Hourly vs. Project Rate
So you've come up with your rate, right? We've done that, everyone comfortable with their rate?
I've had, with my newer experience with freelancing, I've had it where I've might be meeting with a client who works for not-for-profit versus another company who has what I think is a bigger budget. And so like, the nonprofit, I feel uncomfortable being like, here's my hourly rate and so I'll undersell myself a little bit whereas the company that I know has a bigger budget, I'm more comfortable upselling my rate. And is that bad practice to sort of give different rates?
When we talk about the hourly, it's not a bad practice if you have multiple clients, I'm gonna actually give that as an example. But I will say this to you, when you meet with these people are you getting clear indications from the not-for-profit, listen we don't have a lot of money? Or from the company that's a little bit bigger, hey listen we have a ton of money? Like how are you determining that? That's your own feeli...
ng, right? They're both businesses. They're both hiring and they want quality work. So what you're essentially saying to them is, I am paying attention because if they did it in the opposite and you were a new freelancer, both of those companies would say you're new in the business, we should pay you double 'cause we want you to succeed. Are they considering that for you?
I don't know.
Ask them, no don't ask them. But you wanna take that into consideration. If you start to question your rate with everyone, then you haven't truly tested because you're giving the number you think is right rather than the work you've done and to test. This happens a lot. I like this example, so if I have a bruise or something, I go on WebMD and I read a response from someone and I'm like, oh it's horrible, I'm in big trouble! If I do this same thing for negotiating, we're gonna talk about negotiating today, if I type in things like how do you negotiate for a salary and hourly rate and then you'll have three or four examples which is like, the client slammed their door and told me never to talk to me again and all that stuff. It's not gonna happen. Clients will literally say great, thanks for the rate. Listen, we can only afford this much but we want you and so you can negotiate then. But you're actually giving them a number before you've negotiated. So I would say wait on that. I would say come up with your rate and test it for everyone. Alright, and that includes the cousin who goes, hey I know you're in business now, can you do my business card? You're gonna get a lot of those and what happens is you end up doing all of your cousin's business cards. They're really hard clients 'cause they know you and they're like, could you just make it a little bit less orange? Can you do this, can you do that? And they're not paying you very well. So start to find your value before you start to determine what the client's value is. And we'll talk about that in just a minute. So hourly, day, or project? Here's the thing, I'm gonna tell you it doesn't matter. Most people who start out start out with an hourly rate, 'cause we have this idea. I'm new, I have to, I'm figuring it out, right? It's also easy to manage. So here's when you would probably do an hourly rate. If the timelines or goals are not very clear. If the client's like, I don't know when we're gonna have this work to you to do this work to do that. Or I don't even know what we need done yet. So they're like yeah, let's just get started. An hourly rate is great because every time you're working with them you're charging them. So I love that. Another thing is when you know the project is gonna take two times longer than anticipated simply because you're new. This is one of my first projects, I think I'm gonna charge with hourly 'cause it's probably gonna take me a little bit longer. So at the end when I say hey here's your stuff, it's amazing but it took me this long, you know you've covered for that. So that's another great way to do an hourly rate, right? Or if it's an ongoing project. So maybe you're coming in to work on it now and then in a month you're coming in to do it again. And then in a month you're coming in to do it again. So it's a long term project. I like the hourly model because then you can track every time you're working with that client. 'Cause you might have multiple clients. So that's one way for you to go ahead and do that. That's your hourly rate, right? When you're talking about different hourly rates, that's based on your testing rather than saying like hey, you're a smaller client let me find out. Because what if that smaller client actually allocated a larger budget than the larger company? 'Cause a larger company might be like eh, this problem isn't as valuable to us as the smaller client. So that's why I would test your real hourly rate. This is a day rate. So this is pretty common based on a lot of industries. So if you're in film, if you're a video editor, or if you're a photographer, a day rate is something that could be industry standard. So you've gotta come up with a day rate. Why is that? Well because if someone says to me, come and work for us for a day, and especially if it's like in film or something like that, I might be standing around all day and doing no work. But I gotta lug all my equipment. So I'm giving you a rate because I'm probably turning down other jobs. So I give you a day rate to cover myself. The value to the client is it's not an eight hour day. Your day rate is one hour or 15 hours. So when you come up with that rate, be aware of that. And also, if the work is not guaranteed long term. I like to, and when I started out, someone would say yeah we don't know you, and I'd say great, hire me for a day at this rate. Let me know what you think, hire me for a week at this rate. And so it was a way to show value, so that's a day rate. Here's your project. And this goes back a little bit to you. So if I have multiple clients, which I do, and I have different rates, right? And it's not because I gave them a different rate, it's because I gave them my rate and they negotiated with me and they said listen, this is my budget, this is what I can do. And when you come up with your rate it's okay to ask your client, what is your budget? Most of them will say this is our budget. When you start to develop relationships with them and they come back, like I've worked on projects where they're like, here's a new thing. One of the things my company did was we used to all the work after huge renovations in buildings. So I would be sub-contracted by somebody and I would be like, what's your budget for this project? And they would tell me. And I could decide whether or not I wanted to do that job or look for other ones. So it's one of the things that you can do. Ask them for their budget. So in a project, the thing I wanna do for my rate is say like, okay this person is at this rate, this person is at this rate, this person is at this rate. What gets tricky then is every time I work on one of their projects I have to start writing down how many hours I worked on and if you are really good at spreadsheets it's great. But that's why I love the project rate. 'Cause if I've estimated my time accurately, I can say hey when I deliver this to you, it's this much. When I deliver this to you, it's that much. I also love that because it gives me that sense of urgency, right? If I'm on an hourly rate and I haven't necessarily estimated, I'll say it's about 20 hours but I can charge you for 30 if I need to, I'm probably gonna sit on that project a little bit longer. Not because I'm trying to earn a ton more cash but because I have no sense of urgency. I'm like eh, they're charging by the hour. Let me see what's on TV. Then I'll go back to that, right? And I wanna get that job out because that job is my reputation and when I get that job out, that client goes, you're amazing. Got it done earlier than expected, I'm gonna refer you to my friend over here. If I go back to hourly rate, the one thing about hourly that's tough is if I start charging only hourly, and I'm new to the business and I charge lower, what happens is that not-for-profit says she's amazing and tells everyone they know. And they all call you up and go hey, we'd love to hire you, we know your rate already. 'Cause they've already said she's great and this is her rate down here when really it's somewhere up here. So that's why I really like coming up with a rate that's my rate not the company's. So on a project right, a couple other things that you have is you get to maximize your productivity which we talked about. But it's also the easiest way to test your raises. 'Cause if I'm on a project rate, I get to be like this. Hey, here's my project. I know it might take me 10 hours. But I'm gonna charge you based on my hourly rate for maybe 20 'cause there's value in that. And we'll talk about that in just a second. So a project rate is really nice for me. It also includes everything in the process for the client. Is there another alternative? There's always other alternatives, it's a huge market. So there's also this idea of hybrid. When would I use a hybrid rate? I like to use it to create boundaries with clients. 'Cause if you start with a client and they're expecting something, they're expecting something more. And that's sort of how we live, right? So I will say to them, and we're not covering contracts today simply because it's just about getting out there and testing, right? I'm gonna bill you for a project and say when I deliver this with this many revisions, that's my project rate. If you have additional work that you want done, more revisions, more changes, this is my hourly rate to do them. So that I cover myself so I don't feel like ugh this never-ending project, they keep coming back to me. I love it, keep coming back to me. Here's my bill for the extra work you had me do. So it's a really nice way. The other reason why I like this hybrid is if the scope of work changes. 'Cause a lot of times that will happen when you're working with someone. They'll be like, now that we see what you do and how amazing it is, can we do this instead? Or this more? And then you wanna be able to say absolutely, based on how we discussed it, I'm gonna take the project rate but the additions in the scope of work go at this rate. And then you just track those hours. So it's really nice to be able to do. The last way that I think is really helpful is value based. Has anyone heard of value based before? So value based is this idea that I'm associating my price with my deliverables. And here's a great example. Let's say I'm a photographer and you come to me and say I need six photos retouched. And I go no problem, my rate is $300 an hour. How does that feel? That's a lot of dough, right? Like, $300 an hour, are you crazy? Maybe not. But if I say to you no problem, I'll retouch those photos, the project is $300. And I know it's only gonna take me an hour to retouch those six photos. It's the same number but what happens is I'm basing that number on the value of what I do. And it doesn't sound like this incredibly elevated, gigantic number, right? So what you can do, and this happens a lot as you get experience, and you go this is what I offer, this is how I do it. And this is how I know how long it takes me to actually do this project. What happens then is I can start to break down my tasks into deliverables. So if you want this done it costs this much. 'Cause that's the problem for the client, right? They need this thing solved. And then I get to price each deliverable. And then as I get better at what I do, I know how long it takes me for those deliverables. So I value base what I do. And it's a much easier way for me to price my work. 'Cause then a client comes to me and says what's your rate? And when we go back to that question, I get to say hey, here's what it is but I need to know what you need done first. So it's a really nice way for you to build your business where you're not basing it on a dollar amount, which a lot of times people get nervous about. Wait, your hourly is how much? 'Cause they haven't hired a freelancer before. And in their head they're thinking, I don't make that much an hour. Or wow, how long is it gonna take you to do this? So if you value base it, it's a much easier way to describe what you do well and put a number on the actual deliverable, which I love.
This first one comes from Andrea and she wants to know, and maybe this is tied into the value based, but she poses it as creating package prices when you're presenting this. And maybe it's a website design and a logo design packaged together. Is this something that you would recommend for people to do and does this come in when you're talking about value based?
That's exactly right, so when we looked at competitive analysis and we talked about this idea of what's the competition doing or what do I wanna do? What's my strategy to get more clients? You might do a package. Just be careful that you're not packaging all these things in where all of a sudden they're like, well what's the value? And you do 27 things but I only want two. So you have to start to look at it and say okay, here is what my actual package is. And if I break it down into deliverables in terms of if you want your website done with visual design, with this or whatever. If you give them that rate, you will actually start to have clients look at it as a number rather than just this idea of I need everything done and if you tell me an hourly it's gonna seem like this gigantic, crazy number, right? So I think it's a great question, yeah. Did you have one more question?
Yeah, a quick follow-up from Carlos. And I know this is gonna vary depending on the project, but Carlos wants to know how many services would you say is the right amount for clients to feel comfortable? Do you ever wanna not overwhelm them with too many services?
Yeah yeah yeah, well you know, Carlos in the internet, I would say this. You have to look at the market and find out what people want, right? So if you're saying I'm using it as a value based, I'm adding additional services to get more money or to get more clients, you have to see what it is. 'Cause some of your clients will say I don't need that, I don't need that. But if you have that extra stuff, like I do a bunch of stuff but not everybody wants what I do. So I like to, I can't say there's an absolute number, but I like to focus on, in the customer analysis, what actually do they want? And what can I actually add in if they don't understand that they need this, right? So you have to think about it in those terms. I'll give you a great example. When I was working with my company, we did a lot of maintenance in these high rise buildings. But what I noticed in Manhattan was most people don't own tools. You would be surprised with how many people I was like, you don't have a screwdriver? So one of the additional services I did was when everything was done and it was move-in ready, we offered a service where we would hang all of your photographs and all your pictures and paintings in there, right? Because we would level them, we would hang them securely. And we knew exactly what the actual height is you're supposed to hang them at. And every client would be like, I know but I want it this high or I want it this low or whatever. But we would do that service. So as I built up my business, I started to find other areas and I would offer it but I wouldn't necessarily package it because some people didn't want it. I would say here's an additional service we offer to show value rather than saying you have to do it as this package. But when you talk about web design, there are certain things that you gotta have done, right? Especially if you have a certain site. You want the front end, you want the back end, you want this done, you want that done. So you can package it in that way.