Don't cheat yourself: Charge by the project

Prospects and new clients often ask, "Do you charge by the hour or by the project?"

With rare exceptions, I charge a set fee for each project.

Billing by the hour for a project can lead to two unpleasant possibilities:

• You quickly develop an idea in a flash of insight and flesh it out. But if you're honest, you can only bill for the few hours it took to solve the problem, a fee far below your solution's actual value to your client. You cheat yourself.
  
  
• You work at a leisurely pace to pad your hours, or you do the job half-heartedly, requiring constant revision. You cheat your client.

Here's how to establish a flat fee that's fair to you and your clients.

1. Use your hourly rate as a starting point. Decide what you are worth on the open market and consider your financial goals.

When I started freelancing in 1979, I figured that every job had to bring me a minimum of $25 an hour. Today it's $125-plus. Nothing less is acceptable.

2. Determine the time it will take to do the job right. Factor in research and travel as well as other related functions.

Remember, your reputation and business depend on delivering the highest quality work. Be sure you have the time to weigh ideas and carry them out, and allow for client revisions along the way.

3. Use this formula to start: Fee = Rate x Hours. This is the absolute minimum you must make for the project.

Estimate it will take you 10 hours at your rate of $75, and you must charge at least $750. If your client can't pay this minimum fee, then the project's not right for you.

Going below your minimum lowers your perceived value in the marketplace and may make it difficult raise it.

4. Add non-routine costs to your estimate. I consider one or two FedEx packages or a reference book to be normal expenses for a job.

But I bill the client for everything else, from out-of-town travel to rush messenger charges caused by my client's schedule changes. I also add purchased research materials over $50 to my fees.

What do you do once you've decided on the fee you'd like to charge?

Propose the project's market value and negotiate if necessary. If other professionals charge $1,500 for the job, quote that as your fee.

If you think you don't have the experience or reputation to ask for that, propose $1,250 or even $1,000. You can always negotiate and accept a lesser fee as long as it's at least your $750 minimum.

The fee-for-project concept can work and is in everyone's best interest. But what about the times you have to work on an hourly basis?

I'll cover that in my next column.

About the teacher:
David Perlstein has been a freelance advertising copywriter in San Francisco since 1979. He is the author of Solo Success: 100 Tips for Becoming a $100,000-a-Year Freelancer, Crown Publishers, New York.