What are the pros and cons of charging by the hour versus by the project or value?

1 Hourly rates

Charging by the hour means you multiply the time you spend on a project by a fixed rate. This is a simple and transparent way to bill your clients, especially if you use a reliable timekeeping tool. You can also adjust your rate based on your skills, experience, and demand. However, charging by the hour also has some drawbacks. You may limit your earning potential, as you can only work so many hours in a day. You may also face scope creep, as clients may request changes or additions without paying extra. Additionally, you may have to justify your hours and deal with disputes over time estimates.

2 Project or value-based fees

Charging by the project or value means you set a fixed fee for the entire project or based on the value you deliver to the client. This can be more profitable, as you can charge based on the results and benefits you provide, not just the time you spend. You can also avoid scope creep, as you define the project scope and deliverables upfront and charge extra for any changes. Moreover, you can focus on quality and efficiency, as you don't have to track every minute or hour. However, charging by the project or value also has some challenges. You may underestimate the project complexity or duration and end up working more for less. You may also have to negotiate more with clients who may question your fee or compare it with others.

3 How to choose

Determining whether you should charge by the hour or by the project or value is contingent on a variety of factors, such as the type and scope of your service, the level of certainty and clarity about the project requirements, the market demand and competition for your service, your skills and experience, as well as your personal and financial goals and preferences. You may also opt for a combination of both methods depending on the project or client; for instance, you may charge by the hour for ongoing or variable tasks, and by the project or value for fixed or one-off tasks.

4 Tips and best practices

No matter which method you choose, it’s important to do your research and benchmark your rates against industry standards and competitors. When setting your rates, take into account costs, overheads, taxes, and profit margin. Make sure to be clear and confident about your rates and value proposition, without underselling yourself. It’s also beneficial to use a written contract or proposal that outlines the scope, deliverables, timeline, payment terms, and expectations of both parties. Additionally, using a timekeeping tool to track and report hours if you charge by the hour or measure productivity and efficiency if you charge by the project or value can be helpful. Don’t forget to review and adjust your rates periodically based on performance, feedback, and market conditions.

5 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?