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Hourly Rate vs Flat Rate – How to Price Yourself?

It’s an important question and every freelancer should have a clear answer before talking compensation with a prospective client.

It’s been a debate amongst freelancers for years: is it better to charge a flat fee or be paid by the hour? It’s an important question and every freelancer should have a clear answer before talking compensation with a prospective client as it will dramatically impact both your income and your relationship with said client – so basically, your entire professional life!

So what should you do? Well, it depends! It depends on the job, it depends on your experience, it depends on the client. We know, “it depends” is never a great answer. But keep on reading, because we’re going to look at a few scenarios, and there’s a good chance that in a couple of minutes, something will strike you as the obvious choice for your situation.

A flat rate has more income potential

If you’re paid a flat rate, you’re in control of your hourly rate, since you’re the only one in charge of your own productivity. Say you’re paid a flat $200 for a project, and work really hard to get it done in two hours (no social media or coffee breaks), you land at a $100/hour rate and now have time to work for other clients. But if you asked for a $50/hour rate, you will need to work at least double that time to make the same amount – you won’t lose money, but you lost 2 hours.

No matter how hard and efficiently you get things done, an hourly rate caps your earnings for a time period. With a flat rate, you are incentivized and rewarded for working faster and harder, for increasing your productivity, which eventually will allow you to take on more gigs and make more money.

Clients tend to prefer flat rate

A lot of clients tend to like the flat-rate option: it gives them visibility and security on their spending. Therefore, accepting a flat rate could make you more competitive. As is often the case when it comes to negotiations, it’s all about perception. Put yourself in your client’s shoes and look at it from their perspective: while $200 total cost for a project like an article or a logo might feel reasonable, $100/hour can sound like a lot of money Everybody wants to get a deal, so clients will naturally gravitate toward the cost that feels like the best bargain.

Also, from their perspective, a freelancer paid hourly is a risk for a client, especially if it’s the first time they’re working with you: they don’t have any guarantee on how much time it’s going to take you to complete the job. If you work only one more hour at $100, then all of a sudden their $200 budget explodes. Of course, on the other side of that coin, a flat rate can also be a risk to you…

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Hourly rates are safer

If you agree to a flat rate, you’re now the one carrying the risk of having low-balled the amount of work a job requires and end up working for months for a client that won’t pay you anything additional. This can happen with very demanding clients who, for example, ask for endless rounds of revisions. We all have stories.

A simple way to minimize that risk is to stipulate up front in your agreement a specific amount of rounds of feedback and edits the flat rate includes. It is then your choice how flexible you want to be within those parameters. With new clients, you might want to do a little more than was agreed upon (within reason of course), in order to establish a relationship and get more work in the future. But again, it’s at your discretion, and be careful of setting a precedent. It is also your responsibility to quote properly, which means you should ask as many questions as you need up front to determine the amount of hours a project will involve and what would be a fair compensation.

Experience plays a key factor here, and it will get easier for you to determine a proper rate as the years go by. If you’re just starting out, don’t undersell yourself, but also make sure to always weigh the benefits of building a relationship with a client against being flexible and earning a cheaper hourly rate at first. If they end up giving you 10 hours of work per month at $50, it’s better than just one job at $200.

Hourly rates are better for long-term, on-demand work

If you’re asked to write an article, edit a video, design a logo, or plan an event that has a set date, a flat rate can be a good option as it puts you in control of your productivity while giving you a clear idea on when it will end. But if the job is a more on-demand and as-needed type of service, like consulting, an hourly rate is probably a safer and more efficient bet for you.

In consulting, you’re depending on outside factors and you want to remain available to your client without feeling like you’re taken advantage of. But accepting a flat rate for a consulting job means that every time your client reaches out to you for a task, it reduces your hourly rate, which can make you feel used and not properly compensated, which is never a good situation.

Ask as many questions as possible upfront, dig into your experience to find out what works best for you, and come up with an offering you’re comfortable with. And keep in mind that it’s not always about the short-term gain.

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Written by

Matthew Davis is a staff writer at Lili.