1. Your Hourly Rate May Scare Away Clients
If you’ve been in the self-employment game for several years, then you’ve probably raised your hourly rate several times. It’s only fair: Now that you have more experience, you work twice as fast, you require less direction, and you make far fewer mistakes, resulting in fewer costly, time-consuming problems for the client.
But do you clients and customers realize that? They may only look at the bottom-line number: What do you charge per hour? If it’s too high, you may be scaring off business.
WHEN YOU CHARGE A FLAT FEE, IT IS MUCH HARDER FOR A CLIENT TO SEE IT AS AN UNFAIR NUMBER
And this isn’t just a problem for old pros. When an entrepreneur is new to the self-employment game, even if she has experience in the corporate world, they often have a tough time establishing fair hourly rates that reflect their knowledge and skills. Unfortunately, the fact is, clients only see that number and what they want is to keep costs to a minimum.
Enter the flat fee.
When you charge a flat fee, it is much harder for a client to see it as an unfair number, indeed, usually the opposite is true: Flat fees often look like a great value because the client does not see that high per-hour charge.
2. Hourly Billing Takes Money Out of Your Pocket
Think about it: hourly rates actually punish self-employed folk for becoming more efficient. Unless you raise your rate at the end of every project, then your billing rate will always lag behind your actual experience, and eventually you will paint yourself into a corner.
Even though the totals are the same, a client who believes that they cannot afford your hourly rate might happily accept a comparable flat fee bid.
3. Flat Fees Reflect Value
As a self-employed entrepreneur, it can be difficult to communicate the true value of your services to a client. Somewhat paradoxically, breaking your fee into installment blocks, such as an hourly rate, can actually make your service appear less valuable. Clients want more bang for their buck, and if your process is totally transparent, then your client might not be able to see the forest for the tress—they would rather buy the forest and get on with it.
4. Flat Fees Reduce Conflicts and Improve Your Professional Relationships
Another benefit of flat fees: they eliminate the terminal debate over hours that ultimately sours a lot of successful projects. Clients usually love flat fees. they are predictable. They can be budgeted. They may even seem low. And since, in the end, your clients only care about the total cost of the project, why not present the total fee up front?
Of course, in order to secure a contract you are going to need to make a reasonable and competitive bid. If your bids are being frequently rejected, then it’s possible that you have overestimated the value of your services. But it is absolutely reasonable to assume that a client who accepts your bid has already made their peace with the fee, and if you finish a project faster than expected, then you are in effect earning a bonus for productivity.
Also, with a flat fee, the price tag for the project is the same every time. If a client brings you return business or contracts you periodically to accomplish the same task, then hourly billing can result in some awkward explanations. (9 hours? But last time you did in 8!) Better to avoid anything that calls your honesty, your work ethic, or your process into question.
And if it only takes 6 hours, you really win.
5. Flat Fees Are Easier to Estimate
Time is indeed money, and in the long term, estimating flat fees is much easier and less time intensive than estimating a total price based on your hourly rate. Develop a rate sheet for your services and adjust annually; this will give your clients a clear understanding of your value as a freelancer, and it will help you adjust the scope of a project to fit a client’s budget before the work is finished.
By: Marshall Lee
