Pricing your projects right is one of the most challenging tasks for freelancers and small business owners. This challenge may be especially difficult for those professionals who are working in the design industry, where it can be very hard to predict how much time and effort will be needed for a project. Ultimately, pricing is a challenge because the client and the professional have opposite interests.

Pleasing the Professional – Hourly Pricing

From the perspective of the freelancer/small business owner, hourly pricing is ideal. You simply add up the amount of hours you spent working on a project, send the client an invoice, and get paid at your hourly rate. Most likely, you would also bill the client for any extra charges incurred on their behalf. This way, you legitimately earn the amount of money that you are worth (or, at least, what you think you’re worth).

Professionals also want to avoid getting trapped into a bottomless project. These projects require way more effort than they’re worth. Perhaps you vastly underestimate the time requirements of a project. Once you have signed a contract and agreed to a fixed quote, there may not be much you can do. Another common problem is scope creep- the tendency for project requirements and expectations to become ever more broad as the project progresses. With an hourly rate, scope creep is not much of a problem for the professional, because they can simply charge for the extra hours required to do the work.

Of course, this pricing model creates the sinister temptation to charge extra hours, to round up hours, and to take a rather liberal definition of ‘work hour’. Can you bill your client an hour of work because you thought about their project while running on the treadmill? The hourly model is simply not suited for truly motivating the professional to be efficient and productive. Obviously, professionals who pad their log sheets with reckless abandon will eventually be dropped, but the temptation to stretch the truth (even subconsciously) can still be very strong. Clients need to have a great deal of trust, and the professional needs to be very trustworthy, for this pricing scheme to work fairly.

Catering to the Client – Fixed Pricing

Clients want to know how much they will have to pay for a project. Smaller clients want to know that they will have enough money to take on the project, and larger clients want to be able to budget out their expenditures as accurately as possible. If you want to make your clients happy, then nine times out of ten you have to provide them a firm quote.

Plus, clients want to avoid the type of exaggeration discussed in the previous section. A fixed quote protects them from being overcharged. It also allows clients more latitude to change or expand upon the requirements for the project. If they think that the designer has done a poor job on an initial design comp, they might not need to pay for it. A fixed price therefore gives the client the upper hand in the business relationship. We’ve certainly been on the bad end of this deal, and certain clients have made us pay the price.

A Middle Ground?

Clients want to know how much they will have to pay for their project. Professionals want to be paid for every hour they work, regardless of the project cost. Can there be a solution to this conflict of interests?

Maybe. It is possible to develop a hybrid model that meets the needs of both. The professional can provide a provisional quote of a project based on an estimate of the number of hours the project is going to require. This quote is not set in stone, however, and the cost at the end of the day may be higher or lower than the set amount. If clients are still weary of this setup, then perhaps you can guarantee that the final price will be within 10 or 20% of the quote. The less room for error, though, the more accurate you must be with your estimate of the time you’ll need to spend on the project.

As our company has developed, our pricing method has been all over the map. We started out with fixed quotes- this, however, was back when we naively thought that we could create a successful business model by drastically undercharging for our services (note: this doesn’t work!) Later, we flirted with the temptation to convert to a strictly hourly setup. In fact, many freelancers refuse to do it any other way. But, ultimately, this was just not always realistic or fair for the clients. So, we’ve settled on trying to use a hybrid model for most of our clients.

Pricing Honestly and Accurately

Whatever pricing method you use, two things are essential: you must strive to price accurately and to price honestly.

Accuracy

Pricing accurately is based on knowing the amount of time and effort you will need to spend on a project. To a large degree this is simply based on experience. That’s why it’s important to always track how much time you actually spend on a project, even if you have already agreed to a fixed quote, or even if you are doing something free (like some nonprofit project, and internal site redesign, or that website for your grandma). Compare your prediction with your results. There are some online tools that can help you do this too- we use Basecamp to track our time but you may want to try a dedicated service like Harvest Eventually, you will get better at making predictions of the time required for projects.

Another important technique- break the project down into its smaller components. When we are quoting a web site design, we break the process down into the following components;

• Creation of the Information Architecture
• Wireframing
• Design Comps
• Coding the HTML/CSS
• Programming
• Debugging
• Cross-Browsering

Considering the project in smaller chunks makes it a lot easier to estimate the time requirements.

Honesty

Honesty is important for any business relationship. As a freelancer, there is a temptation to exaggerate the amount of hours you have worked. As a client, there is a temptation to expand the requirements for the project and work your designer to death. This is what creates all sorts of distrust between clients and professionals. But if you want a truly productive and satisfying relationship, you will need to trust each other. At the end of the day, if both parties are honest and fair about the project, pricing should not be a big problem.

I just wanted to pass on two little tricks that Brett discovered when using Basecamp for project management.

1. Keeping Track of Mileage

The first technique involves using the program to keep track of driving mileage. This is really useful because you can take a big deduction from your taxes at the year end for the miles you have driven for the company (44.5 cents per mile). Just set up a separate project (we call ours ‘Mileage’), click on the Time tab, and record the miles driven in the ‘hours’ input. This works great because you can assign who did the driving and include a brief description of the purpose. Then, you can easily create reports for any specified range of time, and you can track the mileage of the company as a whole or of individual members.

2. Keeping Track of Expenses

The second technique is similar, but even more useful. We’ve always had difficulty keeping on top of expenses (a problem that many companies run in to). With business members making purchases in different cities and states, it became notoriously difficult for me to know which expenses were made for what. It turns out that there is an easy way to keep track of these expenses using the Basecamp system.

Just create another project called ‘Expenses,’ and you can record the expenses in the Time tab. Thankfully, the system allows you to input negative numbers. Just log negative numbers for expenses and positive numbers for deposits. Just like before, you can create quick reports to track expenses over a certain period of time, either for the entire company or for an individual member. Include a brief description so that your finance guy can correctly categorize the expenses. The beauty of this approach is its simplicity and speed. Plus, since it is done within Basecamp, it is integrated with project management.

Incidentally, there are some other great uses for an ‘Expenses’ project in Basecamp. I post the bank file for the company so that everyone can access the financial information whenever they need it. It’s also a great place to attach any receipts you want to keep track of.

Happy Basecamping!

When we started The Wojo Group, all three of us lived in the same town. We were able to meet almost every day to work on whatever project we needed to, and we even set up a makeshift office in the garage. However, as life progressed, we were eventually separated. Brett moved to Ann Arbor to attend Michigan, and Steve went off to Chicago to study at Columbia University. This change created a host of challenges for our company. Project collaboration was a bit trickier, and we were having trouble maintaining proper communication.

Effective communication is the key to a successful project, as we all know. It’s also very difficult to do over a long distance. Being geographically dispersed can lead to a breakdown in communication, which can spell doom for any company. We had to find a way to overcome the distance hurdle and transition as an organization. Thankfully, there are tons of technology solutions we can use to stay connected with team members.

As a team of Mac lovers, we use iChat for our audio and videoconferencing needs. We try to have regular video conferences twice a week. These meetings are essential because it gives all three of us an opportunity to communicate at once. For those who don’t have iChat, Skype is also a useful (and free) service for audioconferencing. Whatever software solution you use, make sure you set up regular meetings so you don’t fall behind.

Don’t Underestimate the Value of Project Management

I’m a penny pincher. Not your run-of-the-mill type either- I’m fairly extreme. I cringe at the thought of a pack of unneeded staples.

That’s why I have a hard time paying for software. There is always free stuff available, and it’s an expense that usually does not create profits directly.

To keep on top of project management, we were using an unruly system of free (but limited) applications and techniques. It was a nasty and uncoordinated combination of email, text messages, instant messages, and some free web services like Wufoo (for expense reports), Backpack, and Basecamp. We really liked Basecamp, but we were using the free version of the software. Why pay money for an upgrade?

Well, we finally broke down and bought Basecamp, and it may have been the best purchase we ever made. The fact is, having an organized system for project management is crucial, especially when team members are scattered about.

The instinct to avoid paying for any sort of project management application can be strong because you don’t see any immediate profits. Yet, the advantage for the company as a whole is hard to exaggerate.

We highly recommend Basecamp for effective project management on the web. It allows us to keep all of our projects, to-do lists, and clients organized, and the paid version allows for time tracking. Plus, we’ve been using the system to accomplish some other tasks as well- such as recording mileage (for the purposes of tax deductions) and posting quick summaries of expenses.

Whatever your solution, remember that project management is a vital part of your business, a part that is very tricky to do well when operating at a distance. Don’t be afraid to invest some time and money to ensure that you are effective in this area.

The Value of Meeting

True, the Internet and other technologies have made it easier to communicate with each other and coordinate projects over long distances. True, the cost of gas has gone way up. These and other reasons give us all the more excuse to forgo business trips and stay in the comfort of our own homes.

Nevertheless, don’t overlook the value of meeting together in a physical location. All of the project management software and cool gadgetry in the world can’t mimic the type of organization, productivity, and creativity you and your team can accomplish when you meet face-to-face.

Periodic meet-ups have saved our company several times from stagnation. Every now and then, we will get bogged down with a bunch of truly depressing projects. At times like these, meeting together for a week or so of work gives us the chance to get things back on track. Plus, meeting together gives us an opportunity to talk about the future of the company, share different ideas, and plan out the direction we want to head in the future. You can do all of these things without being in the same room, but not nearly as effectively.

It may not always be feasible- practically or economically- to meet together. If that is the case, then it is certainly possible to operate effectively from a distance, as I’ve been discussing in this article. Nevertheless, it would be unwise to overlook the advantages of periodic meet-ups.