Solve your estimate dilemmas by charging a flat fee

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Even the most creative of freelancers can get in a rut.

If you’ve been freelancing for a long time, status quo can feel more than comfortable — it can feel “right.”

Of course, some of the things you might be doing now with your freelance business were, originally, the right things to do and the right way to do them.

So, it’s easy to assume that the way things have always been done is the best way.

Sidenote: Once you finish, read how 4 freelancers built recurring revenue models that changed their business. You'll love it.

Take billing your clients, for example. You probably started your freelancing career by billing clients by the hour, and maybe you still do.

And why not? That’s fair, right? You do the work, and your client pays you for the time you spend doing it. No more, no less. It’s a simple system, it works, and both parties are happy. It’s not broken, so why fix it?

The problem is, it is broken — at least, it is sometimes. Because the truth is, there is a time when hourly billing makes sense.

However, there is also a very specific time when it does not — and the nature of your freelance work determines how you should bill.

You'll also enjoy this episode of our new podcast...

When hourly billing makes sense

The situation most suited for hourly billing is when your freelancing runs indefinitely for a client. If you are freelancing for a company, and for all intents and purposes you resemble an employee more than you do a freelancer, that’s when billing a client by the hour makes sense.

The reason being is the inherent nebulous nature of a long-term contract. No one knows when the agreement is going to end. Its very lack of definition requires an on-going system of payment.

I, personally, have a client for whom I’ve been freelancing on almost a daily basis for 21 years. For this client, billing by the hour makes the utmost sense.

When to charge a flat fee

But, just because you’ve only been billing by the hour doesn’t mean it’s your only option. You can charge a flat fee for your projects. And here’s when you should be doing just that: anytime you’ve been asked for an estimate.

Whoa! Wait a minute. Anytime a client asks for an estimate? Yes, anytime and every time — and here are the reasons why.

The difficulty of estimating costs

There’s very little science (and not even much art) to estimating the cost of a project. 

Even the most experienced freelance veterans and seasoned creative agencies will tell you that they get it wrong — way more often than they’d like to admit and usually not in favor of the client.

That is, they underestimate. It’s no wonder that most freelancers hate to give estimates.

They’re rarely correct, and getting them wrong only reflects badly on the freelancer. Worse yet is dealing with a client who can’t go over a firmly set budget and thus refuses to pay. Talk about setting yourself up for failure!

A finite project

Now, let’s look at this fact: If you are being asked for a cost estimate, the project you are estimating has a definitive end. You can’t give an estimate on costs when those costs are ongoing with no end in sight.

So, by its very nature, an estimate can only be given for a project that you know is going to end — and the estimate defines the parameters for when you think that’s going to happen.

It doesn’t matter if the project is big and will last for months, or if it’s small and will only take a few hours. The point is, it’s finite. And for that reason alone, so should be its cost.

It’s really quite simple: All you need to do is take the estimate you create for that finite project and turn it into a flat fee. You’ll be so glad you did.

What about contracts?

But wait, you say… “I signed a contract with this client, and she knew the rate was hourly going in and that the estimate wasn’t firm. Doesn’t the contract protect me?”

Yes — if you feel like hiring a lawyer and dragging yourself and these issues into court when you get stiffed by an unhappy client.

But the truth is, that’s probably not going to be cost effective. You’ll lose more money trying to recoup your losses than if you had just done the job for the price you estimated.

Let’s look at an example. You’ve estimated how long a certain project will take, and by multiplying that time by your hourly rate, you’ve come up with a $1,000 estimate.

You’ve offered that estimate to your client, and he or she agrees to it. You then write up a contract that states that this estimate is just that — an estimate only — and you’re to be paid by the hour, even if your hours go beyond your estimate. Your client signs off on it.

As things turn out, you do go beyond your estimate, and it costs your client another $1000. Your client decides not to pay, but still wants his or her project completed by you.

If you think this could never happen to you, think again. It’s happened to me, and it’s the same sort of situation that architect Andrew Tesoro found himself in with his client, Donald Trump.

Now, you have two choices:

  1. Refuse to finish the project, hire a lawyer, and take your client to court. The lawyer fees alone will probably cost you more than the $1,000, and since a freelancer’s time truly is money, you’ll be losing on work hours for every time you have to appear in court. (If you recall, Tesoro was advised to not even go there with a lawsuit.)
  2. Eat the loss, finish the project, and kowtow to a client that has historically been wonderful to work with, but is now feeling disappointed and even betrayed by you, all because your estimate was off.

Or, then again, you could charge a flat fee, right from the beginning. No further expectations. No risk of being wrong with your estimate.

No fear. Instead, there’s complete acceptance on both sides: This is the price, the client will pay it, and you will provide your creative services — end of story.

Is a flat fee fair to the freelancer?

It certainly can be — if three things happen:

  • You become skilled at estimating a project (and learning how to do that is for another blog post)
  • You figure in a “Murphy’s Law” component
  • You aren’t afraid to quote a client what you’re worth

Chances are good — very good — that you are going to be charging more with a flat fee than you would have if you had just charged an hourly rate.

But keep in mind — your client asked for this estimate, and in creating the flat fee that accompanies it, you must protect yourself and your business. The client is eliminating risk by knowing his or her final price upfront.

In return, you, too, must eliminate your own risk, by taking into account all the things that might go wrong with this project that will cost you money, and then charging the client appropriately. It’s all part of the same deal.

Frankly, if a client can’t handle the flat fee, that client really never was your client to begin with. Your clients can pay your prices.

More money is not the only reward

There’s something else to be gained — something very important — when you change estimates into flat fees, and that is peace of mind.

Consider the contentment you’ll have when you’ve eliminated estimates from your repertoire, because you’re also eliminating the risk of being wrong. Our clients are our clients first and foremost because they trust us. They are working with us because they believe in us.

They don’t want to feel “taken” by what appears to be underhanded overcharging. Remember that perspective is reality for your client.

Of course, freelancers are human and make mistakes. But if errors can be reduced or a potential mistake can be completely eradicated, why not? The reduction in stress alone is worth it.

I know I’d sleep better at night not having to worry about going over my estimates. You will too.

So, if you are still billing hourly in all cases for all clients, consider now the time to shake things up. A little change in your billing habits can go a long way to improve your bottom line, your relationship with your clients, and your state of mind.

Let me know how charging a flat fee may help you in the comments section!

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About Patricia LaCroix

Patricia LaCroix has had a career in marketing and publishing for longer than she cares to admit. But, despite that it reveals her age, she’s willing to say that she’s been working a creative business from home in some way, shape, or form since 1986. Her creative skills run the gamut and include expertise in both visual and written forms of communication. Patricia’s entrepreneurial yet giving spirit drives her to help others learn how to work from home and create their own “lifestyle” careers.

 

More about Patricia’s business: LaCroix Creative is a full-service creative business in Chicago’s northwest suburbs. Patricia leads a talented team of associates who assist her in creating effective graphic design and written content — in print and online. Decades of experience — partnered with caring, personal attention — make LaCroix Creative especially well equipped to serve solopreneurs, start-ups, educators, coaches, healthcare professionals, and self-publishing authors.

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Comments

  1. this post makes some GREAT points that I will definitely put to use while giving my next estimate….thank you!!

  2. Thank you for your informative post. I always charge a flat fee. But I was not conscious about the reasons. I just feel it’s beneficial for both parties. Thank you for making me conscious. Now I will be more keen to charging flat fee.

  3. I think you can still be wrong and how would a flat fee cover scope creep?

  4. I’ve always charged a flat fee when clients ask for an estimate however, with written terms on the contract to ensure the client understands it’s not a free for all. If they change the scope, add on to, send additional changes after they’ve approved or don’t like any of the initial concepts (rare), there’s a clause that states there may be additional charges. I always discuss this upfront as it’s happening so that we’re in agreement. I rarely need to charge extra but it’s good to have in the contract in the rare occasion it is needed. I’ve been doing this for 20 years and still get estimates wrong! I do feel better about flat fees although I tend to underestimate my time. Adding extra time is wise.

    • Definitely. I do add to my contract what changes with my fee if the perimeters of the project change, and that is always based on an hourly fee… because again, what’s really happening there is the client just took what was a finite project and turned it into one that no longer has the same definitive boundaries. Actually, I’ve found the opposite to be true with my business. More often that not, my clients are adding this and changing that, and of course, that needs to be reflected by charging them an additional hourly fee. I do warn them: “Now, if I do this, you know that the meter turns on, correct?” I’ve never had a client balk at that. And, don’t feel bad about getting an estimate wrong, because we all do. I’d love to do my next blog post for Millo about how to make estimate more accurate. We’ll see if they let me. 🙂

  5. Flat fees won’t work for photographers because with every project you take on, the brief and parameters change. Rarely will it remain the same. You have to take into consideration things such as loading fees, copyright fees, editing fees, assistant fees, travel, insurance, overtime fees etc. Sure you can maybe charge one set fee for your time shooting but the fees significantly change with all the rest added in. I make it clear to my clients when hired that my rates are based on per hour shooting and that any overtime is chargeable on a per hourly rate. Charging a flat fee is just setting yourself up for failure and shortchanging yourself from earning more.

    • If you aren’t giving them any sort of an estimate, I think that’s fine, Todd. But sometimes, a client requests one, and I can understand why: They have a budget, and they want to know exactly how much they are going to spend. I suppose it depends on what kind of photography you are doing and how “open ended” it is as well. Wedding photographers, for example, usually set a flat fee for an event. And I think, with experience about what is involved and with the proper consideration for what might and might not go wrong, even a photographer as you’ve just described can set a flat fee, feel good about it, and accept it. (I like to call it “set it and forget it.”) If there are additional expenses, tack them on. It comes down to this: Is you work valuable in terms of the time and hours that goes into it? Or does it have its own intrinsic value? I argue that it’s really more the second value, and you can come up with a flat fee that expresses that value. Now, whether or not your client wants to pay that fee is up to him or her. But if they are going to end up paying it anyway, maybe it’s better for everyone involved if the client knows that upfront? Just some food for thought!

  6. Thank you Patricia! This helped me to take the next step on my offering to create an online class for my clients. The amount of time will vary, but a flat fee will help everyone know what to expect and how much to budget for. It will also incentivize me to work efficiently!

  7. I only give flat quotes. Makes complete sense for me and gives my work more perceived value. Great article!

    • Thank you, David! I think in most cases, as almost any project can be broken down into finite pieces to which fees can be assigned, it can be done. I’m doing it more and more myself. A rare exception would be that client I’ve had for (gasp!) 21 years that sends me revisions here and there for a number of order forms that I maintain on my end for them. I suppose I could charge them a flat annual or monthly fee, but because the flow of work is so unpredictable, the fairest thing to do for both sides, I believe, is to stick to the hourly rate. I’m good with it and so are they, and that is probably the most important thing of all: everyone is content and satisfied. That’s the ultimate goal when it comes to pricing.

    • Patricia LaCroix says:

      Thank you, David!