Grab a coffee, get comfortable and make sure you read this post in full. It's dawned on me in the last couple of days that I've screwed up my pricing big time. I've made a really obvious mistake that's meant I've been losing 80% of all my money.

The Phases of Pricing

There are some fairly consistent phases that freelancers (or small web design businesses) go through when it comes to pricing, it's basically a learning experience moving from one to the next. Assume about a 6 month gap between each one:

When you start freelancing you generally charge project rates, £500 and you'll do absolutely everything. Generally you do this for a while until you realise that clients like to add stuff on mid-way through on a regular basis, so you end up doing more work than you quoted for.

The next phase is to try to implement some god-awful complicated contract that ties the client in to only the specific work that you quoted for in the first place and nothing else. This doesn't work either. The second you start having arguments with a client about what is and isn't in the contract, the project is pretty much dead.

After a while you decide that the best way to go is with an hourly rate. You give the client an estimate of the number of hours that it will take to complete a certain amount of work, then you charge them for the actual number of completed hours. This kind of works but, as I've discovered, only on small projects.

The Issue With Hourly Rates

I recently quoted a client 110 hours of work to redesign their site and build the new version of it on WordPress. It's a pretty big project, so it has a detailed list of milestones to hit. After the quote had been approved I mapped out these milestones, as I do for all larger projects, but a couple of days ago I realised a rather drastic error with this.

While 110 hours was an accurate quote for the work, it was assuming that I would do all the work back-to-back, with no breaks. It didn't take into account time spent waiting for feedback, or anything else really. The milestones which I'd mapped out spread over 8 weeks... assuming that I work 35 hours a week this means that the project would actually be taking up 280 hours of my time.

Re-calculating the project quote with 280 hours instead of 110 brought my hourly rate down to about 1/5th of what it should've been.

Big fail, and it's not the first time I've done it.

Of course, some people would say "but of course that's correct, you take on other projects at the same time to make up for the down-time" - but that doesn't really work for me. For larger projects I don't really like to take on more than one thing at a time; I find it hard to spread my focus that thinly. I still take on smaller writing commitments and so on but I don't like to juggle big clients.

So in a nutshell, this is why I have a high hourly rate but I'm only just getting by in terms of finances.

The Next Phase of Pricing: Daily & Weekly Rates

Hourly rates still work for small projects. For a 1-page design, charging for "10 hours" of work makes perfect sense. For bigger projects I think it's going to be a lot more efficient to charge daily or even weekly rates. Having a daily or weekly rate ensures that you're getting paid for down-time. It's also a far more realistic metric to track. How many hours have you spent on your current project in total? Not only do you probably not know, but you probably wouldn't even be able to work it out. Days and weeks on the other hand are a little more tangible. There's still the issue of how many hours are in a day, which may fluctuate, but overall it's a lot more stable.

There might still be a better way of doing it - but I'm fairly sure that this will be an improvement.

What About You?

I'd love to hear which of the phases of pricing you've been through and what you've found to be most effective in not letting that down-time go to waste!

Photo by Jessica Rabbit's Flickr