I am a starting freelancer in the webdevelopment sector. I focus on both personal or one-man business full websites and websites for advanced users for which I write plugins or add features (but don't build the whole site).
I would like to know if there is any rule of thumb for determining whether you should use a fixed-price or a price per hour for these clients. For now, I'm using fixed prices because it adds clarity for both parties.
For the second type, fixed prices are fine. There is a clear functional design and I can estimate the time I'd need for it. For the client, a fixed price is good: they get what they want and they know how much it costs, unlike employees of which you don't know what you get for how much.
The first type doesn't have any knowledge of programming, most of the time, and doesn't know how much time the development of the product will take. A price per hour may seem useless to them. So if I'd use a price per hour, I'd have to give my clients at least a rough estimate of the time I'd need. This isn't a major problem, I can do that.
What I'm more worried about is that, since those clients don't have knowledge of the subject, they cannot provide me with a good functional design. Most of the time it's more like "can you make that somewhat lighter" and such. I'm fine with all these minor tweaks, but it takes a lot time, especially contact-with-customer time. Therefore, I would be much happier to use a price per hour. However, that might destroy the good relationship with the client, as he would have in his mind that every minute costs money.
A solution would be to make a functional design or layout before starting developing, and use a fixed price. However, I don't think I want that. For these clients, it's very hard to make up a nice layout without actually seeing it on the website. This would result in bad products.
So, how can I avoid this problem? Should I use a fixed price or price per hour for these clients and what should I do to deliver a good product and keep a good relationship with the client?
Your best course of action with these kind of clients is to try and get the main scope agreed up front. You can then give the client a fixed price quote, based on how long you think it will take you. I would also be inclined to add on a contingency of maybe 20% to account for the inevitable small changes that they will want to make.
You will also need to make it clear that anything that falls outside of the agreed scope is chargeable on a per time basis. This is why it becomes very important to get as much scope agreed as possible before you start the work. If there are grey areas that you can see, ask for clarification and get that agreed in writing. It will save a lot of pain down the road.
I typically leave it up to the client to decide. I'll offer them an hourly rate, but also offer to work with them at an hourly rate to work on the project definition and then quote them a project rate based on the fully flushed out project description.
The real key with any kind of fixed rate work is to be sure you know what is needed, to be sure that the client knows what they are asking for and to be sure that they understand that varying from that is going to cost more.
The big risk is that if any of these key points aren't true, either the client ends up being unhappy with the finished product you provide (which is bad for business) or they end up constantly wanting changes (which is bad for your time and profitability, as well as for their view of how the project is going.)
If they want a fixed quote up front before the project plan is to a point where you are confident that it won't result in them arguing things should be different to fulfill it, then I would recommend walking away unless you really need the job. I've been there before and it generally just brings pain for everyone if you don't.
It depends on your client and how well you know them.
For new clients and big projects I will always do fixed price for two reasons:
Include some flexibility such as 20% extra but if you plan it out you should be able to price it fairly accurately. Also include all expenses at the end.
The only time I bill by the hour is for service and support work or for slightly different work such as Print Design.
If you don't know well your client, your first goal is to build relationship of trust. In my view, the best way is to fix price a small job first, that is easy to estimate and deliver on time.
This will give you great opportunity to understand how the client works and how enjoyable and productive is the work for both sides.
With that information, it will be much easier for you to estimate the time and cost for your next piece of work.
And if your relationship won't go as expected, you can easily quit after the small work done, with no bad feelings on both sides.
See also my other answer here.
© 2012 - Nathan Osman - [About]