How Ditching Per-Project Billing Raised My Margins by 20–50%

It’s arguably a rite of passage for every freelancer to go through at least a few projects where they get absolutely f*cked on their effective hourly rate.

You know… those projects where the client negotiates your rate down with the promise of it being a “teeny-tiny scope…”

But soon enough, the scope creep begins. It starts with one little “oh hey I was talking to my brother and wouldn’t it be such a great idea if we…” request.

And then another, and another.

…And after a million tiny, negligible-seeming, technically-out-of-scope-but-would-feel-like-a-dick-charging-for-them feature requests, you’re over 100 hours spent on a $1,000 project.

I’ve been there, and it’s really frustrating.

Today I’ll map out the best solution I’ve found over the years for addressing this: Switching from billing by the project to billing by the hour.

Why switch from project billing to hourly?

1. You get to be an *advocate* instead of an *asshole*

If you’re billing by the project and someone wants something small and out of scope, you essentially have to say some variation of, “sure, but it’ll cost you more.”

After saying this enough times to one client, it can really feel like you’re nickle-and-diming the client. (Even if it’s not true, it still feels that way.)

Given that the ultimate goal is to have the client love our work and turn into a new “referral tree” for us, it can feel kinda “icky” to be in a situation where we feel like we’re being a douche and/or violating their trust.

This, right here, is the #1 reason why I love billing by the hour.

When you bill by the hour and the client wants something out of scope, the response is more like…

“Hey, what a cool idea!

Your brother is absolutely right — it **WOULD** be dopeAF to have little celebrating cats fly around the screen meowing joyfully when someone submits your contact form!

I’m a bit worried though that if we do that it’ll throw the project off budget.

You mentioned before you wanted me to spend 20 hours on the whole thing, and this feature alone might take 4.

Is it worth that time to you, or would you rather allocate that towards something more closely aligned with your site’s goals?”

What a different vibe, right? Instead of being a nickle-and-dimer, you’re a “budget advocate” who’s looking out for them.

The whole website-building lens switches from being “You get a [vaguely-defined] website for $XYZ” to “You want me to spend a specific number of hours building this; how can we best use those?”

2. Projects stay on budget more

Wouldn’tcha know it, when clients have a pulse on “more features = more cost” (but in the non-douchey lens of being their budget advocate), they’re less keen on pursuing every emergent idea.

Which means projects tend to have less scope creep.

And when they do have scope creep, it’s creep that the client made a confident decision to pursue.

This means more on/under budget projects, and more clients getting their financial expectations met/exceeded.

3. You’re compensated fairly for your time

I used to charge by the project. The optimist in me would say something like…

“I want my effective hourly rate to be $100/hr, and there’s no way in hell this project will take more than 20 hours, so if I charge $3k, that’s like a free $1,000 in my pocket, sonnnn!”

– Silly, naïve Past Zach

Inevitably, after a million of those tiny out-of-scope-but-would-feel-like-a-dick-billing-for-them feature requests, the project would end up 20-50% over budget.

I think in all the time I billed by the project (~7 years) I came in under budget and got “free money” maybe 3 times? Mayyybe?

Meanwhile, the amount of times I ended a project resentful at what I was actually paid is difficult to even count because it was just basically all of them.

Drawbacks of hourly billing

If you’re a newer freelancer, hourly billing might not be a good fit for you just yet. Here’s why…

1. It requires more trust in you

Let’s face it… hourly billing never really benefits the client. It mostly just benefits the freelancer.

A client likes to know in advance exactly how much something is going to cost, and everyone’s heard horror stories of a website that was supposed to cost $X and ended up costing $X*20.

If you have a big portfolio, lots of testimonials, and mostly work with word-of-mouth referrals, this trust is no problem. You already have it.

But if your portfolio is small and you’re working with colder leads, you don’t have that trust and will likely scare some people off by charging by the hour.

2. It will probably negatively affect your conversion rate

As mentioned above, hourly is not as attractive of a billing model to a client as per-project.

So if you’re starving and need every last client you can get, it might not be a good fit for you right now.

(Note that I have some ideas in the next section for reducing conversion rate drop-off.)

3. You need to know wtf you’re doing

Before switching to hourly billing, ask yourself why your past projects were over budget.

Was it the clients fault, due to scope creep?

Or was it your fault, due to not properly anticipating how much time things would truly take?

If you’re not good at estimating projects yet, you’ll still go over budget when billing hourly, and charging a client 2x what they were expecting with no scope change is a sure-fire way to breach trust and not get referrals from them in the future.

The solution: if you’re over on hours and it’s your fault, just eat the cost and use it as a learning experience for next time. This keeps the client happy and is the same financial end result as if you’d gone over budget when billing by the project.

4. If you run a productized business, hourly might not be a good call

If every site you build is basically the same, and you’ve implemented systems and automation to streamline parts of your process, chances are that the “free money” allure of per-project billing actually applies to you in a way that I could never successfully implement in my own bespoke website biz. Pat yourself on the back, cuz you be ballin’.

👟 Action steps: how to switch from project billing to hourly

It’s pretty much as simple as just deciding to do it. But I do have a couple tips that may help ease the transition.

Sending proposals

So let’s say you want to switch to hourly. How do you deliver a proposal in a way that doesn’t scare prospective clients off?

What’s worked well for me: structure your proposal very similarly to how you would a per-project quote.

People like per-project quotes because they feel a certain degree of confidence that the quoted amount will be the actual amount. Per-project quotes usually go something like…

“Hey CLIENTNAME, based on your requirements for 4 pages and cats that fly around when the form is submitted, I estimate that the project should cost $2000”

— Per-project estimate

---

The way that I’d aim to re-create this vibe with an hourly quote would be something like…

“Hey CLIENTNAME, based on your requirements for 4 pages and cats that fly around when the form is submitted, I estimate that the project will take about 15-20 hours, which would be $1,500 – $2k based on my rates that you can find here. << link to your rates page >>”

— Hourly estimate, structured like a per-project estimate

A proposal in the wild

Here’s a real-life example from my last “normal client project” that I did a couple years ago. (I’ve since then been doing ongoing work for one big client.)

So that’s where we started, and here’s where we ended up:

Super-nice feeling to initially have them expecting $10k and end up 31% under budget! 🎉

How to handle invoicing for hourly projects

What I’ll usually do – and your preferences may be different here – is a $1k deposit + monthly invoicing for the hours spent that month.

However, I wait until I’ve accrued at least 5-10 hrs before invoicing. So that means if there are a lot of slow “waiting around” months, I may wait several months before invoicing.

And then on the final invoice, I’ll simply deduct the deposit.

I’ve never had a final month’s work end up being less than the deposit, but if it did happen I’d just refund them the money. (I usually avoid this happening by waiting to bill if it seems like we’re on the home stretch at the end of the month.)

Note that in my example screenshot above for the past client, the reason that my second invoice was for such a huge time range (August through February) is that I only spent a few hours on the project between August & January while I waited for the client to get everything together.

Billing for project management time, phone calls, etc.

If you feel weird about billing for time you spend talking to clients, here’s something I implemented that might make it feel less “icky” to you…

For all projects over 40 hours (which is my preferred project size), I include 3 comped hours of strategy, project management, phone calls, etc., and then everything after that is billable.

This is another step towards not creating a situation where I might be seen as a nickle-and-diming douche, while also ensuring that projects that require a lot of management time are fairly compensated.

Thassit.

So what do you think of the idea of hourly? Any questions, comments, or objections? Let me know directly or in the comments!

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Cheers 🍻,

— Zach