Charge What You Deserve - Flat Fees & Project Fees
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But first, I want you to think about this…If you buy a home in a new development, is the builder quoting you a price based on the hours everyone spent working on that home, plus the materials-or is he quoting a price based on what other similar homes in that area are worth?
Of course, he’s going to go with the latter because it should cover all of his labor and other expenses and still allow him to make a profit. (Although that point may be debatable in the current real estate market!) So essentially, what he’s charging is a project fee-one price that covers the whole shebang.
You can use the same concept for pricing your services as well. And it’s a fairly simple pricing structure to transition to. If you don’t know what the true value of your services are (industry pricing guides can be quite helpful in this regard), you can start by just estimating the hours it’ll take and calculating the fee based on your hourly rate.
But then, you should add on to that “base” number to cover any expenses you expect to incur as well as premiums for rush jobs or what I call “the PITA factor”-when you suspect a client will be super high maintenance. In the end, you add it all up and present one total price to the prospect.
Pros of the Flat Fee Approach
· No debate over minutia like the number of hours it takes or your hourly rate-just one total number, which is all they ultimately care about anyway
· The potential to net more per hour if a project takes less time than you expected (which encourages you to be more efficient)
· No surprises at invoice time since both of you know how much they’ll be paying from the start
· You can adjust the project scope before you start the work if the client feels the total is too expensive
· The price for the fifth time is the same as the first, because they’re not thinking in terms of the hours it’ll take
· You never need to have that oh-so-fun “I’m raising my rates” conversation with current clients, simply increase the project price the next time they hire you
· Estimating becomes much faster and easier…especially if you develop a rate sheet for frequent projects
Cons
· You’ll end up “eating” the extra hours if you end up spending a lot more time than you expected
· You need to define the scope of the project ahead of time to make sure it’s crystal clear what is and isn’t included, so you avoid the sting of “scope creep”
· Occasionally, the total cost will be such a surprise they decide not to work with you. But isn’t that better than doing all that work only to have them balk at paying the full amount in the end?
Note that while you won’t be required now to track your time, you should still do so to see how close or off your estimate is and help you refine your prices for the future.
In short, if you’re still stuck trading hours for dollars like a car mechanic, moving to project fees may be the easiest first step toward getting paid based on the value of what you do-rather than the number of hours you work.
Next up is an alternative that takes project fees to the next level and gives prospects more options to say “yes” to.
Of course, he’s going to go with the latter because it should cover all of his labor and other expenses and still allow him to make a profit. (Although that point may be debatable in the current real estate market!) So essentially, what he’s charging is a project fee-one price that covers the whole shebang.
You can use the same concept for pricing your services as well. And it’s a fairly simple pricing structure to transition to. If you don’t know what the true value of your services are (industry pricing guides can be quite helpful in this regard), you can start by just estimating the hours it’ll take and calculating the fee based on your hourly rate.
But then, you should add on to that “base” number to cover any expenses you expect to incur as well as premiums for rush jobs or what I call “the PITA factor”-when you suspect a client will be super high maintenance. In the end, you add it all up and present one total price to the prospect.
Pros of the Flat Fee Approach
· No debate over minutia like the number of hours it takes or your hourly rate-just one total number, which is all they ultimately care about anyway
· The potential to net more per hour if a project takes less time than you expected (which encourages you to be more efficient)
· No surprises at invoice time since both of you know how much they’ll be paying from the start
· You can adjust the project scope before you start the work if the client feels the total is too expensive
· The price for the fifth time is the same as the first, because they’re not thinking in terms of the hours it’ll take
· You never need to have that oh-so-fun “I’m raising my rates” conversation with current clients, simply increase the project price the next time they hire you
· Estimating becomes much faster and easier…especially if you develop a rate sheet for frequent projects
Cons
· You’ll end up “eating” the extra hours if you end up spending a lot more time than you expected
· You need to define the scope of the project ahead of time to make sure it’s crystal clear what is and isn’t included, so you avoid the sting of “scope creep”
· Occasionally, the total cost will be such a surprise they decide not to work with you. But isn’t that better than doing all that work only to have them balk at paying the full amount in the end?
Note that while you won’t be required now to track your time, you should still do so to see how close or off your estimate is and help you refine your prices for the future.
In short, if you’re still stuck trading hours for dollars like a car mechanic, moving to project fees may be the easiest first step toward getting paid based on the value of what you do-rather than the number of hours you work.
Next up is an alternative that takes project fees to the next level and gives prospects more options to say “yes” to.
Read More Great Business Planning Articles
Charge What You Deserve - Flat Fees & Project Fees
Previously, we talked about the pitfalls of hourly rates for freelancers and self-employed professionals and why your clients should hate hourly rates as well. Now let’s talk about a popular alternative…the flat fee or project fee.
By: Tracy Needham
Previously, we talked about the pitfalls of hourly rates for freelancers and self-employed professionals and why your clients should hate hourly rates as well. Now let’s talk about a popular alternative…the flat fee or project fee.
By: Tracy Needham
Tracy Needham, founder of Compelling Communications, LLC, helps small business owners boost their business through compelling copy and marketing strategies that make the most of their time and money. Sign up for her FREE Special Report: The One Press Release You Can Write to Get Thousands of Dollars Worth of Free Publicity at www.compellingezine.com.
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9 Reasons To Stop Charging Hourly Rates
Strategy vs. Tactics: Which Drives Your Organization?
Hourly Rates Are Bad For Clients Too
