How to Avoid the Hourly Wage Trap
Most service-based business owners launch their businesses with an hourly rate. It makes sense, since they don’t always know how long it’s going to take to work a project from beginning to end.
During that honeymoon phase, you should be tracking your time carefully so you can review project scope and depth as well as the amount of time it takes you to finish projects for each client.
Eventually, you’ll have enough experience under your belt that you can pretty accurately estimate how long each type of project will take--whether that’s creating a logo, scheduling social media content, writing a blog post or developing a Facebook Ads campaign (or something else entirely). At this point, it’s time to say goodbye to the hourly wage trap and hello to project-based work.
Hourly work does a disservice to you and your clients. For you, you’re so focused on the amount of time it takes to get a project done that your creativity takes a hit. Plus it’s easy to discount your fees because you feel that something shouldn’t have taken as long as it did. On the other hand, the more experience you have the less time a project will take--which only penalizes you for your experience.
For your clients, they don’t know what to expect come invoice time. Will that logo take 2 hours? Ten hours? It’s a guessing game for them that doesn’t allow them to budget. Not only that, but they may have false ideas about how long something should take--which makes for an uncomfortable situation on invoice day.
How to Move to Project-Based Billing
Your project rates are really based on an hourly rate, but not one you necessarily need to tell your clients. (You’re not hiding anything here, but rather looping in the cost of doing business with all the projects you’re working on--including your own marketing and operations.)
To find your ideal rate, identify how much you want to earn each month and how many hours you want to work (include only client work time). Divide the amount you want to earn by the amount you want to work.
$5,000 per month divided by 60 hours of work each month = $83 per hour
Note that you should expect to work about 10 percent of your time each week on your own business.
As you start to price your packages, think about how much time it will take to complete each project. Be sure to include research and meeting time, not just the time you’re actively working on the project. This additional time is work time. It’s required if you want to do good work.
When you’re making the shift from hourly to project-based billing, it’s important to take the value of your work into consideration. You’re no longer checking things off a list for the sake of getting it done (and you probably weren’t doing that anyway). As a project-based contractor, it’s your responsibility to be a sounding board for your clients and offer your expertise and input when appropriate.
As you start talking to your clients about the changes in your pricing structure, focus on the value that you offer them. It’s not about doing a task, it’s about solving a problem and alleviating pain. Tell your clients, “I am still doing THIS task, but I’ll now be offering this additional value too.” Even if you’ve already been offering that value, spotlight it in your conversations.
Must-Haves for Project-Based Billing
Firm Boundaries. Since you’re no longer billing per hour, it’s important to have firm boundaries with clients. Outline in your contract what’s included in your services and stick to them. When a project starts to move outside those boundaries, tell clients, “I’m happy to add that to the project, however it’s outside the original scope of the project. I can send you a quote for this.” Firm boundaries keep your projects in check and help you avoid feeling bitter because you’re doing extra work.
Solid Workflows. Your workflows will save you a ton of time as you work with clients, and they’ll help you decide how to package your services and set up your pricing. Without them, you’ll feel like you’re constantly playing catch-up.
Quality Work. As a project-based contractor, you are an expert in your field. You’re offering intense value in everything you do, and your clients will expect more of you. That’s not a bad thing (hello increased rates!), but it does mean that you need to pay more attention to the quality of the work you do.
If you’re ready to start pricing by project, or to uplevel your project-based pricing, now’s a great time to do it. Learn how to onboard all the new clients you’re going to attract with my client onboarding checklist!