You have several possible ways to charge for your work. Below is a list of the main approaches in contention, with a brief explanation of each one’s advantages and disadvantages.
- By the Hour When you bill according to an hourly rate, it means you get paid for the time it takes you to complete your work for the client.
- By the Project If you charge a fixed rate to cover all of your efforts associated with a given gig, both you and your client know from the very beginning what you’re going to earn. You’re also driven by the incentive to work quickly, but you may risk compromising work quality in the effort to complete your deliverables efficiently.Of course, if the work turns out to be substantially different in scope than the client initially articulated, or if the assignment changes, then you’ll need to revisit the initial fixed rate. And this does happen. For some, that kind of moving target undermines all of the value of having a fixed rate. For others, the ongoing negotiations are key to client relations, as they can maximize transparency and therefore trust.
- Value Basis Charging for the value that your work brings to your client’s organization – or, alternatively, modulating your rates according to a client’s budgetary leeway – is in many regards the fairest approach of all. As a variation on per-project billing, value-based billing essentially allows you to avoid charging your clients more than they can afford.With value-based billing, you can charge far more if your project is for a major corporation than you might if you did the same project for a local mom-and-pop shop. Of course, this approach lays a tremendous amount of responsibility on you, as you’ll need to have a lot of information about your clients’ operations in order to bill fairly. But there’s something to be said for putting your client’s needs at the center of your formulas.
- Monthly Subscription or Retainer This approach is tantamount to being “on call” for your client, within the confines of certain service level stipulations. Essentially, with this model, the client pays the freelance service provider a sum that covers a set number of hours, or deliverables, per month, and in exchange, the client has the right to call upon the freelancer as needed.On the one hand, that kind of reliable income is a boon for most freelancers. On the other hand, you never know whether you’re risking being worked to the bone, in which case your monthly rate may prove insufficient. Even if the framework you set up involves favorable limits, you may get accustomed to months with lower workloads from some clients and then get blindsided by a sudden spike.
- Conversion or Results Basis This model means that the freelancer is fundamentally paid on commission, according to business benchmarks or performance metrics that correlate with the work performed. Sometimes results-based billing is sprinkled into the mix as an added incentive on top of a standard flat rate or hourly rate. Other times, the payment for results is all the freelancer gets.Being incentivized to deliver service that performs well for your clients makes a lot of sense, but as a contractor, you aren’t an investor in your client’s company, so make sure to protect your income from factors beyond your control. Results-based billing is the norm for certain industries, but in general, most freelancers prefer to avoid it.