Is Pay Per Hour or Pay Per Task Better for a Freelancer?

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Freelancers continually debate if being paid by the hour or by the task is better. The arguments for being paid by the hour are numerous, including the following:

1. It prevents you from under-bidding a larger than expected project and working for low pay.

2. Ongoing and/or maintenance work can simply be charged by the amount of time put into it.

3. Short jobs that are agreed to “on a handshake” can be easily charged by the number of hours needed to complete them.

Hourly Rate Issues

However, there are the following problems with charging by the hour:

1. You are limited by time.

Time, unlike money, is finite. There are only so many hours in the day. Many of those hours are not billable for a variety of reasons, like you needing to devote some time to sleeping, vacationing, learning, etc. And don’t forget those occasional sick days. As a result, if you bill on an hourly basis, you will not be able to continually grow your income.

Initially, yes, this may occur because you’ll be able to raise your hourly rates. However, once you surpass the financial barrier for your field, what then? At that point, your pay will level out and you won’t be able to keep up with inflation or business expenses.

2. Your earnings decrease with time.

As you become more adept and knowledgeable in your field, you will naturally require less time to perform work tasks. As a result, you will start charging less for these tasks because of your increased proficiency.

However, why should you penalize yourself for being better than you were 10 or even 1 year ago? That would be the equivalent of you paying an expert plumber only $10 for stopping a major water leak in your house in the space of 3 minutes simply because it took only 3 minutes to solve the problem. Doesn’t make sense, does it?

3. Your clients don’t know how much you will cost.

Most clients ask you to tell them your rate because they need a definable number to put into their budgets. With a pay per task structure, it’s very easy for you to provide a finite and definable number for client budgets.

It’s also easy to figure out if a client’s budget can accommodate your services. However, if you charge by the hour, who can predict if your services will take 10 or 20 or even 100 hours to complete? And even if you are charging a relatively low dollar amount per hour, it’s hard to predict what the final cost of retaining your services will really be. There’s also the chance that your client might think you are padding your hours in order to obtain a higher fee.

4. The client views you as a liability, not an asset.

If a client is paying you by the hour, s/he is most likely to view you as a money drain that needs to be be eliminated as fast as possible. This hurts you because you aren’t able to do your best work and/or propose add-on services that increase your value to your client.

Instead of having the luxury of time to propose different service options to your client, you’re now under the clock to finish your work and get out of the contract within the allotted time.

5. You lose out on future earnings.

Sometimes, it’s best to negotiate your pay based on a “sliding scale” of the potential value your services will bring to the client. For example, let’s say you optimize a client’s website so that it generates an additional $50,000 in yearly revenue.

If you charge $60 per hour for 10 hours of work, you’ll make $600. Not a bad sum of cash. However, if you agree to take a 10% cut of the final generated revenue, all of a sudden you’ve increased your earnings to $5,000.

So, how do you start charging by the task without shortchanging yourself, especially on larger than anticipated projects? Likewise, how can you apply task rates to ongoing work or small projects?

1. Track your projects rigorously.

Whenever you take on any project, big or small, track the amount of time, expertise and additional effort (e.g., training) that project requires before it is completed. Take into account all the additional meetings and/or strategy sessions you had to engage in with the client- such work would’ve been compensated by additional hourly pay if you were an employee. Based on this project history, you’ll be better able to understand what kind of value you bring to the client and how much effort your projects, whether big or small, actually require.

2. Find out how much you’re worth as a freelancer.

By creating a budget and figuring out your personal as well as freelance expenses, you can better calculate what you’re worth per project. This will also help you earn a living wage for your efforts and keep you from declaring bankruptcy after a few years of freelancing.

It’s imperative that you realize sooner rather than later how much additional investment and time your freelance career requires because this helps you better explain your task rate to your clients. For example, if you are a freelance programmer and your computer programs require yearly retraining at $3,000+ per class, this is a cost that needs to be compensated for by your clients who benefit from your up-to-date expertise.

3. Compare your task rates with other freelancers.

Other freelancers working in your area of expertise often publish their project rates on their websites or via rate sheets. These resources are very useful, especially if you are performing new tasks and don’t know how much to charge. Consider joining professional organizations like the Freelancers Union to get a feel of task pricing structures. If all else fails, ask others what they charge; most freelancers are pretty open about their rates and will be glad to provide advice. Don’t forget to network; in this line of work, talking with others is critical to your freelance income potential.

3. Target specific clients. A client who runs a “mom-and-pop” shop is probably going to have a lot less money to spend on you than a 30-year-old corporation bringing in $15 million per year in revenue. Learn to recognize high revenue clients using resources such as LinkedIn. I provide a strategy for finding high revenue clients via Linked in my post How I Used LinkedIn to Win 3 Freelance Clients in Just 1 Month.

4. Start with a 30-day contract.

If you’re not sure how to price your services or what the client may eventually want from you, create a 30-day contract to test the feasibility of your project rate short-term. This is especially true with “small” projects that often grow into much bigger ones.

If you find out in a month that the project is going to entail a lot more work, you can generate a second longer contract with a higher project rate. Having a short-term contract also gives you an easy way out if you find that the client won’t raise his/her rates or is a pain to work with.

5. Charge ongoing services with a recurring fee.

Let’s say you set up a website for a client but occasionally need to tweak the content or update the software. Instead of charging that proverbial $10 for 3 minutes of work, generate a monthly maintenance contract for your client with an associated fee. Doing so allows you to be paid according to your skill level and past experience and not the amount of time you actually invest in an ongoing project.

Still not convinced?

If you’re still wavering on whether a task fee schedule is a good idea, I welcome you to read Breaking the Time Barrier by Mike McDerment and Donald Cowper. This free e-book provides several additional arguments about why freelancers need to look at the value they bring to their clients rather than the exact time they spend on projects.

Photo credit by briandeadly

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