Why I Use Flat Rate Pricing
Years ago, when I first tentatively dipped my toes into the world of freelance graphic design, I made the mistake of charging an hourly rate. I was still a student who wasn't confident in my abilities. I didn't know how long a project might take me and I anticipated a lot of time spent learning along the way. I didn't want to be stuck working for pennies because it took me forever to figure something out so I reasoned that it was safer to charge per hour. At the same time, I realized that I might not be working very efficiently so I lowered my hourly rate to be more "fair". I had managed to create a lose-lose situation; I was devaluing myself and simultaneously leaving the client on the hook for any of my deficiencies or growing pains. Charging on a per-project basis can solve these problems and help you create win-win scenarios with your clients.
Flat-rate Pricing Protects the Client
The main benefit of flat-rate pricing is also the most obvious: certainty. The client knows exactly what they will be paying from the very start. They don't have to worry about me over-reporting hours or dragging my feet to make an extra buck. Once the price is agreed upon, they can set their budget and move on with their life; simple. No worries, no guessing, no confusion.
We all have off days; maybe I'm facing a particularly intense design challenge or I'm feeling under the weather. Maybe I'm just in a rut or there are a lot of unforeseen distractions. Whatever the reason, there is simply no way for me, as a human, to operate at peak efficiency all the time. That is not the clients responsibility, it is mine. As a professional, I want to shoulder the burden of those less productive days, not pass them on to my customers.
The client is paying me for the best design solution I can produce. No one cares if it took me 15 hours or 45 hours. If my time estimate is way off on a project, I hold myself responsible. After all, setting the price is my job and the client should not have to pay for a mistake that I made. Charging an hourly rate has the inherent temptation to drag a projects out to retroactively make your quote seem accurate. Even though I know I value my integrity over a few extra dollars, new clients may have their doubts. Better to eliminate that opportunity for mistrust. If I create the solution in half the time, guess what, I can deliver early without the nagging sense that I'm leaving money on the table. I'm happy that the project went smoothly and the client is happy to be ahead of schedule. A true win-win scenario.
Charging an hourly rate doesn't let you over-deliver
I believe in over-delivering. I want my clients to feel like they've received value above and beyond what they've paid. That way they walk happy and I can build up word-of-mouth referrals. Over-delivering also helps cover up any hiccups in your process. While it is certainly the goal, I'm not arrogant enough to think that everything will go smoothly in every project from start to finish. If you over-deliver on value, the customer will still always have a positive experience; they'll be focussed on the awesome cover art I provided, not the little bumps in the road along the way.
Charging an hourly rate hinders you from over-delivering. It takes time and effort to exceed expectations; if you charge them for the extra hours you're not over-delivering, you're up-selling. In order to over-deliver while charging an hourly rate you either have to reduce your rate or put in unpaid hours. Neither of these are good options because they devalue you as a person and a professional. Another, minor, point is that these approaches can actually mislead the client about the amount of work it takes to make a great product. They won't really understand the extra value you provided and they will have skewed expectations about future projects with you or other freelancers.
When you charge a flat rate, you can put as much extra work into a project as you want; you aren't beholden to a pre-determined number of hours. If you see an opportunity to give the client extra value, you're free to seize it. There is no need to account for it on the ledger or convince the client that it was worth the additional hours. You simply deliver the superior product and watch their face light up. They're pumped about getting a great design, you feel good about a job well done and they're more likely to send work your way in the future. Again, a win-win outcome.
Unbillable hours
There are two kinds of unbillable hours; the first is time spent indirectly working on the project. I can't tell you the number of times I've been standing in the shower or driving down the interstate and I suddenly come up with the perfect solution to the problem I've been contemplating. This scenario isn't unique to designers; any professional whose job requires problem solving or creative thinking can relate. How often do you go to bed and you can't sleep because your mind is still trying to solve the puzzle that you should have left at work? Solutions that come to you while you're walking the dog are just as valid as those contrived while sitting at your desk, but are you really going to put "walking Fido" on your next invoice? Didn't think so. It's much better to charge a flat price and be free to let your mind work on the problem naturally.
The second kind of unbillable hour is in the past. I have a four-year degree in mass communications and graphic design. I also have over five years of professional design experience under my belt. Every day, I continue to sharpen my skills and expand my education by practicing, reading and of course listening to podcasts. This means every time I take on a project, I am capable of providing more value than ever before. I'm sure a lot of my readers easily eclipse me in terms of work experience. These investments of time and money should absolutely should be taken into account when pricing a project. After all, clients are looking for professionals to solve their problems, not amateurs.
You've probably heard this story about Pablo Picasso. The details vary depending on who's telling the story, but here's the gist of it:
A lady asks Picasso to draw a portrait of her. Pablo agrees and, after pausing for a moment, draws a single stroke on the page that perfectly captured her personality and form.
"It's perfect," she exclaims and asks how much she owes for the amazing work of art.
"Five thousand dollars," is the reply.
"Five thousand?! But it's a single line and it only took you a moment to draw!"
"Madame", Picasso patiently responds, "It took me my entire life."
There is a similar story about a veteran mechanic repairing a machine by simply tightening one screw. After the foreman disputes the bill, the repairman turns in an invoice that reads, "Turning the screw: $1.00. Knowing which screw to turn: $999.00." Hard to argue with that.
I don't know how true these stories are, but they illustrate some important principles. First, experience and expertise are extremely valuable. They enable you to solve the problem and that is why you are getting paid.
The second lesson is more nuanced and often overlooked. Notice that Picasso didn't charge $5,000 per minute; he charged for the completed piece. You can try to account for your years of experience by raising your hourly rate, but you eventually run into problems. First, it subjectively feels ridiculous to charge $5,000 per minute (or whatever rate the top of your field demands), but it does seem appropriate to pay top dollar for an effective solution created by an expert.
An hourly rate is going to be unfair to one party or the other. If Picasso had taken ten minutes to draw the portrait would he have charged the patron $50,000 for the same product? I don't think so. And what if you find the perfect solution for your client in half the expected time; should you be punished for efficiency? Again, the answer seems obvious. Charge for solutions not hours.
Value, Professionalism and Potential
Pricing should be about the value that you are providing for your client. Ask yourself, "How can my design solution improve their bottom line?" (Of course there are other measures of value besides money, but that is outside the scope of this article.) The fee that I charge is a sliver of the value that I feel I will ultimately be realized by my client, therefore my customers are always getting a great deal. Flat-rate pricing has the tertiary benefit of helping to keep my clients' best interests at the forefront of my mind from the very start because I cannot price a project without considering how much value I can provide to them.
Flat-rate pricing enables you to position yourself as a qualified professional who will help your clients grow their businesses rather than a necessary expense that should be minimized. When you price this way, you are saying, "I will provide x benefit to your business for y dollar amount." Hiring you is an investment. Not only that, but it helps the two parties to see one another as partners, working toward the same goal. I'm not trying to take money away from the client. Instead, we're both working to make their business better and more profitable.
One last, very significant, idea I want to bring up is the concept of decoupling your earning potential from time. Time is a finite resource. If you link your income to a finite resource you are limiting your earning potential by definition. There are 24 hours in a day and we can't add any more, no matter how hard we work. If you charge per project, based on the value of the final product, there is no artificial limit to your earning potential. You are only limited by the value you are capable of creating, as it should be.
On the surface, this may sound like a purely selfish point, but it's not. Yes, of course you want to make more money, but think of the freedom and focus this untethered income will give you. You won't have to worry about desperately hunting for clients and cramming your schedule with work just to keep the lights on. With this pricing structure, you can afford to be selective with clients to not only find the absolute best fit, but also really focus on providing value to each customer. Flat rate pricing allows you to reach your highest potential in terms of both income and the quality of work that you produce.