Hello Team! Hope you had a great week! This week I’m sending you a few thoughts on a questions I’ve receive several times. Hourly vs. fixed bid pricing. Hope you get some good nuggets below!
Every project that can be bid at a fixed price, should be.
I recommend you only charge clients based upon a billable hourly rate when you provide services that cannot be completed under a fixed bid agreement. These types of services include, but are not limited to:
- Extra rounds of changes on a project
- Maintenance requests for digital projects
- Simple design changes
- Minor content updates
- Debugging code
- Unknown or unclear scope of work
Trading time for money (i.e. charging your clients by the hour) is the least profitable way to price your work because it eliminates the value of the work you produce and penalizes you for working quickly. When charging a client based upon an hourly rate, the faster you complete the work, the less money you make.
On the other hand, properly scoping and providing fixed bid prices allows you to factor both market value and the client’s budget into your price. Perhaps best of all, in contrast to charging your client by the hour, a fixed bid price rewards you for working quickly by increasing the financial return on your time.
All of that being said, many clients will ask for your hourly rate, and you should know how to calculate it. Simply stated, your billable hourly rate is your hourly burn rate (or your hourly cost to do work) with the addition of profit.
Now you may be thinking, “So, how much profit should I add to my cost when calculating my billable hourly rate?” Good question. Your billable hourly rate should include as much profit as your clients will approve. Making this determination usually requires some experimentation, an understanding of what other people like you charge for their time, and a bit of courage.
Hope that helps provide some clarity around hourly pricing and fixed bid pricing. When in doubt, a fixed bid project price with a detailed scope of work is the best strategy for your business.
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