I am curious. Do all contractors do hourly billing or do some work on weekly or monthly rates or just per project rates? Hourly billing seems hard for contracting.
How do you bill on a project basis? Half the people say that billing anything other than hourly is nuts, and the other group says anything other than fixed price is nuts.
Traditionally when I've freelanced in the past I've billed hourly (varying rates, depending on what the client will bear) but I've read some convincing stuff that billing that way in essence punishes productivity. If you figure out how to do things faster, you just end up costing yourself money, so why bother? I've done agreed per-project rates as well and I think they're both more lucrative and better for your sanity.
This depends on the types of projects. If you are doing a project where you have decent control and scope, project billing is ideal for both client and contractor. Unfortunately many projects I work are huge and shift constantly due to other factors, people, and organizations out of my control. So going to hourly on these puts the responsibility on those managing the project.
I always try to avoid hourly billing. At a minimum I try to bill per day or week, but my preferred is billing by job. I estimate how many hours something will take and then price it accordingly.
Usually clients are happier to have that because they know the cost up front, and I am happier because I don't have to track hours.
The most important part of billing by project is that requirements are rock solid before you start (and the hours you spend on that should be rolled up into the total project cost after you make the requirements). And make sure your contract specifies what happens when there is scope creep (new contract? daily rate for changes?).
And lastly make sure your contract has milestone payments if it's a long contract. You don't want to work for four months and then have to wait to get paid or argue about completion. Have a milestone that might hit every month or so and get 20% of the payment, so there is a larger bulk payment at the end for completion but also some payments on the way.
Does that get any pushback? My impression was that big companies especially are set up to pay contractors either by the hour or per-project, and don't really like alternative arrangements. The (admittedly few) people I know who try to bill by the day or week still convert it to an hourly rate for invoicing; they might verbally agree with the client on something taking "one week", but they submit an invoice for 40 hours to the client's payroll department, because those are the kinds of invoices they know how to pay.
awesome feedback. thanks a lot. I don't disagree about project vs hourly billing either, but it's such a routine debate and sadly very common that clients _want_ hourly. In the last few contracts I've had, I've only been lucky to have 1 go project based.
I tend to bill on a daily basis. I will present my clients with my hourly rate and then explain to them that I bill per day instead. My daily rate is slightly slower than 8 times my hourly rate. The reason I do this is to prevent nitpicking on time sheets etc and to be accountable for every single hour of the day. The last thing I want to do is have a clock sitting next to me measuring my every single move. Some days I do some overtime (1 maybe to 2 hours max) and other days I find myself working slightly less. In the end it all works out fine. The estimates that I give my clients are based on days, not hours. If they want me to do a 4 hour job, cool, I still charge them for the entire day. Most clients are cool with that. Since most projects I do tend to have time-frames that go into weeks it's much easier that way for everyone involved.
All of my current client projects are hourly. I typically give them an estimate so they have a ball park figure and then bill hourly and update them as the project progresses. This seems to work out really well.
The only downside that I see so far is that as you get better as what you do you tend to get quicker as well, which in an hourly arrangement means you make less. You can always raise your rates as your experience grows but for previous clients it can be hard to explain.
Billing by the hour may be way too granular for some projects. Contractors should also consider day-rates. It can be a good compromise between hourly billing and fixed bids.
My current gig actually. As a contractor/consultant, I charge for hours worked. You want more than the contracted 40 hrs per week not only do you pay but you pay at a higher rate.
Yeah, hourly billing gets knocks, but I think it's the right approach for a lot of circumstances. If I can control the shape of the engagement and it's the kind of thing I've done enough that I can reliably predict the work needed, sure, project pricing is great. But if you're just putting in work on a project somebody else is leading, hourly's the way to go, because that insulates you from all sorts of risks.
Contractor, i guess? I dont bill by hour because my work productivity highly depends on my mood, so hourly rate would be unfair. A project wise prefixed rte s what i look for.
I've always billed hourly, I've read the arguments against it (including this one), and I have't changed my mind about it. Occasionally, I'll sense that a client needs more or less hand holding, or that a particular project will be super fun, or a huge drag, so I'll adjust my hourly rate up and down, but this method of billing, overall, works really well for me.
Keep in mind though, I'm not a full time contractor. I do a few hours of freelance work a week (10-20 hours a month, for 1-3 clients), in the evenings, mostly on small projects that just take a few hours.
In addition, I'm unusual because I focus in a small specialty: web scraping, data collection, and data sourcing. I write web bots and design data architectures, basically. This is great, because I do variations on the same thing over and over again, it means that I very very rarely run into hidden problems and can very accurately estimate how long it will take me to collect a set of information from a particular source. I've actually walked away from work that was outside of this scope (even though I have a master's in software engineering, have done it for 10 years, and was perfectly capable of the job) just because I knew it would be a higher risk to bill for accurately, and didn't want a potential headache for the client or for me.
So I strike a middle ground between hourly billing and "fixed cost" that I believe benefits both sides: "This will take 3-4 hours, the deliverables will be <blah>, I bill $x/hour. If I find something that proves to be a huge blocker that, for whatever reason, I didn't see before, I reserve the right to revise this estimate upwards and ask for your approval on the revised estimate, but, in that case, you will not be obligated to pay for any work done up to that point, until you accept the revised estimate, if you choose to do that."
It's not uncommon that I discover that there's a method of collecting data from a site that I didn't see before, that is drastically faster than I had originally anticipated. Of course, I could do as the author suggested and bill for the original estimate, reveling in my loads of cash and free time, but here's the rub: I don't.
I actually really enjoy telling the client: "Hey, check this out! It only took half an hour! Anything else you want me to do?" and clients appreciate it. I get paid fairly for my time, and fairly for the difficulty of the project. In theory, I figure, if the clients were to shop this project around on the open market, someone else could figure out the "trick" and underbid anyone pricing based on "value to the client," and, of course, there's the danger that clients could figure out that this was NOT a 3-4 hour project at some point down the line, and I'd like to maintain their trust.
In addition, I've found that clients who get a "surprise bargain" are more likely to recommend me through word of mouth, they're more likely to add on extra work/features to meet their original budget anyway, and I feel good about myself. Is "feeling good about yourself" worth an extra few hundred bucks here and there? Maybe not, but, like I said, I'm getting paid exactly what I wanted to get paid my time, so it doesn't bother me too much.
But I am also billing based on value, and always keep that in the back of my mind. Over the last couple years, I've actually doubled my hourly billing rate, as I create tools, shortcuts, develop better techniques, and even add more value as a consultant for the client.
I've certainly toyed with the idea of creating web scraping tools that I can monetize as software (although it's a crowded space), moving towards the "fixed cost for the value this adds to your life" model, but for my freelance work, I just really enjoy sitting in my pajamas in bed, Netflix playing in the background, mindlessly cranking out some code and exploring new techniques while getting paid to do it.
I'll be the first to admit that hourly billing doesn't make sense for everyone, and every project, but I think I've found a good balance of risk for myself and the client that's appropriate for my skill level, specialty, and financial needs, and I'm just fine with that.
That makes sense conceptually, but it’s effectively flat rate billing for a deliverable. The problem with that is that contracting isn’t high margin, and the contractor is absorbing a lot of risk, and doesn’t give the customer an incentive to deliver their obligations. If the contractor is smart, that risk is built into the rate.
Hourly billing isn’t an issue, poor governance is. Few contractors will actively try to feather their beds, as their reputation will suffer.
I use an hourly rate to calculate my fixed prices based on estimates.
It's rare that on a large project a client will accept an hourly rate (hourly rates usually occur on maintenance agreements in my experience with a cap over which extra approval is required).
The trick to staying profitable is to iterate in very small chunks, the earlier in the relationship, the smaller the iteration.
Deliver discrete value with each iteration so if they're not happy, they can walk and reasonably expect another competent contractor to finish the work (this means using popular tools and good documentation).
As you get further along in the relationship and on each project you get a better idea of how long things typically take and can provide higher fixed price quotes with less risk. Also as the relationship improves and your client trusts you more, you can do things like give "best case" estimates with the proviso that it may be revised upwards if a task turns out to be more difficult than you'd thought (in exchange for this, you can charge the client less money because you don't need as much "padding" to absorb the risk yourself).
Eventually you move into the maintenance phase where you bill by the hour and by that point the client generally trusts you enough so they know you're not trying to screw them.
Some people value hours as output, while others look at things in a project scope (I don't care how long if you charge me a fixed rate).
Two sides.
Employer side
If I'm paying someone for 38hrs a week I want to be able to have access to them during their hours that's all. If they can get the work done during this period I'm happy to not worry about hours per say.
Client Side.
We don't charge hourly for anything but retainers (20-30 hr blocks per month). All of our projects are fixed rate but focus on value pricing rather than output (hrs). This negates the BS that comes with tracking hrs and time sheets. It may not work for everyone but it works for us -- plus leaves a lot of fat in our projects.
Few amazing resources for value pricing and ditching hourly billing:
Jonathan Stark - Any of his books, podcast and website www.jonathanstark.com
Ronald J. Baker -- Implementing Value Pricing
Blaire Enns -- The win without pitching manifesto
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