1. Technology

Flat-Rate vs. Hourly Billing

How to Choose How You Charge Your Clients

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Deciding what you're going to charge your customers is a constant battle for most people. You don't want to charge too much and be seen as gouging but you also don't want to charge so little that you're not covering your expenses (Forget shoes, baby needs to eat!). But the reality is, there is no way for me or anyone else to tell you what a good pricing scheme is. A price that is fair for me and my customers might be outrageously expensive for your clients or way under-priced for another person.

So, How Do you Decide What to Charge?

In a previous article, I suggested that a good way to determine a pricing structure is to set a flat rate for a pre-defined set of services. When you do this, you can post your rates and make your pricing very clear to your customers. But flat-rate billing can cause problems for your business. And once you get more continuing customers, it's harder to keep the flat-rate structure, and that's when many designers move to an hourly rate.

Pros and Cons of Flat-Rate Billing

Flat-rate billing is very clear. In Web design it is usually a rate based on a per-page basis. Some designers offer a website package, where they will build a website with a pre-determined number of pages for a specific price. Most customers like flat-rate billing because they believe there won't be any hidden fees - they will get exactly what they asked for, no more and no less.

But, as you build more sites, you'll learn that some sites and some clients can be more difficult than others. And the more difficult a project is, the bigger the chance is that you'll spend more time on it than you can afford. Here are two examples:

Too much stuff You might have a flat-rate based on a set number of pages. But what if your client agrees to that flat rate and says he wants 3Gig of data crammed into those 5 pages? Sure, that'd be bad for his customers, but if you can't convince him of that, you'll be stuck building a 5 page site that should really be 500 pages (or more). Even if you define in your contract how many images you will create for your site and how much content is allowed on the site, in a bad situation you can end up with more content than you have allocated resources for. And because you've got a flat-rate you have to just build the site and be done with it.

Too many cooks This is way more common, especially with inexpensive design jobs. The client wants to have a lot of say in the design process. Perhaps even demanding daily conferences to discuss progress. If you're building with a flat-rate all of those conferences are essentially unpaid. You can write into the contract that a 5-page site gets 3 conferences (for instance), but it's not good policy to ignore your phone every time you see your client calling and phone calls can eat up work hours just as quickly as meetings.

How to Fix Flat-Rate Billing

The only way to fix flat-rate billing is to increase your rate. As you get better and more in-demand you can charge higher prices to offset the problems that come with flat-rate pricing. The problem is, as you raise your rates, your prices will become more and more unreasonable to the smaller companies that you originally started out with. At that point, you have two choices:

  • Lower your prices back to original rates (possibly just for smaller customers - like a sliding scale)
  • Switch to hourly rates

Next Page: Pros and Cons of Hourly Rate Billing

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