How Freelancing Works: Flat-Rate vs. Hourly Pricing
One of the most important things I’ve learned over my decade as a freelancer is to charge flat rates instead of hourly rates for my work.
This is a particularly good strategy for me because I work quickly, but I believe that in most cases it is the best strategy even for slower workers.
Advantages of Flat-rate Pricing
Charging a flat rate for an assignment — whether it’s a group of deliverables or a single thing — has many advantages. This arrangement sets expectations regarding pay at the outset, which reduces stress and uncertainty for both freelancer and client.
It is also a logical arrangement for situations in which the client wants a specific product — say a blog post or a set of photographs — and doesn’t really care how long it takes you to produce it. Setting a flat rate keeps the employers from over-analyzing or second-guessing your process, and allows you to work without thinking about the clock.
But the most important reason to avoid hourly rates is that flat rates can make you more money.
Unless you are an extremely slow worker or the project’s scope turns out to be much larger than you had anticipated, your flat rate is likely to translate into more per hour than you’d likely ever ask for as an hourly rate.
Why? Because in general clients value the things they need more than they value their workers’ time.
Flat-rate vs. Hourly
The labor market is a competitive arena characterized by downward price pressure; employers are used to trying to get the most work out of employees for the least possible pay.
Additionally, the economics of pay are very different in full-time employment; people are rarely making the per-hour amounts that freelancers must bring in to make their profession work. Since most employers and clients are themselves full-time workers, their understanding of reasonable per-hour rates is skewed by that perspective.
Here’s an example of how this plays out: Say a photographer’s client wants a family photo shoot. They value the resulting photographs at a rate of $300, so they are willing to pay that much for the shoot. So this is the flat rate that the photographer will ideally end up negotiating for.
Perhaps shooting the photos takes the photographer an hour and processing them takes another hour, so the photographer will earn $150 per hour on this project under this arrangement. However, chances are if the photographer asked the client to pay $150/hour for a photo shoot, the client would balk.
The client is less likely to believe the photographer’s time is worth $150/hour. So they are more likely to only agree to pay the photographer, say, $75/hour. If the photographer accepts that arrangement, she is suddenly making half of what she might have if she had sought to find out how much the client values the product versus her time.
Think Like a Vendor
Clients who hire freelancers are looking to get a product or service for a cost, not seeking a worker whose time they can control to produce value. The former characterizes a freelance relationship, while the latter describes full-time employment.
This means that as freelancers we can benefit by thinking of ourselves more as vendors than as employees. Vendors sell deliverables — products or services — in exchange for a set price. That price depends on how much the market or the individual buyer values that product or service.
When we think of ourselves in these terms it makes it easier to understand the potential in flat-rate pricing. The client will pay you the amount that equates to how much they value whatever you are providing. How much they value it has zero bearing on how long it takes you to produce it.
So the goal is finding clients who value your product or service at a level that translates into high pay per hour for you.