Previously, I talked about the importance of understanding where we stand as professionals, the need to compensate for our living costs, and the value we offer with our services. Today I will explain the difference between the 3 pricing models, including the cons and pros, additionally with some examples from my experiences for better comprehension.

Hourly rates Pro

Hourly rate pricing is the most commonly used due to being standardized in the industries, such as regular jobs. This can also be found in freelance projects or side gigs for other independent creators or businesses.

1. Best for long, unstructured, or unfamiliar projects.
2. You may have the ability to charge more due to invested time in revisions, new designs, etc.
3. If the client is unsure or clueless about where the project is heading or doesn’t understand it at all, you might have the ability to charge more for your time invested.
4. Hourly jobs tend to be the most common pricing model among the industries. In some cases, hourly jobs tend to be paid with low budgets or rates.
5. The client will be aware of the billing transparency, due to the accuracy of the itemized cost of the services, while you will be paid for the actual time and work.

Hourly rates Con

1. You may charge less if you finish the project before its deadline.
2. Your creativity may be limited with effort or effectiveness due to being focused on completing the hours.
3. You have to tackle each task on time with a restrictive schedule, especially if you have a full-time or part-time job aside.
4. It is the least liked when the client doesn’t understand the value they are obtaining with your services or is solely focused on cheaper work.
5. Clients may be surprised or annoyed when they receive the bill for the hours worked if they were unable to understand the cost of it, or if you failed to explain it properly.
6. Clients might believe that this pricing model favors slower results and revenue since there is a recurrent payment depending on the tasks of the project.
7. Because hourly billing requires meticulous time monitoring and invoicing, managing it might be more difficult and tedious.

I was once asked, “What would be your final price for the assets, we asked for a time frame of X days? We have a limited budget since we have other freelance artists working on our project”. I told them I needed a few days to estimate the costs and would provide several packages for their limited budget. I asked a colleague from the UK about the average pricing for a concept artist over there, and he told me the amount. I calculated my expenses, my work’s worth, and a profit margin in a document and sent it to the team. They reached back, accepting one of the deals!

 Flat fee (Per Project) Pro

Flat Fee rate pricing is also used in the industries, but most commonly for freelance projects, regardless of the time frame, with a specific or limited budget.

1. You can easily accommodate or negotiate the client’s budget.
2. This is the easiest, customer-friendly strategy for short projects and billing cycles.
3. Clients have an idea about the value and the investment they will make in their projects.
4. Flexible timing since you are going to be able to focus on the creation based on phases rather than the hours.
5. This is the most common pricing sought by clients in the freelance industries, especially outsourcing artist positions.
6. You can implement packages (for different needs and pricing) to have a higher chance of securing the project based on the client’s limited budget.
7. The concept of speed may be inexistent compared to the “hourly rate” and its scheduled tasks, although the majority of the projects are established within a timeframe (time is money).
8. It can reward productivity and efficiency when you set correctly the restrictions and penalties for the project (ex. an illustration project for a cover book priced at 7k offers 2x sketches for the sketch phase and 2x revisions for each stage: sketch, ink, and color).
9. Customers will view all the itemized costs for the service with no extra fees during the production of the project (unless the client asks for things not previously stated in the original agreement/project).
   

Flat Fee (Per Project) Con

1. Not suitable for longer projects, especially if loss of revenue and profits happens due to undercharging the services.
2. Because pricing is set regardless of the complexity of the project, it can be challenging to predict revenues with any degree of accuracy in advance.
3. Need to estimate a reasonable profit deal for your client with accuracy, otherwise, you might lose the negotiation.
4. You may not have the ability to upgrade or upsell plans or bundles to increase your profit when you establish a single pricing tier.
5. Potential risk generating poor revenue while the customers gain more product value if the offered services aren’t calculated right.
6. Estimating a time frame for the dispatch of the deliverables doesn’t guarantee you are trouble-free from external factors that can complicate or compromise your workflow (power outage, civil protest, faulty equipment not accessible in your country, etc.)
7. Not ideal for complex projects that require a focus on 1 or more audiences (niches), unique solutions to a variety of problems composed in a single issue that hasn’t been defined and diagnosed to the client.

There was this indie video game studio located in California. Initially, they asked for my hourly rate and I responded with a range between $25 to $30 p/h for a background designer position. They told me they would definitively respond with a verdict after finishing the other interviews. A few weeks later, they told me that they decided to go with another artist, but since they were so impressed not just only with my creative skills or portfolio (clients), but also with the way I presented myself in the interview (knowledge about the industry and leadership methodologies in previous teams) they wanted me in the animation department to tackle complex stuff that needed attention and care. So in this case they saw a high-quality value from my services.

Based Value Pro

It’s a pricing strategy that involves pricing a product or service according to the customer’s perceived value. This means that the clients are willing to invest a certain amount for the experience of getting a diagnosis and something fixed, rather than the outcome of the product or service.

1. Works great for projects with longer time frames, especially if the project requires payment plans.
2. Could be great for niching and lowering the competition against you due to your specialized services.
3. Increase the exposure and recognition of your branding or company thanks to your high-value clients with their loyalty and potential referrals.
4. Great for pricing massive projects, and increasing the profitability of each successful sale, which consequently, the product’s perceived worth by the clients could increase.
5. Reinforces loyalty and attracts high-value customers who will benefit from their investment in your offered services when they develop an emotional attachment to it.
6. You can charge higher rates (including profit margins), and offer exclusive bundles to attract more customers and duplicate your profit while maintaining similar prices (of your services) from your competitors.
7. Suitable for complex and unique projects with special needs, requirements, higher usage of the services, and specialized crowded market.

Based Value Cons

1. If you are selling high-quality products or services, then you will face high-cost production.
2. It works on certain conditions, such as specialized services or niches, thus increasing the competition against other businesses.
3. There is a possibility that a consistently profitable niche for this pricing strategy may not be possible if this type of clientele is scarce for a period.

The Cons for the 3 Pricing Methods Overall

This is why it is important, as previously stated in this post, to understand your actual circumstances as a professional (what you are good at and where you see yourself in the future), your livelihood (cost of living), and your needs (the cost of your services). All of these 3 can be a double-edged sword if you don’t understand what services you are offering, the potential risks, and who you are catering to. It is all about evolution and adaptation.

Potential for Undercharging

You can’t change the quoted price after the signed agreement (for example, you realize you’ll lose profit during the second phase of the project because you made a miscalculation). However, there is a difference between that situation, creating bundles, and when the client needs a change or additional services that need to be implemented in the original contract (that’s called an Addendum).

Limited flexibility

There will be times when certain pricing models won’t be suitable for some clients and their project’s requirements (time frame, workload, type of services, etc.). If things aren’t negotiated correctly, then you can face challenges and inflexibility when dealing with abrupt changes with additional efforts and low compensation.

Difficulty Setting A Price

There are risks involved if you don’t understand your job or your client’s problem and the project’s objective. Whether you are clueless about setting fair compensation for your work or if clients can’t perceive the value of your work, it will still be challenging.

Potential for Customer Dissatisfaction

Regardless of which pricing model you choose, if the client’s needs and requirements aren’t met, or if you were unable to explain properly your services and protocols, especially estimating the success of profit for them using your deliverables, they can end up unsatisfied, and your business may suffer from lack of trust, potential clients, and referrals.

Conclusion

There will be times when certain elements such as long-short time frames, flexible schedules, common payments or practices in the industries, and so forth, may work for some in all the pricing methods previously discussed. Each of us has unique experiences, and some freelancers will be unable to use 1 or more of these pricing methods due to inconveniences or unsuccessful practices.

My suggestion would be to at least have 2 pricing models, as minimum methods, to expand your business to new potential customers and have different techniques or skills (business-wise) to solve problems by carefully listening to the client’s needs and providing them with the appropriate pricing model.

Thank You For Reading!

If you like my work and documentation and wish to see more, please consider contributing to my growth and hard work with more exploration, investment, and website maintenance.