Should you pay per project or per hour?
Paying freelancers is a common point of confusion for business owners. Unlike salaried employees, freelancers often represent a variable cost - especially if they’re on a per-hour basis.
Here’s how to decide on a payment plan that won’t put in a dent in your cash flow:
When should you pick hourly rates?
In my experience, most business owners shy away from hourly rates because they fear variable costs. But it’s important to realise that hourly rates can also save you significant sums - you only pay for actual time spent at work, which can shave hundreds or even thousands of dollars off the eventual bill.
You should consider hourly rates under the following circumstances:
• Specific performance jobs
• You’re paying more for execution than conceptualisation
• There is a prior relationship of trust
• You have a large project, that requires the freelancer to come back occasionally
• You have a method and the time to track the hours
1. Specific performance jobs
These are jobs that are very narrow and well-defined in scope. Examples are hosting a fashion show (as an emcee), preparing your financial statements for the year, or photography for an event.
These are jobs that have a very clear beginning and end, so you have a good idea of how much you’ll pay. You probably know, for instance, that the emcee you’re hiring will be working for three hours (or whatever the duration of your show is). Even if you can’t make the estimate, your freelancer can probably do so with a lot of accuracy.
These jobs also tend to have very visible progress: it’s easy for you to track that the freelancer is really working those hours (e.g. you’ll know if your show host or photographer isn’t around).
2. You’re paying more for execution than conceptualisation
There’s a difference between getting a freelancer to execute your instructions, and having your freelancer conceptualise multiple solutions.
For example, if you already have a logo in mind, then you just need to pay a freelancer to draw it. It probably won’t take long. But if you want a freelancer to come up with multiple designs to pick from - and it involves several weeks of drafts and revisions - then your per-hour costs can really start to stretch out.
The same goes for building websites, illustrating books, making videos, etc. If you already have the idea you like, then pay for the execution; not for more ideas.
Note that there’s no guarantee your freelancer will be faster, if they’re just executing (even execution has a creative component that takes time). But they are more likely to finish sooner, and save you some money.
3. There is a prior relationship of trust
Most freelancers are honest. However, there are certain things which can be hard to prove. As such, it’s best to work with freelancers you already trust, or who have an established reputation. As an alternative, you can come to talk to us at CreativesAtWork. All freelancers under our network are specially curated and vetted to handle our clients' projects.
4. You have a large project, that requires the freelancer to come back occasionally
An example of this would be designing a large ecommerce portal, with a freelance web designer. It’s quite possible that, after the job is done, you may need the freelancer to come back to fix the occasional issue.
This may come in short periods, such as a day, a week, or the occasional month. As you don’t know how often you’ll need the freelancer back, it may be wiser to pay per hour than per project. If you pay per project, the freelancer may want a (more expensive) second project fee, rather than just charging for a few more ad-hoc hours.
It also removes room for dispute, as some freelancers will feel it’s unfair you’re asking them to work after signing off on the project.
5. You have a method and the time to track the hours
This can be done with time tracking software, or simply a visual check of hours work (although looking at when they come and go from an office is not a very good method). With some jobs (see point 1) it’s obvious enough to track the time; like if you’re hiring musicians for a set.
But if you don’t have any way to track the time - or don’t want to because you’re busy - then paying per hour is a headache at billing time. Often, business owners just take their freelancers’ word on how long they worked (which can result in repeated overpaying).
When should you pay per-project?
Per-project payment is best for preserving your cash flow. Even if it’s not cheaper, it’s easier to plan for. Some other reasons for using per-project payment are:
• You’re encouraging the freelancer to work faster
• There are well established industry norms for the job
• The freelancer is working for you in more than once capacity
1. You’re encouraging the freelancer to work faster
The faster the freelancer finishes the project, the sooner they get paid. There’s no inclination for them to drag out the process. As such, per-project payments can be good if you want to hammer out a series of small to medium projects, very quickly.
Do note, however, that this has its own drawback - freelancers on a per-project basis may be eager to churn out raw work, that isn’t really up to scratch. You should have provisions in your contract for revisions, just in case this happens.
2. There are well established industry norms for the job
Sometimes, there’s a “going rate” for the job. For example, the industry rate for setting up an ecommerce portal may be, say, $2,000 (we’re just throwing out a number here). If so, you can consider just using that as the fixed project fee.
The free market is usually right in its approximate value of a job - if you try to second guess it, and give it an hourly rate, there’s a high chance you’ll be paying more. In any case, most freelancers would be aware of the going rate; they will probably aim to get the same amount, even if there’s an hourly rate.
3. The freelancer is working for you in more than one capacity
Sometimes, a freelancer will fulfill two roles for you (e.g. they may be your writer, and also your social media manager). Paying per hour for two separate roles - as they typically have different costs - can get expensive.
Instead, see if the freelancer will give you a bundled deal, and just be paid per project for having filled both roles. Some of them are happy to shave the total price down, due to economy of scale and effort on their part.
Ultimately, the decision rests on the character of the freelancer, your specific needs, and the type of job to be done.
Neither payment method is inherently superior to the other; the one you choose depends on a variety of factors. Contact us if you’re not sure which method works for you; we’re among Singapore’s leading project managers, for firms seeking to outsource their creative needs.
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