I’ve never liked tracking my time. It’s invasive, and prevents you from working efficiently since you have to dedicate yourself to one client at a time.

In real world scenarios, you’re going to find yourself being forced to answer emails from two clients at once while you’re on the phone with another -so who are you supposed to bill for that time?

Billing by the hour demands scrupulous time reporting; something that’s rarely a benefit to an agency.

It enables nosy clients to learn too much about how much time and energy each task requires, which steals your opportunity to create efficiency and usually results in you being taken advantage of.

It’s only natural, every client wants to maximize their return on investment. But we don’t have to set ourselves up to be easy targets.

The only real alternative to tracking and billing time though, is billing when a project is complete (or reaches predetermined milestones).

And this can be a risky proposition because underestimating the time, or the hard costs, involved as will quickly eat away your profits.

Choosing the right pricing model is one of the most important decisions you’ll face as an agency owner (and all of this applies to freelancers as well).

Fundamentally though, I’ve always found that billing by the hour is a recipe for bad client relationships that demand a lot and pay very little.

In this article, I’ll look at the pros and cons of each approach and, I hope, convince you of the opportunity that billing by the project represents to your business: a simpler workflow, increased flexibility, and an easier sales process.

Pros and Cons of Hourly Pricing vs. Project-Based Pricing

Hourly Pricing:

  • Pros:
    • Flexibility for scope changes
    • Easier to track time and effort
    • Ideal for short-term or unpredictable tasks
  • Cons:
    • Potential for client pushback
    • Difficult to estimate total costs
    • Limits efficiency and growth

Project-Based Pricing:

  • Pros:
    • Predictable costs for clients
    • Encourages efficiency
    • Easier to scale
  • Cons:
    • Risk of scope creep
    • Potential for underestimating effort
    • Harder to adjust for unforeseen changes

How Hourly Pricing Works

Hourly pricing is a very simple concept – you track your time, and then bill your client for the hours you work at your hourly rate.

This pricing model is often used for tasks like consulting or troubleshooting, where the scope of work may be unclear or can change quickly.

To make hourly pricing work, you’ll need to have a good system for tracking your time.

You’ll also need to update the client on your progress vs the hours in your agreement and if you are on track to produce all the intended work.

Most of the time you also need a way to adjust your budget of hours as you work through each month, moving time from one priority to the next as needed.

And this unavoidably creates a lot of administrative and reporting work on the agency.

How Project-Based Pricing Works

With the project-based agency pricing model, you charge a fixed price for each project, regardless of how many hours it takes you to complete it.

This is often used for projects like website design or managing marketing campaigns, where the scope of work is clearly defined from the start.

Project-based pricing is inherently riskier than hourly pricing because you can end up upside down if you can’t accurately predict your time or hard costs.

However, with risk comes reward. Project-based pricing allows you to maximize your profits if you can do the same work in less time.

This is the key benefit of this agency pricing model: it allows you to earn more through efficiency.

Pros of Hourly Pricing

One of the biggest advantages of hourly pricing is flexibility. If the project scope changes or unexpected issues come up, you can easily adapt and bill for the additional time.

It’s also easier to maintain a consistent margin, because you’re billing for exactly how much work you’re putting in and can make sure you’re getting paid fairly.

Hourly pricing can be especially good for short-term or unpredictable tasks, where it’s hard to estimate how long something will take.

It’s often best to begin your career or your agency business on an hourly pricing model, if you don’t know how fast (how efficiently) that you can work and then to move to a project-based pricing model later on.

Cons of Hourly Pricing

On the flip side, hourly pricing can sometimes put a strain on your relationships with your clients. Constantly talking about hours puts their attention on the costs rather than the results.

As costs and competition rises they’re focused on the wrong numbers -what they’re spending (which is increasing) rather than what they’re making (even if it’s also going up).

Plus, it’s almost impossible to estimate projects of any size accurately in advance.

Clients won’t tell you everything, you’ll underestimate expenses or time requirements, and sometimes the marketplace or technology will change.

It’s very difficult to get that right 100% of the time, which leads to you frequently having to justify increases in your hours (and your clients’ budgets).

Another downside is that tracking your time can be a bit of a hassle. It takes discipline to log your hours accurately, and it can be easy to get behind or forget to track certain tasks.

And when you’re out of hours and the work isn’t done and you just can’t go back to the client again to ask for more budget -you end up fibbing and underreporting your time to keep them happy.

So, what’s the point?

Pros of Project-Based Pricing

Project-based pricing gives clients a fixed budget and a promise that they can use to hold you accountable (and to justify the expense to their superiors).

They know exactly how much they’ll be paying from the start, which can make it easier for them to budget and plan.

Project-based pricing also encourages you to work efficiently. Since you’re getting paid a fixed amount, there’s an incentive to complete the project as quickly as possible (without sacrificing quality).

This makes it easier to scale your business, since you’re not trading time for money in the same way as hourly billing.

Instead, you can get better at what you do through experience, develop efficiencies and systems, and then profit more as a result.

It’s much more of a merit-based system because as you get better at your craft, you earn more as well.

Cons of Project-Based Pricing

Project-based pricing does come with some risks. The biggest is probably scope creep – when the project starts to expand beyond what was originally agreed upon.

This can happen because the client is demanding or their needs evolve, or because you didn’t fully account for everything you needed (or wanted) to do in the project.

If you’re not careful, you can end up putting in a lot more work than you’re getting paid for, and that’s never any fun.

Project-based pricing can discourage small project creep because of this, by forcing you to bring up each new addition as an add-on.

If you’re not comprehensive enough in your initial pitch you can end up nickle-and-dime’ing your client and rub them the wrong way.

Alternatively you may decide to eat the cost of little extras to avoid creating drama with your client and then miss out on profits.

It’s safe to say that project-based billing is best for marketers who have enough experience doing the work they’re selling that they know, within an acceptable margin of error, how much time and cost are involved in the projects they’re bidding on.

Comparing Hourly Pricing vs. Project-Based Pricing

Let’s break down hourly and project-based (or fixed) pricing for an easy comparison:

The Budget

Hourly: the client doesn’t know what they’re going to pay in the end. This can make them nervous and more likely to micromanage your work.

Project: The client knows they’re paying what they agreed to in advance, no matter how long it takes you. This gives them peace of mind and allows you to focus on delivering the best results.

Authority

Hourly: The client is in the driver’s seat. They’re telling you what they think they need, and you’re reacting to their requests.

Project: You’re the expert and you determine what needs to be done, pitch it to the client, and then lead the project to completion.

Risk

Hourly: Generally low risk, as long as you’re working within the scope you’ve discussed with the client, you’ll get paid for your time.

Project: Involves more risk, but also more potential reward. If the project takes longer than expected, it could cut into your profits. But if you’re able to work efficiently and deliver great results, you could end up earning a lot more.

Stacking Clients

Hourly: You typically work for one client at a time and carefully track your hours.

Project: You have flexibility to work on multiple projects at once and batch your work in whatever way is most efficient.

Selling

Hourly: You have to convince the client that you’re good, fast, and affordable.

Project: You’re selling an outcome not a person working X number of hours. You either deliver what you promised or you don’t – and you get paid accordingly.

Making the Switch from Hourly to Project-Based Pricing

If you’re currently using hourly pricing and considering switching to a project-based agency pricing model, it’s a good idea to start by tracking your hours on a few projects.

Document how long your various tasks take you (ideally a couple times so you can take an average).

Look for opportunities to create efficiencies in your process, by batching work, or buying services in bulk and dividing them across your clients.

As you gain more experience, you’ll start to get better at estimating how much effort a given project will take. This is key to making project-based pricing work for your business. You’ll also start to see the benefits in terms of profitability and client satisfaction.

Old clients may not enjoy making the switch with you as they have grown accustomed to working a certain way and may not value the efficiency it brings you.

There’s nothing to do about this but gradually swap out the clients that don’t fit your new model with new clients that do.

This is should handled as a slow transition versus an all-at-once kind of move because you could lose the majority of your revenue all at once if not.

Start with selling: new clients should be sold your new project-based terms and the clients that have been working with you on hourly can be grandfathered on their old terms until you’re stable enough financially to cut ties.

Productizing Your Services for Maximum Efficiency

The key ingredient to successful project-based deals is productized services.

These are offerings which are sold as a set packages or “products” which are composed of your typical services at predefined levels of work and cost that are right-sized for your target market.

For example, building a website can be a very custom project, billed by the hour as you and the client iteratively design each page and website function.

Or, it can be a hands-off process for the client where they get a fixed number of pages and features which, like the cost, is agreed upon in advance.

If you’ve ever paid for a website to be built, you’ll appreciate the appeal of knowing the cost of the project at the outset, with guarantees that it won’t increase along the way.

Otherwise it’s like building a custom home -you have to plan for the budget will increase by 20% or so or you’ll run out of money before the project is complete.

Clients love productized services because they get the benefit of custom, personalized service but for a predictable, “off the shelf” price they can plan around.

Productizing your services has even more benefits for you though. It allows you to create repeatable processes, which makes your work more efficient and consistent. From that efficiency you can create additional profitability.

It also makes it easier to market your services, since you can clearly communicate what’s included and what the price is.

You’ll struggle to describe hourly-priced services effectively on a pricing page on your website because, while you can disclose the price of an hour, it’s very difficult to explain how much work you can produce in that same hour.

With project-based pricing this isn’t a problem because you’re just selling the outcome.

To productize your services, start by identifying the tasks or projects you do most often. Then, create a standard process for each one, including the steps involved, the deliverables, and the price (your hourly rate + any hard costs).

Then develop case studies and testimonials from the clients you’re already working with on an hourly basis to show the value of these services to potential clients.

As you take on more clients and projects, look for ways to streamline your processes even further.

Remember, efficiency = profitability.

This might mean creating templates, automating certain tasks, or bringing on virtual assistants to manually systematize the processes that bring you revenue, allowing you to do more work faster and earn greater rewards.

If you do this correctly, you can earn exponentially more than you would working by the hour.

Building To Scale

The move from hourly pricing to project-based pricing takes careful planning and cautious, gradual execution to pull it off without affecting your revenues.

Each existing client has to be considered individually and each of your offerings converted into a package that you can sell profitability.

Both agency pricing models have their pros and cons, but ultimately pricing by the project, and particularly in predetermined packages as productized services, gives you the greatest opportunity to make money as a marketer.

If you’re just starting out, hourly pricing can be a good way to gain experience and refine your processes. But as you grow, project-based pricing offers much greater advantages in terms of profitability, efficiency, and scalability.

It’s fine to start in one model and adapt over time -in fact, it’s probably better. You need the experience of working by the hour to measure your time; to create a baseline to compare your later improvements against, if nothing else.

Once you have found the efficiencies that make your business model work, moving to a project based agency pricing model gives you the flexibility you work in the way that makes you the most money.

It also tends to benefit your clients directly because efficiency also equals speed, and who doesn’t want the same quality service faster? There’s no connection between how long something takes to do and how valuable it is.

Time is of the essence…clients are happier the faster they get good quality service. Project-based billing is straightforward, predictable, fast, and we’ll assume, high-quality.

You know what they say, you can’t have good, fast AND cheap.

With project-based agency pricing you’re focused on providing good quality service fast, so you’ll never have to worry about clients haggling over your fees again.

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About the Author

Nathan Binford

Creator & Digital Marketer

“The Mindful Marketer” 🧘‍♂️ I help people achieve freedom through marketing and mindfulness. | Develop the skills and mindset for success. Join for free at NathanBinford.com/subscribe.

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