The topic of changing your billing frequency comes up often.
Most freelancers I know bill by the partial hour, with a few billing in units larger than that (and some freelancers bill by the minute using stopwatch timers). I can understand the feeling that you too need to bill by the same units as everyone else in the industry but that doesn’t mean you have to copy everyone’s billing method.
Value trumps how you bill
Once you’ve gained the trust of a client and started building a relationship with them, your rates don’t matter as much as we freelancers tend to think. As long as the client is getting above a specific amount of value for what they are paying for and we aren’t charging them more than they expect, most don’t worry about our rates.
If a client has a budget of $5,000 allocated for you, it doesn’t matter much if you charge $4,500 or $4,415, or even $4,000. The larger the organization, the more you can see this indifference to the per-unit cost.
Fit the billing to the project
So the question of which per-unit price to use comes back to what makes sense for the project and what you’re comfortable using.
For a monthly retainer contract, a per-month price would be best because the client isn’t getting X hours of your time, they are getting access to you for the “month of June”.
For more of a contracting project, where you’re expected to be around and working for a set number of hours, an hourly rate makes sense. A daily rate could also work if you limit the total time worked (e.g. overtime).
On an on/off contract schedule, it’s best to pick a unit that matches your schedule. If the client is scheduled for a week at a time, per-week billing is best. If it’s three days at a time, per-day billing is best.
Tracking your time (optional)
Now even if you aren’t billing a client by the hour or minute, tracking that data still could be valuable for your business. I’ve been tracking my billable and non-billable time since I started freelancing in 2007 so I can run reports to see where I’m spending my time.
In the past I noticed that I was spending up to two hours in email everyday, so I used those metrics to make a decision to cut way back on email. Now it’s more like an hour or two per week.
Setting your new unit rate
Setting your rate is a pretty huge topic, with entire books written on how to calculate or figure out what rate you should charge.
If you’re a new freelancer, I cover setting your rates in 30 Days to Become a Freelancer. You can also use an online calculator but those have their own set of problems. Primarily, they are too cost-focused.
If you’re an experienced freelancer who already has a set rate, taking a first guess at what your different per-unit rates is easy. Remember, you have clients who are paying your existing rate already. Some clients might already be getting your time in large chunks like full days or weeks so you’re already charging per-unit rates now but you haven’t formalized it yet.
Since most freelancers I know state their rate in terms of per-hour, I’m going to start with that as the base.
The rate you charge now.
Based on a busy but not an excessively long day, how many hours did you work? Times this by the hourly rate to get your per-day rate.
When I focus get around 6 hours of productive work each day for a client. Anymore than 6 and it affects my productivity the next day. So my daily rate is around 6x my hourly rate.
If you go on the assumption that you are working a full 5 day workweek, just multiply your per-day rate by 5. If you have a shorter week, lets say you take a three day weekend every week or maybe you have an administration day each week, adjust as needed.
I work 5 days a week so my per-week rate is 30x my hourly rate.
Finally we get to your per-month rate. I found multiplying your per-week rate by 4 is a good estimate, you can get closer but you’ll have to adjust for holidays and other oddities. As you’ll see in a minute, we are just looking for ballpark numbers right now.
So my per-month rate would be 120x my hourly rate.
I know 120x is a good estimate for me because I used to plan out every month to figure out the number of billable days and calculate to the hour how much availability I could sell. More often than not, each month came out to 20 billable days, which based on 6 hours of working per day would be 120x my hourly rate.
NOTE: You’ll notice I didn’t put calculations in for per-quarter or per-year rates. I think these are so rare that you don’t need to calculate them upfront. You can always use the per-month rate if you needed to.
Review for confusion
The next step is to look at each of your per-unit rates and see how they feel to you. You’ll want to round some of them, or maybe adjust them so they feel more comfortable to you. Just don’t adjust them down to make them too comfortable, you don’t want to give a discount just because your per-month rate is large. You would be billing that much if you had a month-long project at your hourly rate.
Let’s put these calculations through a few examples. With the base hourly rate of $85/hour and a 6 billable hour day, the per unit rates would look like this:
- per-hour: $85
- per-day: $510
- per-week: $2,550
- per-month: $10,200
Now these numbers look a bit odd so let’s round them up a bit. Remember that the per-day rate is based on an estimated amount of time you can bill in a day, so if we are rounding up a lot we can counter that by working a bit longer as needed (e.g. 6.5 hours, 7 hours).
- per-hour: $85
- per-day: $550
- per-week: $2,750
- per-month: $11,000
Now lets look at what a $150/hour rate looks like:
- per-hour: $150
- per-day: $900
- per-week: $4,500
- per-month: $18,000
This process can be done by part-time freelancers too. Just adjust the number of hours per day and the days per week to fit your schedule.
Hopefully this gives you some ideas to break away from the per-hour and per-minute billing rut. Not only will you feel less pressure but your billing will become clearer to your clients.