When Hourly Fits
- The scope is unclear or likely to change.
- The work is ongoing: support, maintenance, advice.
- The client wants to direct the work week by week.
- You're new to this kind of project and can't estimate it well yet.
The risk with hourly is on the client's side: they can't know the final cost. Weekly hours reports and a budget you track against go a long way toward easing that.
When a Fixed Price Fits
- The deliverables are clear and you've done similar work before.
- The client needs a set budget to get approval.
- You work faster than most, and want that to show up as profit.
The risk with a fixed price is on yours: if it takes longer, you absorb the hours. A precise scope, written assumptions and a change process protect you.
Pricing a Fixed Fee From Hours
Estimate the hours, multiply by your rate, then add a buffer for what you can't foresee, typically 10% to 25% depending on how well you know the work:
| Amount | |
|---|---|
| Estimated hours: 40 at $90 per hour | $3,600 |
| Buffer: 15% | $540 |
| Fixed price | $4,140 |
Track your time on fixed-price projects anyway. Comparing the hours with the price shows what the project really paid per hour, which is how you price the next one.
Hybrids
- Hourly with a cap: billed hourly up to an agreed maximum, with approval needed beyond it.
- Fixed price per phase: a fixed fee for discovery, then a new estimate for the rest once the scope is clear.
- Retainer: a monthly fee for a set number of hours. See Retainers and Deposits.
- Day rate: priced by the day, common for on-site work. The Day Rate Calculator converts.