not going to take you long. What's your hourly rate?"

    Karen Larson

    Right.

    ilise benun

    Right?

    Jamie Saunders

    Oh, boy. Yeah. “This will only take a minute.”

    ilise benun

    Right. I always feel like, how do you know? How could you possibly know? What is that? 

    I guess my connection was when you said, “You can push back and ask questions” and you can also say, if they say it's only going to take a little while, "Tell me your thought process behind that. How are you thinking about that?"

    Karen Larson

    Yeah.

    Jamie Saunders

    Right. And as yourself, in the back of your mind, as Karen alluded to before, you need to be thinking: Okay, well, yes, that does sound simple, but what goes into it is the project management, the time for meetings, research, discovery, any of the stuff that you take for ... When I was sitting in the corporate chair, I got paid for that time. Right? Phone calls, all of that extra stuff, I got paid for that. But now it's like, who's paying me for that? Somehow you have to recoup that effort and it all does matter, so you got to keep that in the back of your mind.

    ilise benun

    And you see that when the client says, "This won't take you long," they're not thinking about the project management and the meetings …

    Jamie Saunders

    Absolutely.

    ilise benun

    ... and the email and all that goes into it, unless you tell them, "This is my process. This is what you're paying for."

    Jamie Saunders

    Mm-hmm. So setting it up and onboarding is important.

    Karen Larson

    Yeah. As soon as they say something like that, “This won't take you long,” red flags go up for me.

    Jamie Saunders

    Yeah. Totally.

    Karen Larson

    And that's also when you have to start asking yourself whether that person is worth it. But, I have a client that I work with that she does tend to do that. What I always try to do … I avoid the hour ...  She's not an hourly rate client to begin with, but I usually say, "Well, this is what it's going to cost." Boom, and I give them a flat fee. 

    Because there's also a lot of freedom with working with flat fees, because you can either do it as fast as you want, or if it's something you want to put more time into, you have the choice as the designer to put more time into it, or the writer, and tweak it more, and you know what you're going to get paid. There's no surprises on either side and you can't do that when you're working hourly.

    Jamie Saunders

    Yeah, you get rewarded for efficiency, I think. To me, it's getting paid for the creation itself, not the hours that you had to track to get it done.

    Karen Larson

    Or you end up working for free for a while because basically they say, "You have 10 hours to do this job," and what if it takes ... because I have had some people tell me that. Again, there's a fixed price when you're doing that.

    ilise benun

    That is a fixed price. That's not an hourly rate.

    Karen Larson

    No, that's not an hourly rate, exactly. It's like, “Well, I'll try to do it in that amount of time.” That's usually my comment.

    Jamie Saunders

    But then you feel like you're locked in that weird defensive position, right?

    Karen Larson

    Exactly. You just want to give them a finished project back.

    Jamie Saunders

    Yeah. So, then they come to you with extra requests. Because here's what happens always is you have that ideation session and you think you got the project going, but then when you start doing the work, you get more ideas that come, or the client, as you start turning in drafts, gets more ideas. And you feel like you have to say “no” to those—which those ideas could actually help improve the end project, but you're like, “This is the time you gave me to do it, so we either need to raise the budget or discuss a new way of going about it, because unfortunately, you kind of fenced me in.”

    Karen Larson

    When you're dealing with an hourly rate, they are in control. They are the ones that are laying out the project. They're really the ones watching your time and all of that. But when you're dealing with a per project, it's much more of a partnership and you can manage the project a little bit better. And that's always a better situation for the creative.

    ilise benun

    Interesting. All right. I think we should probably put the bookmark there because we have a lot more we can talk about including pros and cons. We've touched on them a little bit, but we're going to outline at the Creative Freelance Summit the pros and cons of hourly rates and what these alternatives are, as you just alluded to, Karen.

    Karen Larson

    Yeah, absolutely.

    ilise benun

    What are the other options? Because I think there's more than just project rates, also, and just so many ways to think about pricing. People get locked into, “No, this is how it has to be” because that's what the client wants or that's what the client asked me.

    I'll just actually wrap up with this one thing that I always think about, which is that you don't have to accept the premise of the question. So if the client says, "What's your hourly rate?," you don't have to give it to them. You can say, "I'm sorry, I don't work that way."

    Jamie Saunders

    Mm-hmm.

    Karen Larson

    100%. Absolutely.

    ilise benun

    Right?

    Karen Larson

    I've had more clients than not appreciate that.

    ilise benun

    Mm-hmm, yeah. Definitely. You get to decide. That's the whole point of the Freelance Summit. As you also said, putting yourself in control or not letting the client take control and making it a collaboration, you get to decide how you run your business. If you want to do it hourly, that's great, and I know people who do and other people who don't for all the right reasons and that's your decision.

    Jamie Saunders

    Amen.

    ilise benun

    All right. Well, we've got plenty to talk about, but before we say goodbye, tell the people, as I like to say, where they can find y’all online.

    Jamie Saunders

    I'm on Twitter, LinkedIn. Those are my two major conversational channels. The rest of it I use for personal. Then we can find our work at clearbrandstrategy.com.

    ilise benun

    Excellent. How about you, Karen?

    Karen Larson

    I am on LinkedIn. I'm all over Instagram and different places because I do art and design. You could also find me at Clear Brand Strategy and also LMStudio.com, which is my other business that I've had since before working with Jamie.

    ilise benun

    All right, you got a lot going on there, Karen.

    Karen Larson

    A lot going on. It's great.

    ilise benun

    Excellent, ladies. Well, I can't wait to continue this conversation for The Hourly Rate Debate at the Creative Freelance Summit. I will see y’all then.

    Karen Larson

    Great. We look forward to it.

    Jamie Saunders

    Can't wait.

    ilise benun

    Thank you.

    Jamie Saunders

    Thank you.

    ilise benun

    Lots to debate on this topic and that was just the tip of the iceberg. There are so many pieces to the puzzle of pricing your freelance work. We'll dig deeper and cover even more and you'll get a chance to ask your burning questions, too, at HOW Design's second annual Creative Freelance Summit. I hope you'll join us on September 14th and 15th, 2022 for two half-days full of money-focused ideas and strategies that will stop the stress and help you build a thriving business on your own terms. 

    We also have, and I'll tell you who else is speaking and on what topics, we have “How to Think Like a Breadwinner” with Jennifer Barrett and “The Secret to a Winning Proposal” with Mary Maru and Rebekah Mays. We have Ed Gandia talking about “Cash Flow Management for Freelancers: How to Thrive Financially in a Variable Income Business.” “Money as a Boundary” with Maura Walters, and as I mentioned, “The Hourly Rate Debate” with me and Karen and Jamie.

    These are all the topics freelancers—newbies, as well as veterans—struggle with. I know. So come and get some answers. Just go to howdesignlive.com. I hope to see you on September 14th and 15th, just two half-days. See you there.

     

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