Hourly rate or by-the-project pros and cons for graphic design fees

This is a great topic we’ll revisit in one way or another many times. For now, I’m going to list out some pros and cons in the form of bullets for each type of payment. There is no right or wrong answer here, but rather we have pros and cons based on situations.

Pros for hourly rate:

• You get paid for the time you work
• It’s 100% quantifiable
• It’s your bread and butter with established clients
• You and your client feel good and have a great level of trust to be at this point
• You like when this work comes in

Cons for hourly rates:

• Clients distrust hourly fees when you have not worked with them long enough or built a relationship over time
• Hard to know what rate to set with each client, unless you just have a simple flat fee or simple two-tier system in place
• You have to wobble things around to know what to charge for
• You have to have a pretty good system for tracking hours
• You have to decide how you track time: in quarter-hour increment, half-hour increment, or hourly or daily.

Pros for by-the-project or fixed bid graphic design fees:

• If you do really well and hit the ball out of the park in several  key phases of the project, your profit can go way up which makes your internal hourly rate take a nice leap forward
• It settles the client down to know that the bill will not change and makes them happy
• For the right job, it makes perfect sense. For instance, the logo design process can be fixed up front to a certain exact work scope and fixed number of hours. Other technical jobs, like custom programming or web site creation where the content and navigation are changing as the client sees the site coming together are not a good mix for fixed bid fees. Estimated fees for these kinds of projects are the only way the designer can be fairly compensated while trying to hit a moving target.

Cons for by-the-project or fixed bid graphic design fees:

• If you underbid, you are stuck with the responsibility to deliver for your client, no matter what.
• You will have to work on a more detailed scope.
• You will have to say “no” to the client when they request something outside the budget, or at that point work on an additional fee or hourly rate to accomplish the extra task
• Fixed bid projects are larger so you take more risk on the back end of the project for getting paid on time, or getting paid at all (in these trying times…)
• Overall, fixed bid costs to you are time in the planning and documenting department

This is by no means an exhaustive list, but is rather a quick brain dump of the main highs and lows of each billing method.I think one method that is not used enough, not because it doesn’t work, but because some designers afraid of losing a job might not want to try it. The estimate method is very strong:

Pros for the estimate method:

• Gives client a general range of cost, but nails down an expected cost based on a scope you have worked out
• Allows you some flexibility in deciding what to charge and not charge for.
• Allows for some scope creep (inevitable) but at the same time doesn’t create a situation that makes you have to go write more documentation and cost fixing for additional work. Under the estimate model, you can simply verbally or by email tell a client “We can do that, no problem. That will take 5 more  hours…”

I have found that the estimate method works great for new and existing clients. The trust-based hourly rate clients all seem to naturally fall into this mode. I’m hourly but bigger projects get an estimate. If I’m way off, I just eat the overages because I value the long-term value of the client. No need to worry over 2-3 hours here and there if over the long run you are able to get consistent work and you are both happy. In that case it all comes out in the wash. The least workable model for larger projects (typical freelance graphic design projects, especially web design) I think is the fixed bid. It can create unrealistic expectations by default for some reason because it requires copious documentation as well as copious understanding of said documentation on the part of the client to understand what is in and out of scope. In other words, though it’s in writing (and took a long time to write) sometimes it’s not clear to the client what they can and can’t request. Nothing is less fun than saying “that’s not covered in the agreement” to a client. It creates a more rigid eye-for-an-eye type of relationship that is easy to create a sense of resentment in for both yourself and client. The client can’t understand why you just can “tweak the layout a bit here” and you can’t understand why they don’t understand “that’s not in scope”. Of course, any of these methods can indeed work wonderfully. I have had clients that used me in both fixed and hourly scenarios. For instance, repeat work that involves updating web content or formatting new content into an existing print piece are all hourly. But the same client would also have me working on knocking out basics for new customers at a fixed cost since the scope was always 100% the same. So it makes it easy to just go in and get it done.

Fixed bid graphic design fees – a final good word:

One last thing, to say something good for fixed bid systems: they do in fact work great when you know for a fact the scope will not change. Simple print design falls in this category. There is only so much work a post card could possibly take given the source photo and logo the client sent you, for instance. You could just say 5 hours or 8 hours and it’s no big deal if they decide to swap the photo. In reality, changes to small fixed bid projects, especially print design projects, are easier to just knock out in 10 minutes than to take another 20 minutes for billing and emailing and stress. As I mentioned above, the logo design process can also fit this process very well too.

Summary: Mix up your graphic design fee methods!

There is no one size fits all graphic design fee structure or system that works for all clients and projects. Try and get to hourly by building trust, but be open to fixed bid fees on smaller simpler projects, and try to use the estimate model which doesn’t require copious documentation and onerous detailing of changes in scope as a larger project rolls along. As trust with your clients builds over time, you will likely not have any billing issues, as you both grow in understanding and appreciation for the mutual value and benefit you bring to one another.