A Guide to Project Billing: Why Defaulting to Hourly May Not Always Be Right for You
Pricing your services – it’s a phrase that has inspired dread for developers and designers ever since the earliest freelancers had to first pitch their services to prospective clients.
And since then, proper pricing hasn’t gotten much easier to nail down either.
Should I charge hourly for my services? What about on a weekly or even monthly basis? Will a per-project rate work for me? How about per feature?
Each method comes with its own unique benefits, sure. And at first glance, one method in particular likely stands out as the de facto choice for most content developers (we’re looking at you, hourly).
But the truth is, not all projects are going to perfectly fit the hourly model. And even more to the point, neglecting other billing methods in certain situations may actually lead to underpricing your services, opening up yourself to micromanagement, and ending up with a boatload of unnecessary hassle down the line if you're not careful.
That’s why today, we’re going to take a look at some of the billing methods you may want to consider incorporating into your business model, their individual perks and downfalls, and what types of projects they each work best for.
So, let’s jump right in.
Hourly Billing: The Go-To Method for Most
The hourly method is incredibly common among developers, designers, and service businesses of all types. It’s simple: you do the work, and then you charge the client for the time you spent on their project. It doesn’t get much more straightforward than that. Plus, if the client wants to increase the scope of the work, you aren’t left negotiating a new contract or scrapping your progress altogether.
But things can get tricky when it comes to estimating a realistic timetable and keeping the client from getting too nitpicky about the finer details of your work. On top of that, some customers may think that an hourly rate is a golden ticket for assigning you as many tasks as they want – a real problem when you have other clients to consider.
The Ups of Hourly Billing
Without a doubt, one of the best parts of hourly billing is the fact that it's so simple and so straightforward. When you're working on a project, you're billing time to the client. Simple as that.
It also lends well to juggling multiple projects or taking time off. As long as you fulfill the expected amount of work hours that you and a client discuss beforehand, what you do outside of the project is entirely up to you.
And lastly, if the project morphs into a whole different beast because of changing client priorities, you still get paid the same for the work you do – even if it is more hours than expected.
In the end, it’s safe, simple, and leaves plenty of breathing room for how you want to run your business.
The Downs of Hourly Billing
While the upsides of hourly billing might make it one of the most attractive options, not considering its downsides can end up being a serious mistake.
One of the most toublesome problems with billing a client by the hour is the fact that it can open up the floodgates of micromanagement. For example, your invoices will likely include a breakdown of specific tasks you accomplished during a single hour of work – 15 minutes spent researching a new design style, another 15 for a meeting, and half an hour on solid web development, something along those lines.
But not every client is going to see the value in each of these activities, even if the benefits directly translate into a better end-product for them. And that can lead to arduous explanations and defending how you spend your time to a skeptical client – which of course can ruin the client-developer relationship over time.
Excessive micromanagement is just one of the many early warning signs of a client that’s bound to be trouble down the line.
Plus, an hourly arrangement may give some clients what they feel is free reign over the amount of work you’re assigned. After all, you’re getting paid for your time, so what’s the big deal if we keep increasing the scope over and over?
The problem, of course, is that even though you are being compensated, you still likely have other projects that need to be completed for other clients. And if you get trapped into working more than you planned, it can bleed into other jobs you already have scheduled.
On top of that, estimating the duration of a project using the hourly method can be tough simply because how minute the unit of work is.
The Ideal Project for Hourly
For all of these reasons, hourly shouldn’t always be the default billing option. Instead, use hourly for short, nebulous projects that aren’t clearly defined from the start. It may lead to a bit of micromanaging, but at least you won’t have to keep re-negotiating scope every step of the way.
Weekly/Monthly Billing: A Step Up from Hourly
When it comes down to which method we’ve found works best for a standard web development project, a weekly – or even monthly – billing rate comes out on top. That’s because a weekly billing cycle lets both you and the client focus more on deliverables than hourly, not just on down-to-the-minute detail. And that can do wonders for maintaining a copacetic relationship, justifying your pricing, and shifting customer focus to value, not just time.
Monthly arrangements are usually part of retainer agreements and for most developers, are too large of a time increment to be used as their standard billing method for other projects.
The Ups of Weekly Billing
Compared to the hourly method, a weekly billing cycle is more about delivering value than it is about putting in the hours. And as long as your client is consistently getting solid deliverables in a timely manner, they often won’t be too concerned about how many hours you put in along the way.
Plus, weekly billing and the shift to a value-based billing method can actually make it easier for you to charge a more comfortable rate and maximize your internal hourly rate as well.
And last but not least, sudden and unexpected changes of scope still won’t end up spelling out disaster since you’re being paid for time worked. You may have to reconfigure other projects as a result, but you definitely won’t be left eating the costs.
The Downs of Weekly Billing
The downsides here are a bit sparse, especially since this is one of our most commonly-used methods. Weekly billing offers flexibility, reasonable protection against scope creep, and shifts customers to a more value-based pricing strategy – what more could you want?
Navigating national holidays which can encroach on the standard 5-day work week can be a pain, however. Some clients may even demand a discounted rate since they assume you won't be hard at work in the office all week long (which is strange because 70% of small business owners like you don’t actually stop working over the holidays).
Other than that, though, weekly billing is a winner in our book.
The Ideal Project for Weekly
Projects that are larger and with a more wide-open scope are great for the weekly method. It’s without a doubt superior to hourly billing except in cases where the work is likely going to last less than 5 days – which can be rare for established web developers and designers.
Billing by the Feature/Project: A Game Changer (When Done Right)
In a perfect world, this is what you’d be using to bill clients for every single project. Both you and the client fully understand what’s expected, the development needs are clearly laid out and aren’t subject to change, and everyone comprehends the ultimate value of the end product.
And when these kinds of projects do come along, they provide an excellent opportunity for shifting from a time-based billing method to a value-based one. That, of course, can mean a serious boost to your ROI and internal hourly rate.
But unfortunately, the world isn’t perfect. And not all projects are going to be so clearly defined. And if you depend on a feature/project billing method for a development plan with an ever-changing scope, it might end up being far more trouble than it’s worth.
That’s why it’s so important to always have an in-depth and exhaustive meeting with your clients about the full scope of a project before getting to work. Not only will this help you more accurately decide on a proper price, but it will also help solidify the scope of the project in the mind of the customer – and that means less of a risk of extra work request further down the line.
Oh, and don’t forget to charge for your time during these discovery meetings too!
The Ups of Feature/Project Billing
Billing by the feature or by the project gives you the unique ability to price the end product by the value it represents to the client. This is especially beneficial when developing that product doesn’t really take a whole lot of time on your end. Using this method, then, you can end up supercharging your internal hourly rate.
On top of that, as long as there aren’t any major scope changes along the way, your client will know exactly what to expect once it comes time to pay the bill. This can make accurate budgeting for a project significantly easier on their end, and as long as you deliver what you promised, it can actually make your customer satisfaction rates much higher as well.
The Downs of Feature/Project Billing
The problem with this method, of course, is the fact that projects are so often subject to change. We don’t live in a perfect world where everything can be planned out down to the smallest detail. And since this billing method is so problematic when it comes to flexibility, it can be difficult to find a project that lends well to feature/project pricing.
The lack of flexibility can also lead to developing tension with clients too, specifically when they ask you to do more work than what you agreed upon. You can only say, “That’s outside of the scope that we outlined,” so many times before it starts inspiring a bit of resentment on your client’s end.
Plus, estimating the value of a feature or project for a client can be a bit of a guessing game itself. With greater experience comes a better ability to gauge this value more accurately. But first starting out, it can seem almost like a shot in the dark.
The Ideal Project for Feature/Project-Based Billing
Scope, scope, scope. Defining it in its entirety is the most crucial aspect of making project-based billing work for you. With a detailed and comprehensive scope laid out, you can price entirely on value – one of the best ways to maximize profit while keeping clients happy.
If a project isn’t expected to change over time and takes a relatively short amount of time to complete, this method is without a doubt going to be ideal. For longer projects however (which are prone to evolving and mutating over time), a weekly method might provide more protection against changing needs.
Which kind of billing method is your go-to? Have you had any standout client successes or failures caused by how you charged your customers? Let us know in the comments below and as always, don’t hesitate to reach out to us if you have any web development needs!