One of the biggest challenges that many freelancers face is trying to figure out how to charge their clients. Should you charge an hourly rate? Or set rates based on the project?

In many cases, it depends on the type of work you do, as well as what makes sense for your individual situation.

The Downside to Charging Hourly Rates

Charging hourly has one big disadvantage: you are stuck making the same amount of money each hour, no matter how long it takes you to complete an assignment. You can raise your hourly rate, and you might be able to charge a large amount, but you still need to base your earnings on how long you work.

If you charge $50 per hour, you can only ever make $50 for each hour that you work (until you raise your hourly rate). You can track the hours worked, but you can’t fudge the numbers higher, or drag out a project just to earn more if you want to retain client loyalty.

When you charge by the project, though, you have a little more flexibility in hourly earnings. If you charge $200 to write an article and you can finish in four hours, you’ve made $50 an hour. Boost your efficiency as a writer, though, and you could make even more. If you can cut your time by half, you still get paid $200 for the article, but now it’s only taken you two hours — or $100 per hour. You have an extra two hours in your day, and you’ve made more money.

Should You Charge by the Project?

While charging by the project sounds like a good idea, it might not always work out as expected. You need to be able to accurately estimate how long it will take you to complete a work order if you want to avoid undercharging. This can be a problem if you are a freelance web developer or graphic designer.

You might estimate that a project will cost $500 to complete, thinking you can finish in 8 hours, making your hourly rate $62.50. But what happens if it takes 25 hours instead? Now you’re making $20 an hour. If the project goes even longer, it may not be a cost-efficient use of your time.

Charging by the word, article or page works well for freelance writers and editors, but many of the freelance web developers, video creators and graphic designers I know charge by the hour instead.

In some cases, a template can help you speed the work along. Creating a template for certain projects can allow you to plug in certain items and quickly turn something out, making it a little more feasible to charge by the project. Bumper creators on Fiverr are a good example of this. Many of them have bumper templates that allow them to just stick in a graphic (provided by you). It’s a quick and easy way to make money.

Others put together a menu of commonly-requested packages, such as building a certain number of pages or designing a logo and accompanying graphics and providing different sizes and formats to match various social media network requirements, and figuring out what price to charge for the entire package. This works well if you have a system down and if you are confident in the time it will take you to complete the work.

What are You Worth?

In the end, the key is determining what you want to be paid, and what will allow you to make a living. Decide what the best use of your time will be, and focus on creating a pricing structure that reflects your priorities and what you are worth. You don’t want to sell yourself short, whether you decide on charging per-hour or per-project.

I'm Miranda and I'm a freelance financial journalist and money expert. My specialties are investing, small business/entrepreneurship and personal finance. The journey to business success and financial freedom is best undertaken with fellow travelers.

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