Fixed Price Vs Day Rate – Tips for pricing a project
April 14th, 2017
Written by: Jo Loveridge
I’ve been a freelancer for nearly ten years now and over that time I have worked for both agencies on a contract basis and for businesses on a project basis. Over that time I’ve tried out most methods of pricing for projects and realise it can be a bit of a minefield, so here are some handy tips to think about when quoting for your next project or deciding how you want to freelance.
Here are some tips for before the project even begins:
- Always always always get a deposit up front before you start ANY work. Even if the project is a dream come true.
- This is especially important if they are a new client and you have no track record of their payment reliability.
- I usually go 50%, but 25-30% is reasonable too.
- If the client is unwilling to pay a deposit, the likeliness is they will be unwilling to pay your invoice at the end of it.
- Be aware that if you are hiring other contractors, you will still be liable to pay them (or their deposit) even if the client doesn’t pay you.
- Get a contract in place.
- There’s some great contract templates out there, but make sure you read through it thoroughly.
- Contracts should specify payment terms and delivery terms (for both you and the client).
- It is recommended to seek legal advice.
- Get a spec in place.
- Especially if delivering a full product. This will let both you and the client know what will be delivered and will come in handy if scope creep starts to happen.
Things to consider when deciding your daily/hourly rate:
- How much is your business expenditure? Don’t forget to account for software, office rent, monthly bills etc.
- Don’t forget you have to put 20% income tax away (UK), or 40% if you charge VAT, plus any other bills!
Fixed Price
This is when you calculate how many hours/days/weeks to complete a project and you give the client a fixed price to complete that task:
Pro’s:
- You know exactly how much you’re going to be getting paid.
- You may end up quids in if you finish the project quicker than anticipated.
- Deadlines tend to be longer (could also be a con depending on how you look at it?)
- Easier to build up more income by taking on multiple projects (don’t overbook yourself though – consider outsourcing or collaborating with other freelancers too if it’s more than you can take on yourself.)
- More freedom to work on the project in your own time (generally).
Con’s
- Scope creep – probably the biggest one, client can often end up squeezing in a few more extras and it can be hard to know where to draw the line.
- If the project goes on for longer than anticipated you could lose money.
- It’s often difficult to ascertain how much time you’ve spent on a project.
- You can end up juggling multiple projects and clients which can be stressful.
- Client may drag their heels on the project if there’s no specific deadline or timeframe.
Tips for quoting fixed price:
- Don’t forget to account for consultancy time – meetings, emails, phone calls etc.
Give a ballpark figure before spending time writing any full specs, proposals or spending any large amount of time in consultancy (use your best judgement on this). Even if it’s vague, it will give you and the client an instant indication of whether to pursue the project. - If you feel like it’s dragging on, you probably didn’t charge enough (this is my own gut feeling). Use this and learn for the next time.
- Log your hours on each project (however tedious it may be) as this will give you an indication of whether you are pricing yourself correctly. Toggl is a great tool for this.
- Make sure your specification is solid – this will help when the project scope starts to creep up and you can clearly state what is extra billable.
- Put together a design / development schedule and get it agreed with the client. This way you have a focus and can allocate your time accordingly. It also gives the client something to work to if they have content / feedback to deliver in order for you both to meet the deadline.
Day / Week rate
This is where an agency, or company, specifies that they want you for X amount of days or weeks to work on a project, or you quote a day / hour rate and work on that project for that amount of time.
Pro’s
- You get to focus fully on one project at a time – I find this to be the biggest pro.
- Guaranteed day rate – you’re definitely getting paid for the hours that you’re working.
- Client tends to be more proactive on the project if they know they have you for a certain amount of time.
- There tends to be more time to improve on / experiment with the project if you’re not on a rush deadline.
Con’s
- Not much scope for earning much more than your daily rate (unless you want to work evenings / weekends).
- Cancellations could mean loss of earnings if you have budgeted for that time.
- Unable to take on more than one project at a time, so may have to turn down work.
- You may get paid less than you anticipated if the project gets completed early (depending on what you have agreed).
- Less freedom as a freelancer.
Tips:
- If you’re being booked out by the week / day, get a deposit up front.
- Use a timer to log your hours – most agencies will want you to provide your logged time. Toggl is a great tool for this with lot’s of stats available, or you can log them manually in programmes like Basecamp or FreeAgent.
So which one wins?
As you can see there are many pro’s and con’s for each – I find neither of these are the 100% ideal solution, but it’s worth considering all the options before pricing for a project.
I find often clients will ask what your preferred method is, so perhaps talk it out with them and find out what will work best for the both of you. I tend to use both methods as it’s good to be flexible, and find it depends on the client and on what my schedule looks like. If in doubt, consult a friend and talk it out!
What are your thoughts?
Do you have any good / bad experiences with either of these? Here are a few of your tweets (you can tweet me) or comment on the blog below.
I’m writing a blog on Fixed price vs Day rate for Freelancers – what are your pros/cons?
— Jo Eyre (@Jo_Eyre) April 13, 2017
@Jo_Eyre Quote fixed for what’s certain, estimate & disclaim the rest, charge discovery fees for chunking the rest into fixed as project progresses.
— Jonathan Schofield (@schofeld) April 13, 2017
@Jo_Eyre Scope creep sets in once they know you are charging a fixed price I think.
— Kyee (@kyee) April 13, 2017
@Jo_Eyre Scope Creep is the obvious one. But if you have a solid contract, then it shouldn’t actually pose an issue. 1/2
— Robert Fenech (@robertfenech) April 13, 2017
@Jo_Eyre Day rates scare people. They want to know a fixed cost in advance, otherwise it can spiral… 2/2
— Robert Fenech (@robertfenech) April 13, 2017
@Jo_Eyre Fixed price = you taking more risk. You can either win or lose.
Day rate = client taking risk. They can win or lose.
— Adam Tomat (@adamtomat) April 13, 2017
