This post is from Careful Cents contributor Kayla, who owns the blog Shoeaholic NoMore. Over the past six months she documented her journey to quitting her job and taking the leap into self-employment.
This past July marked the 1 year anniversary of my freelance business. In that time I’ve had fun and learned a lot, but I also made a few mistakes too.
I started out solely to be a freelance writer. My first two jobs were writing jobs and while I didn’t make much per post I didn’t really worry about it. The majority of the writers I knew also charged a per post fee depending on the length, complexity, and research required for the post.
Then one of my clients asked if I’d be interested in some virtual assistant work too. I read up about what a virtual assistant was, but since I had never done anything like that before, I had no idea how much to charge.
Not only that, I didn’t know there were different billing methods that would allow me to earn more money in less time as a freelancer.
There are different billing methods you can use when setting your freelance rates. Some of which could help you earn more money and spend less time working, depending on your schedule and workflow.
Here are some of the most common billing models and the pros and cons of each.
Charging by the hour
This is how I started out charging many of my VA services and I still have some clients on this billing model today. The hourly rate model allows you to work any number of hours needed for the tasks your client requires.
This may mean you aren’t working as efficiently as you could be. After all, the longer a project takes, the more you get paid. The hourly billing model could mean you’re nickle-and-dime-ing your clients for every little task you do.
Stephanie Halligan, the make-more-money creator and coach at You Deserve More said “I was billing at an hourly rate for all of my clients and I couldn’t help but feel cheap and resentful every time I was working on a project.”
A downside of this model is that you’re basically exchanging time for money, just like at the 9-5 job you dread, and your earnings are directly tied to how much you work. There’s no way you can begin to earn more and work less with this billing model.
Another downside of the hourly model is that neither you or your client know how much you’ll be earning until the end of the pay period. This makes it difficult for you and your client to plan ahead and budget accurately.
Charging a monthly flat rate
Many of my clients are now on a monthly flat rate model instead of an hourly model. With this model you’re often pre-paid for your services since it’s easier to calculate versus the hourly rate model.
Depending on the type and scope of work you are doing for your client, you may or may not have to specify how many hours you’re willing to work for the monthly rate you agreed upon.
For instance, I have one client with tasks that vary greatly from month-to-month, therefore I specified in my contract that I would be willing to work up to X number of hours per month for the fee we agreed on. Any hours above that are a la carte and are charged at a higher rate.
On the other hand, I have a couple of clients that I simply charge a flat fee to every month and they have no idea how much time it takes me to do the assigned tasks. This is based more on what my service is worth to them than how much I’m paid per hour.
Stephanie Halligan agrees, saying;
I find it’s so much easier to articulate my value when it’s not tied directly to an hour, but many clients only think that way.
Another benefit of the flat rate model is that you don’t have to track your time to get paid. Finally, the monthly flat rate model encourages you to work as efficiently as possible because you’ll be paid the same amount no matter if the project takes you 2 hours or 10 hours.
Updating your current billing model
I plodded along with my hourly rate model for 10 months before I decided to change most of my clients to a flat monthly rate for a contracted number of hours.
This allows me to work however fast or slow I want and be able to earn a set amount of income.
Changing your billing model is not usually difficult if you communicate clearly with your clients and spell out how changing your billing model will help them with their business planning.
When I emailed my clients to let them know I was changing my billing model, I pointed out a few important facts:
- The value of my services to their business. If there was concrete evidence that I had helped them grow their traffic, income, etc. I politely pointed it out.
- Our excellent working relationship and my desire to continue working with them over the long-term.
- Moving to a flat monthly rate would help them with budgeting and business planning. They would know exactly what their expenses would be every month, instead of them fluctuating from month to month.
If you approach your clients with this information and your services are still within their budget, chances are they will agree to your request. Most business owners understand the fact that if they choose not to continue working with you they’d have to find, and train someone new. This process takes time and costs money.
There are other billing models you can use in your freelance business too, and ultimately the best billing model for both you and your client depends on what type of work you are doing.
Since changing many of my clients from the hourly rate model to a flat monthly rate in May, I’ve earned more money and spent less hours working than I did in the previous 10 months on an hourly rate model.
This change is a big part of what gave me the confidence to finally turn in notice at my full-time job on July 1st.
What’s your current billing model? How has it changed since becoming a freelancer?