How to Price Web Design Projects Effectively – Hourly vs. Project Pricing
Do you know your internal base rate?
Your burden rate is the lowest amount you can earn per hour of billable time without losing money. It does not include any profit… just expenses. But it is the absolute lowest you can go when billing a client before you’re in big trouble.
Now, let’s talk about profit. Profit is the amount of money you want to earn per month after all of the bills are paid. This is the money you pay yourself or put away for later investment into your business.
The difference between your burden rate and your internal hourly rate is profit.
Calculate your internal hourly rate using a similar formula – one that combines monthly expenses and monthly desired profit and divides the total by productive hours you work each month.
The case for hourly pricing
The lovely thing about hourly pricing is the simplicity. We all understand how it works… you bill $X for each hour of work you do for a client.
You can sell the client prepaid time blocks (10 hours @$X/hr, etc.) or you can simply provide the work and send periodic invoices. You can even create some kind of retainer system in which the client pays you a set amount each month in exchange for X amount of your time.
As a creative entrepreneur, you don’t have to worry about estimating time when billing on an hourly scheme. You also don’t have to struggle with scope expansion or holding a client accountable to the initial project plan. You simply do the work and get paid for it.
Of course, there are drawbacks to hourly pricing as well. The big ones include talking about your hourly rate with clients, scheduling issues, and client estimate requests. Let’s look at each of these…
Discussing your hourly rates can cause problems with clients due to the perceived value of money. Quoting an hourly rate to a client opens the door to a discussion of value that can get petty.
I’ve found that most clients have an opinion about what I “should” charge for my work, and it often isn’t exactly the same as mine. Instead, it is often based on what they pay in-house creative employees or what they earn themselves. This can create an awkward situation… especially when you quote an hourly rate that is significantly higher than what the client makes in his role.
Scheduling issues arise with hourly clients. When you book a big project, you typically block out time in your calendar to do the work. This is pretty straightforward, but something surprising happens in an hourly scheme. The client often comes to believe you are available quickly for their additional requests. After all, they pay you for your time… they ought to be able to use it when they like.
Time estimates can be difficult to navigate when you’re billing hourly. It’s natural for a client to ask how long something will take to complete. In an hourly pricing scheme, however, this estimate is tied to a monetary value. If you casually answer 2-3 hours and then discover the work takes 4 or more, the client may respond with a concern. Your time estimate became a promise in their minds, and they expect your billing statement to keep that promise.
The case for project pricing
- Allows clients to budget properly because they are aware of the total cost in advance.
- Allows you to systematize your work (becoming more efficient) while protecting the amount you charge per project.
- Removes time from the conversation, allowing both you and your client the freedom to explore options and be creative inside the set scope.
Project pricing is often the most profitable option for creative work. However, there are a few concerns associated with it. Problems arise when you (a) fail to consider how long something will take, (b) estimate time incorrectly, or (c ) allow scope to expand without charging for it.
When you fail to consider how long something will take you give up control of your own profitability. It feels safe and easy to simply charge what others are charging for similar work, but this is a big mistake. When we arbitrarily set a dollar amount without calculating the time required to do the work, we nearly always lose money.
Incorrect time estimates are equally problematic. You quote the project price based on a time estimate that seems accurate. But, then you discover that the project requires much more time than you thought. Oops! Not much you can do to correct an issue like this… unless your client is surprisingly gracious.
Scope expansion happens inside creative projects. The issue comes when you fail to charge for them. Clients ask for “just one more thing” often. Your profitability depends on your ability to respond with a quote for additional fees.
How should you price? You decide based on the situation
Michelle Hunter is the founder of Michelle Hunter Creative. She provides custom marketing strategy to web designers and white label copywriting services to their clients. Elevate your Brand. Become a Strategic Partner.