With freelancing gaining traction and the gig economy growing, so many workers are wondering: How do I maximize my value and earn what I’m worth? More specifically, what are the pros and cons of charging by the project or billing hourly?
Today, there are around 57 million freelance workers in the U.S., and roughly one-third of the nation’s workforce has performed freelance work at some point or another.
The gig economy is growing — so much so that it could even have the potential to overtake more traditional forms of work. And while this model has a number of benefits, such as flexibility, it is still a complex process. One dilemma many contract workers face is that of tracking hours. Given how many projects freelancers juggle at a given point, how can they manage their time and bill accordingly?
That’s the big debate: should you charge by the hour or by the project? Let’s take a look at each of the two options.
The case for charging by the project
Billing by the project means that you will charge a flat rate for a given amount of work — until the project is finished.
In many ways, this model is beneficial to both the client and the worker. Freelancers are more inclined to work efficiently to complete the project, turning it around more quickly than they might otherwise. If you bill by the hour, you might be less inclined to perform optimal time management, since this model would effectively penalize you for your ability to finish the project speedily. This is especially true for seasoned workers, who are well-versed in how to perform their work.
This also means there will be fewer surprises down the line. The price of the project won’t keep jumping as you accrue more hours, and you will be better equipped to manage the scope, given the agreement you outline upfront.
A bill-by-the-project model also prevents you from having to engage in tedious, real-time tracking. For full-time freelancers who are engaging in time tracking, routinely having to enter hours they’ve worked into a system or time tracker can become a job in and of itself. Employee time tracking, too, is an often-complicated process for businesses, particularly if you use many hourly workers and freelancers.
Moreover, it’s also easier for both the freelancer and the employer to predict the value and ROI of the project. Both of you understand upfront the cost involved and the product or service you should expect to have in the end, no matter how many hours it takes to complete.
For industries that require creative work and innovation, a bill-by-the-hour model doesn’t lend itself to accounting for the entirety of the work involved. Freelancers in, say, advertising and marketing can’t bill for the hours they spend thinking and dreaming up new ideas. That’s why, in cases like this, a by-the-project structure is usually a better system.
Today, by-the-project billing is gaining traction as a more accepted means of charging for your work.
The case for charging by the hour
In some industries, billing by the hour is more common and traditional. It’s also one many businesses and professionals understand better. In this scenario, the freelancer establishes how much money they will charge for each given hour they work — called an hourly rate — and they will invoice the client for the cumulative sum of hours worked multiplied by that hourly rate.
It’s very easy to understand this model given how transparent it is. One advantage of this structure is that there is less likelihood of scope creep.
Scope creep occurs when the client changes the objectives and requirements over the course of the project. When a client repeatedly asks for changes and revises expectations, this piles on the work for the freelancer. In a pay-by-the-project model, the freelancer has no means of being compensated for the additional work — the price is established up front. But with an hourly model, they will receive payment for each hour they devote to the project.
That’s one reason why businesses are more reluctant to change requirements during the project, which saves time and frustration for the freelancer, too.
This is also the model that lends itself more readily to time-tracking software and systems since the worker need only enter specific hours or time periods worked. If the employer and the freelancer have solid invoicing and project management software in place, much of the billing legwork can take place automatically.
Either way…
In either case, whether you decide to charge by the hour or by the project, you should understand your own value as a worker.
Determining your pay rates is a complex process. It depends on numerous factors, such as the going rates in your industry, your level of experience, and the client’s budget. You will also want to account for the resources and tools you will need to complete the job.
You will most likely find that different projects demand different pay structures — hourly or project rates. Both employers and freelancers tend to have preferences regarding compensation rates, but there are often situations that will ask for flexibility and negotiation.
No matter which route you take, you will need to have strong organizational and time management skills on your side. And let’s face it — they don’t come quite so naturally to everyone. Fortunately, there are plenty of tools that can help you navigate the billing and time-tracking process.
Project management software, for example, has built-in capabilities for breaking down projects into manageable components and keeping track of your various initiatives and invoices. That way, you’ll be able to stay on top of all your tasks and responsibilities in one place — and make sure every dollar you earn ends up in your hands.
