Fixed price vs Hourly rate

About a year and a bit ago, after talking to various web designers, we made the decision to move projects away from fixed price quotes to giving estimates and then invoicing clients for actual hours spent.

Having been asked by a client for a fixed price quote, we're in the process of rethinking this.

To us, we really value the space to do a project right, to allow the client into the creative process, to look at UX considerations of ideas, to develop and test them and respond to feedback to make sure we get it right and the clients project works. Equally we don't want to have to get into the restrictive realm of limited design revisions where a client is left feeling underwhelmed by their site.

We've also found having to do fixed price quotes lead to vast amounts of project planning in the very early stages so as to define it so tightly so we could catch them as soon as they tried to bring in new features. Large amounts of this planning often ended up going out the window anyway when the client started to see their project take shape. When we blindly plough on with the project as it was initially envisioned and quoted for, we're in danger of creating websites that don't actually serve the clients business.

The thought of moving to a fixed price system seems like a very backwards, inflexible step, but at the same time we don't want it to be something that limits our ability to win new work.

So, what do other web designers do?

Do you do one or the other or both?

If you do fixed price quotes, how do you account for scope creep?

If you do flexible hourly invoicing, how do you break that to the client when a project goes 10-15% over budget?

Doug_S

I charge for blocks of time, usually a day. They get me for a day and I'll do whatever work they need doing. If we're going to go over budget I let them know by how much, how much it will cost, and how much we can do and keep in-budget.

moogaloo

Hi Doug - thanks for replying.

Do you tend to do this on all work from small changes right up to full sized projects?

Talking to my other half, I think we're going to stick to the flexible, hourly rate approach as too much of our process is lost when doing fixed price projects and we end up compromising the quality of our work and the clients project suffers as a result.

We've decided instead to just build in a 15% contingency fund that will take the hit if need be, and then if it comes in under budget, then we have an even happier client.

...and if the client insists on a fixed price we'll offer it and add the 15% anyway.

On a different note, why is this comment field editor not handling paragraphs right?!

Doug_S

Well, it does depend. If it's minor updates I estimate hours with a minimum of two for anything they ask for (helps cut down on lots of little things) and charge the what I work. Anything over a day, however, and I start just charging by day with an estimate up front. I guess, in a way, it's still charging hourly, but the difference is we have an agreed upon budget. I also make it clear that if we go over because of my bad estimates or something else I'm responsible for then I eat the costs.

That last bit makes them feel better.

moogaloo

Yep - OK - I can see how that works - thanks :)

moogaloo

Just to follow up, I wrote a 3 blog series on where we're taking this - Part 1

chris@castus

I would recommend a flexible approach which can be tailored to each project. I run an agency which bills in three various ways: 

• Fixed Price Quote The key to making sure you don’t leave yourself vulnerable is to make sure you get a full understanding of the clients needs and expectations before outline your plans in great detail. Doing this as part of a quoting proposal may seem like a lot of work before you’re guaranteed any payment but it ensures everyone is singing from the same hymn sheet from day one.
  
  
• Retainers These are my favourite accounts although I insist everyone at Castus calls them Priority Accounts (‘retainer’ makes me think ‘cash cow’ which isn’t the case). These accounts allow us to become part of the clients organisation, keeping their site ahead of competitors and gives us a chance to do some valuable blue sky thinking. Priority accounts normally commence following a successful fixed price quote. So long as the client knows how they are getting value for money and they can see a substantial return the relationship should continue infinitely It’s our job to make the client wealthy, not just to make a website.
  
  
• Maintenance Tasks Billed in 15 minute blocks, work that runs into high hundreds or thousands generally tends to become a post development fixed price quote but smaller tasks are not a worry.
  

The most important thing to consider through all of this is customer service. No one likes an unexpected bill so making sure your customers know what to expect is essential.

I like to work with Guest (Freelance) Designer on some projects but would never take someone on with free licence and a day rate. If the scope of a project changes I will ensure they are compensated to ensure they deliver the standard I expect and wish to work with me again.

mattiman

I use both. For complete projects I will give estimates of total price (most people still want that). I don't mention specific hours in that. I do mention that any work outside work agreed upon will be charged extra (by the hour).

For small support work I will charge by the hour.

thezenmonkey

I tend to prefer billing for the project, with an hourly rate for maintenance after delivery unless its new features or major change then I quote out the project again. I also point out that major changes to agreed designs/spec during development may require a re-quote.

A List Apart had a good article on this subject today: Pricing Strategy for Creatives

SvenLuyten

I have the same philosophy as @mattiman. For a complete project we have to give a total price. Of course, we can only do this once we know what the client wants. The more detailed info we get, the more detailed our quote is. Anything else that comes up later will need a new quote. For large projects working with a hourly rate is not done in Belgium. For very small projects or support we try to charge by the hour

precisioncoding

I started out costing everything based on an hourly rate but then decided shortly thereafter to create other "savings" based on total project times. So now I have an Hourly, Daily, and Weekly cost; each sharing a slight reduction to the client from the previous increment. However, for the larger projects, the ones that will take months to complete, a single overal cost is the way to go with the understanding (and binding statement in your T&C's) that this is subject to change if the scope for the project changes.

Hope this helps!
J