Matthew Griffin has posted “7 Reasons You Shouldn’t Charge by the Hour.” Pelago‘s experiences and struggles over the last eight years have taught us to avoid flat-rate billing like the plague. Here are 7 reasons why you should charge by the hour.
- It’s a long-term, personal investment
Starting and stopping timers is a discipline that takes some practice. Training yourself to track your time effectively gives you and your client invaluable insight into a project, and gives you historical data for estimating future work. Tracking your time also makes you better at managing your time. If you find yourself constantly starting and stopping timers, it is your work habits that are counter-productive, not the timers. Using flat-rate billing to circumvent timers is short-sighted.
- It makes clients trust you
If you’ve managed your time well in the past, you should have a solid idea of how much your client is going to spend. If your flat-rate billing is based on a ballpark figure, than neither you or the client really knows how much it is going to cost. You will lose money on projects.
- It encourages a better balance of work and personal life
This is especially important if you are a freelancer. How do you know when to stop working? If you are getting paid by the hour, you have plenty of incentive to work faster and smarter; it’s called life. If you bill hourly, you can schedule your workload and manage cashflow better. Scheduling flat-rate projects is more complicated, and will have you up late at night racing to meet deadlines
- It lends itself to reliable and predictable website update work
Nobody likes doing updates on ugly sites they didn’t design. Once you’ve launched a web site, it makes sense to implement hourly billing to maintain the site. Web site maintenance is a dependable income stream for any freelancer or business. Getting paid on time is a struggle. Billing hourly for update work is a great way to regulate cashflow.
- It stops feature creep
Unless your flat-rate estimate details every feature to be included, your definition of the project is going to differ from the client’s definition. Flat-rate billing gives you very little contractual backup for saying no to the client. Hourly billing allows you to put a price tag on additional features, encouraging the client to evaluate their requests in financial terms. Often times, their have-to-have features aren’t that crucial at all.
- It enables billing potential
There are ways to handle your billing as you become more efficient. First, raise your rates. Hourly billing is a different mindset in that you are being paid for your time and expertise more than you are the finished product. Clients aren’t hiring you because they need a web site, they are hiring you because they need a web site built by you, someone they trust and enjoy working with. Second, it makes sense that projects will go faster as you reuse your existing code library and become better at design. Include a base fee to compensate for your intellectual investment. At this point you should have a strong client list and a good reputation, both good reasons why clients will be willing to pay the base fee to work with you.
- It stops clients from abusing you
When you use flat-rate billing, clients will take advantage of you. And then only the client is happy, because they are getting everything they want, and you are growing increasingly frustrated with each change. When you charge by the hour, clients can see every little change on the invoice. The grumbling usually stops immediately once they realize each change was at their request.
It is important to realize you are offering a service, not a product, that is difficult to quantify in terms of value. How do you put a price tag on a web site? You can’t, because every web site is different. There is a reason why IT companies, law firms, PR groups, and other professional service companies all charge by the hour. Billing hourly resolves many of the shortcomings created by the over-simplified practice of flat-rate billing. It takes discipline to manage timers, and using a desktop or web-based time tracking service like Intervals is a necessity. But, the rewards of tracking your time and billing hourly are long-term and certainly worth the effort.