Why Project Pricing Beats Hourly Pricing — Hands Down

There are two main pricing strategies for freelance work: project pricing and hourly pricing. I believe that choosing the right pricing model is by far the biggest key to maximizing your income as a freelancer.

In my experience, pricing work by the project results in much higher income potential than pricing work by the hour. However, it appears to me that the majority of freelancers use the hourly pricing model — and in doing so, are leaving lots and lots of money on the table.

Time vs. Project Value

First, let me acknowledge that hourly pricing ensures that you will earn whatever amount of money you’ve determined that your time is worth. If this is $25, $50 or $100 per hour, this is how much you’ll earn when you charge by the hour — no less, but also no more.

But let me also suggest that determining the value of your time is the wrong way to go about pricing freelance work. Instead, you should determine the value of the project to your client.

A quick example: I’ve been writing a very technical, industry-specific niche newsletter for more than a decade. Because I know the industry and the subject matter so well, I can usually research and write the newsletter in 8 hours or less. My fee: $1,500 per issue.

If I were pricing this by the hour, what do you think the client would say if I quoted them a price of nearly $200 an hour? I’m sure they’d laugh in my face!

But the client doesn’t really care how many hours is takes me to do the job. All they care about is that the newsletter copy is well-written, accurate and delivered on time. The value the client places on this is $1,500 per issue.

So how much money might I leave on the table if I priced this job hourly? Let’s say I was able to negotiate a rate of $100 per hour, which is at the high end for any type of freelance work. I’d earn $800 per issue — and leave $700 on the table. And that’s a best-case scenario.

A Perverse Incentive

Aside from limiting income potential, the other thing I don’t like about hourly pricing is that it penalizes you for working fast. Hourly pricing actually incents you to work more slowly on projects in order to make more money. Now you probably wouldn’t do this consciously, but the fact remains: The faster you work, the less money you make. How much sense does this make?

“But what about clients who insists on knowing my hourly rate?” you might ask. While rare, this does happen occasionally, especially if you’re working with an agency. I simply explain that I only price work on a project basis in order to assure price certainty for the client and myself.

Usually, the client agrees with me and is happy to receive a project price. When agencies have told me they can only pay an hourly rate, I’ve politely declined the work. That’s how strongly I feel about project pricing.

I’ll admit that project pricing requires experience, know-how and some gut instinct. But you owe it to yourself to give it a try. Project pricing could be the key to significantly boosting your freelance income.

Authored by Don Sadler

Don Sadler hung out his shingle as a full-time freelance writer in 2009 after working for several custom publishing companies over the previous 24 years. Visit www.donsadlerwriter.com or contact him at don@donsadlerwriter.com.