Should You Bill by the Hour or Project?
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John Rossheim | Monster Senior Contributing Writer
There’s more than one way to make a buck. You can charge your client by the hour, or you can negotiate a set fee for the entire project. Which is the best business decision? To some extent, it depends upon the nature of the services you perform.
However, the independent professionals we spoke with recently surprised us with their strong consensus: For most IT contractors, it’s almost always better to charge a project fee.
Win Clients and Keep Them Happy
Most clients are likely to choose a proposal based on a set fee, IT contractors say. “It’s like the difference between a building contractor who will put an addition on your house for $20,000 and one who will do it for $20 per hour plus expenses,” says Bob McAdams, president of Fambright, a custom-software firm in Lincoln Park, New Jersey. “You may not be sure which alternative is cheaper, but you at least know whether or not you can afford the first guy.”
But doesn’t billing per project open you up to fiscal risk? “Some people argue that hourly billing is a lot safer because you’re protected if the project takes longer than you expected,” says McAdams. “But if you’re that inaccurate about estimating how long a project is going to take, you’re likely to end up with a dissatisfied client.”
Melissa McNatt agrees that an accurate proposal is key. “To charge by project, you make the goals extremely clear,” advises McNatt, principal of JumpStart Sales, a salesforce consulting and training firm based in San Bruno, California. “We have very detailed conversations up front, and the proposal then puts the details in writing.”
“If there are midcourse changes in the project requirements, your agreement with the client sets the stage for adjusting the fee,” she adds.
Increase Your Income
IT contractors say that charging by the project should also enable you to boost your bottom line in the long run. “It might take me 1,000 hours to develop a training course for the first client, but just three hours to convey the information to other clients,” McNatt says. “Each client should pay for your expertise even if the same number of hours aren’t necessary to compile that expertise.”
Charging by the hour can help you improve your net. When you’re working on your own time, there’s a strong motivation to improve your productivity, whether by adopting more efficient technologies or improving your work habits.