Project Pricing: Flat Fee vs. Hourly Rate

Project Pricing: Flat Fee vs. Hourly Rate

bookkeeping-fees-247x300

There are two pricing models that are commonly used in the editing world: the hourly rate and the flat fee (sometimes called “project pricing”). Both models have their proponents and their critics, but I feel quite strongly that the hourly rate is the best option for both me and my clients.

I sense your skepticism, client, but let me explain. The hourly rate guarantees two important things: it guarantees that the client doesn’t pay for unused time, and it also guarantees that the editor is paid for all of the time s/he spends on a project. This ensures fairness for both parties.

Let me explain this in practical terms. If I charge my client a flat fee for a job — say, $.02/word for copyediting or $150 for a resume — I calculate that fee assuming I’ll spend a certain amount of time to complete the job. If the document is unusually clean so that the editing takes less time than anticipated, or if the client doesn’t request any revisions after receiving the first draft of the resume, then I spend less time than expected on completing the project and can watch an extra hour of Netflix on the client’s dime (or, more likely, take on another project and essentially get paid twice for that time). This isn’t fair to my client. However, if the document contains far more errors than is typical, or the client asks for an unusually high number of revisions to the resume, then I’ve lost my Netflix time (and perhaps had to decline additional work) — and this isn’t fair to me. With flat-fee jobs, someone almost always loses, and that someone is often (but not always) the client.

Clients love flat fees because they know exactly what the bill will be, and there’s definitely something to be said for not having to worry about unexpected expenses. However, what clients don’t realize is that they almost always overpay on flat fee projects. Because a handful of clients simply will not enter into an hourly agreement due to the uncertainty of the final costs, I do occasionally write contracts for flat fee projects. But here’s a secret: when I write a flat fee contract, I charge the client for the absolute upper range of the time I estimate that I’ll spend on a project. This makes it far less likely that I’ll lose out on my Netflix time (and lose additional paid work). This also makes it far more likely that a client will pay more than s/he would have under an hourly agreement.

When clients enter into an hourly agreement, they never overpay and I never put in unpaid time — an arrangement that benefits both parties. When I give clients an estimated project cost for a job that will be billed at an hourly rate, I provide a range. I say, “I estimate that this job will take me 10-15 hours. At a rate of $X/hour, the project is highly unlikely to cost you more than $X.” I’m fairly generous with the upper limit so that I don’t surprise a client with a final bill that exceeds the estimate. Using a generous range allows me to give clients an accurate idea of how much they’ll spend while also giving myself a little bit of wiggle room when unexpected issues arise. (A really sloppy manuscript, excessive revision requests.) This is obviously a plus for me, but it’s also a plus for the client — the bill often ends up being at the low range of the quote (or maybe even below the quoted price!), and 99.9% of the time, it’s lower than the upper limit. This works well because my clients don’t buy time that I don’t use, and I am compensated for all the time I spend. Everybody wins.

Another advantage of the hourly rate — for both editor and client — is that it allows the project’s scope to expand. For instance, I recently proofread a client’s book in preparation for self-publishing. Once I finished, she asked if I’d also proof the cover text, the “about the author”  paragraph, and copy for the website she’d created to promote the book. If we’d had a flat fee contract, I would have told her that those items were outside the scope of our agreement and not covered by our contract. I wouldn’t have completed the work because it would have required significant additional time that hadn’t been factored into the agreed-upon cost. Since the contract was set up at an hourly rate, however, it was easy to expand the job’s scope. I didn’t have to say “no,” and I didn’t have to set up a second flat fee contract (introducing the potential for over-charging the client twice.) Instead, I said, “That’ll add a few extra hours to your project, but since the proofread is going a little faster than I originally anticipated, it shouldn’t increase your bill by any more than $X. Is that OK?” The client agreed. I was able to perform the additional services at a price that she agreed to, and I earned a fair rate for the time I spent. Again, everybody wins.

The key to creating a comfortable hourly agreement is being clear up front about how much time the project ought to take — not just providing clients with an estimated number of hours, but explaining why the project should take roughly that amount of time. That way, clients understand what they’re paying for and don’t have to worry about receiving a sky-high bill. For instance, most writers have no idea how long it takes to perform developmental editing on a 100,000 word novel and can be shocked by the number of hours required. However, once the editor explains how the time is spent, it makes sense. “Oh,” the writer thinks. “Of course it’s going to take the editor twice as long to complete this job as  it would take me to read the book. She has to read the manuscript, take notes on it, review her notes, re-read certain sections to see how they fit into the novel’s overall structure and plot, and then write up a 15-page, single-spaced document explaining her thoughts and her suggestions for revision. I can definitely see why that would take X hours and cost $X.”

A good editor will happily explain why a service costs what it does and won’t mind taking the time to make a client feel comfortable with the price.  I freely admit that when I calculate my flat fee rates, on the rare occasion that I use them, the fees are is in my best interest and not the client’s. Unfortunately, it has to be that way; as a business owner, I have to protect my time and safeguard against losing money on a project. The more fair option — the one I prefer because it ensures that clients get what they pay for while also ensuring that I get paid for what I do — is the hourly rate. It’s doesn’t have to be the uncertain black hole that clients fear it to be, and when you hire a good editor, it won’t be.

One thought on “Project Pricing: Flat Fee vs. Hourly Rate

  1. Suzanne

    True flat fees pricing is not based on one customer job; the fixed cost for a service is calculated through detailed analysis of operating/overhead cost, employee productivity ratio and cost of goods sold (labor and material). There will be jobs that flat fee pricing will not bring in profit for a company and there will be jobs that do.
    The best thing about flat fee pricing is it challenges us (our company and employees) to offer superb customer service with expediency. It is highly unlikely that corners will be cut because our trade has strict code-compliant regulations that we must adhere to in order to keep our licensing in good standing. Flat fee pricing guarantees customers/clients will know the cost up front and can budget accordingly. We have been in business over a decade and have never had difficulties receiving payment for customers. Our reviews support that we offer exceptional customer service. With flat fee pricing, we can truly be our best.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>