It's a hotly debated subject amongst the freelance and contract workforce. And no, we’re not talking about where to get the best take-away flat white. We're talking about how to charge for your time. There are plenty of ways to charge out, but the trick is finding the sweet spot for you and your clients.
If you're freelancing, charging by the hour or contracting, one of the biggest challenges is determining how you put a value on your work. Is it an hourly rate, a retainer, or do you charge by the value of the job? If you're struggling to figure out the smartest way to charge, here's a breakdown of some of the most common options.
Billing by the hour
The good ol' hourly rate is familiar territory for both you and the client. You only charge for the work you do, and by doing this, you are protected from any surprises or blowouts that may appear along the way. It also gives you the freedom to take time off or work on other projects without disadvantaging your client.
From the client’s perspective, it gives them the ability to make changes as the project goes along. Clients tend to shop around by price, so make sure you can demonstrate the value of your service rather than being judged entirely by your hourly rate.
Tip: If you choose to bill by the hour, a time tracking tool will make life a lot easier. Use a time tracking app that can track phone calls, travel, and small snippets of work without intruding on your workflow.
Many freelancers who want to avoid having to itemise each task on the invoice favour charging by the day. Instead, the focus is on the result. Charging by the day will require a fair amount of trust. The client will want to see that you are maximising your time and able to equitably juggle work from other clients.
Tip: While you may not itemise each task on the invoice, it’s still important to track your time for your own analysis.
Like daily billing, weekly billing puts the focus on the complete value the client will receive. For the consultant or freelancer, it becomes much easier to increase your charge out rates if you are billing this way, rather than hourly rates which can be much harder to shift. With weekly billing, you are still billing for your time, but just in much larger increments.
Tip: Make sure you’re ready for when your clients ask you questions like, "What do you do on the weeks when a public holiday falls?" Will you roll your time over or reduce the rate? Make sure you’ve thought this through.
Monthly or Retainer
It’s uncommon to ‘bill by the month’. Instead, monthly billing typically comes in the form of a retainer. In this scenario, your clients pay you a set monthly fee and in return they have access to you whenever they want. Web developers often do this by engaging the client after the initial development project is complete for ongoing support, upgrades, or changes.
Tip: Prepare a report each month to show the client the value you provided them with each month.
Fixed pricing allows you to set a fixed fee for a specific service. This is most commonly seen when businesses provide packages.
Tip: Use time tracking software to help you determine pricing for fixed jobs. This is the best way to get an honest snapshot of how much time it takes to complete a task (rather than basing your pricing on how much you think the client will pay).
Most contractors or freelancers believe that charging by the project (or by value) is the smart way to charge out your time. You determine the perceived value of the service and then bill your client before the work begins. If you're used to billing by the hour, it will take a mind shift to change from delivering time to delivering value. Charging by the project helps avoid any 'invoice shocks' for the client and also gives you the incentive to improve efficiency and innovation.
Many industries are comfortable with this way of billing. Other industries, like accountancy, less so. New technology and tools are making it easy to determine value and thus make the switch.
Tip: Keep track of the hours it has taken to complete each project. This will give you valuable insight when it comes to quoting for the next project.
Tracking your time
Time tracking is the critical aspect of billing for anyone who is freelancing, contracting or a mobile worker. Regardless of how you bill the client, you always want to track your billable and non-billable time to get stats on your success.
One last thing on value…
While you may agonise over how much and how often you charge, the most important task for any freelancer is demonstrating value. Do a good job and the dollars you charge become less important to the client.