Thank you so much for a wonderfully concise explanation about billable hours. I immediately tested your ideas and came up with a figure I was comfortable with, but still felt slightly larger than what I thought my work was worth. (I can’t tell you how many women business owners I know who consistently under-charge their value…)I like the feeling, though, because I do believe that in the past, I’ve also undercharged for my services.

By the end of the year, I expect to see great results from this exercise. Thanks, again!

However, I most thankful for this article because you went into specifics. I’ve read countless other “how much should I charge” articles and they amount to “do the math”, but they never give you any variables to start with or end numbers to verify against. You’re openness with your numbers is appreciated. It makes one say “Yeah, $5000 is not that unreasonable and I *should* make that much” without feeling greedy or unrealistic.

Also I agree with padding “fixed” proposals, because in all reality nothing is ever fixed unless you’re selling design templates or other off-the-shelf, one-click-install, homogenized products.

For the record, I make an initial estimate, then triple it, then hem and haw over the seemingly high price (don’t want to loose the client, after all), readjust some numbers here, a price point there – and in the end I still consistently come up short. I should *really* start clocking…

(What is a good clocking program for the PC? Keep in mind that I’m like your friend in the article – working in small chunks of time on numerous things. Perhaps you could write an article about that?

“by no means does that mean that those hourly calculations should disappear.” This is key point many people miss. I do fixed price work but it includes my hourly cost, time estimates, my profit, and time for managing the project. Fixed price work without data to back it is just a wild guesstimate.

I don’t agree with you about selling the industry short with fixed rate bids though. I understand your point but I think the cause of the problem isn’t fixed rate bids, but with perceptions about digital work (either websites, software programs, or digital media).

When I started doing the math, I found I was working for under $15 an hour. This was depressing, mainly because I had just quit waiting tables making $20/hr. Sure, I was “doing what I wanted to do”, but sorry – my landlord won’t let me get by on following my dreams coupons. The cold, hard fact is that as a freelancer, you WILL GET BURNED in the beginning as you learn how long it actually takes you to *finish* a project. I emphasize finish because there’s a huge difference between me turning in my final draft and when the client actually signs off, usually it’s 15-30 hours of difference.

What was the result? I found myself taking on too many projects at once to compensate for my monthly financial needs. I told myself that (6) $500 projects was just the same as (1) $3000. The reality was that I just spread myself too thin and the quality always suffered.

What’s more (and this is the bigger picture advice), by sticking with fixed rate bids where you sell yourself short, you’re also selling the entire industry of freelancers short. If Joe Shmo will build a decent site for $2000, people begin to expect that that’s the cost and it brings everyone else down. Respect the community by placing a premium on the work that we do and not undercutting to please cheapskate clients who undervalue marketing.

As a side note, Tea – your work rocks. My personal advice: Start placing “hour pools” inside of your fixed rate bids. ie: Flash based Calendar system: 20hours at $XX/hr. This will make clients happy to see transparency in your contracts and it will help you see exactly where you can adjust your bids for win-win situations with clients. With my small side clients I still provide fixed rate bids, but when things get out of control (ie: spending 40 hours on a 25hr bid), I can wave the red flag at them, point to the contract, and almost always squeeze out extra money or else have the project put on pause. Happy bidding!

Once you begin clocking and getting a sense of how that risk plays out over time, you can price fixed bid contracts appropriately to compensate for the variability that business often brings. We often see a markup of anywhere from 30% – 100% over the honest estimate. You have to. After all, how many of us have worked on something for 10 hours that we thought would take 3, but turned out to be way more complicated. These things happen and you have to account for them. In fact, our largest mistake has consistently been to not budget enough for QA and minor changes / updates. These have been killers for us and we did not realize that until we began carefully tracking.

The other problem we had with fixed bid was making sure the spec was well enough defined. Feature creep was deadly and continuous. People always want this little change and that addition and we are too nice and used to constantly say yes. If you plan to seriously pursue the fixed approach, then practice saying ” of course we can do that, for $xxxx” or “of course we can do that, but with your current budget you will have to choose between xxx and yyy.”.

The hourly model simply places risk in the clients court. Some times that is appropriate, other times it is not. We find the more abstract and loosely defined the project (especially prototyping) the more important to our bottom line that we fight for hourly.

The person that Shane was referring to in his post was actually me, and it was a discussion we had about what to charge etc.

As I have built confidence as a designer I have increased my rates. I think that my flexibility doesn’t necessarily make me silly or naive, but I do often wonder if I am undercharging (mostly because most freelancers don’t like to discuss what they have charged for X site, which leaves us to somewhat guess, based on the hourly rate calculator and other tools (for the record, according the hourly rate calculator, I am charging almost double what it says to charge, mostly because I have low overheads and a husband that works as well — the calculator is probably inaccurate in that sense)).

Philosophically, I feel the same way about billable hours. I don’t view my work as something that is on or off the clock. I actually think that I am creating a vibe where price doesn’t really matter, and people hire me for ME and not what my prices are.

They are too low, and I am revising them, but I don’t know that being so rigid about billable hours is necessarily the way to go. I will keep track of my time purely as a way to monitor my prices and how much time I am investing, but moving to the “hour” model fully is not really something I am comfortable with either.

As a business owner, I’ve incorporated the things that are important to me as a consumer. I offer packages that have a fixed rate, yet flexible to meet the needs of the client. They can make changes to what’s offered in the package while still ensuring I meet the hourly rate I want.

When I started out, I checked with other business owners and researched the Internet to see what the market rate was at that time. The first few clients I had, I provided proposals that came in just under market because I wasn’t concerned with the hourly rate – I wanted to build my portfolio and brand.

One thing I do with every client is to go above and beyond what is expected or agreed upon – whether they are a paying client or if I’m doing charity work. That little extra something that doesn’t take me much time will make them very happy and drive additional business. Of course, that in of itself could be another article.

At the end of every week I fill in a larger spreadsheet that summarizes how much time I spend on various tasks throughout my week. It really is an eye opener when you notice you spent 4 hours to get prospect for a project that is only 3 billable hours.

Eric

[1]: http://davidseah.com/archives/2006/12/29/emergent-task-timer-2007-form-updates/