Entrepreneurs Want to Know: Are Hourly Prices or Flat Fees the Better Way to Go?

howmuchQ: My company provides branding services to other small business owners using an hourly fee. I have heard of colleagues moving away from billing by the hour. It seems easier than creating quotes and billing for every single task. When I set hourly rates, they seem to scare away clients but I am afraid to lose money by using package prices. What should I do?

A: Most entrepreneurs (especially service providers) start out charging an hourly fee. It is the model most commonly used in new business starts. Although hourly billing can be profitable, it does limit the amount of money you can make.

An alternative pricing strategy that service providers use is flat rate packages. This option enables you to leverage your business by exchanging value instead of time for dollars. With flat rates you are packaging services that fall within a typical request. For example, you can customize a Budding Business Branding Package for start-ups. Keeping in mind the budgets that company’s in the pre-revenue have, your package may be a web marketing plan that solely identifies free and low cost advertising sources. Likewise, you could create a higher end package for established businesses with more advanced offerings and guidance.

When developing packages consider:

  • What tasks go into delivering your service?

  • How can you bundle services to meet clients needs?

  • What tools can improve work efficiency so that you do not have time and cost overruns?

  • How can you guide clients through the process in the least amount of time to achieve the best possible results?

These questions are a good starting point for moving from billable hours to flat-rate fees. As you get more familiar with typical service requests, new programs may develop. Of course, if you have a request that is totally out of the norm, you can always combine package rates with hourly fees.

A good rule of thumb is to offer packages to clients who have clear goals. When the client is not quite sure what direction to take, consider  a-la-carte services at your hourly fee.

When it comes to quoting prices each has its strengths and weakness.

That has me wondering.

Is there a pricing strategy that is winner take all?

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4 thoughts on “Entrepreneurs Want to Know: Are Hourly Prices or Flat Fees the Better Way to Go?

  1. Interesting thoughts – I can see both sides! Thanks for sharing!

  2. A flat rate might make the consumer more comfortable because they know exactly what it’s going to end up costing! Thanks for sharing!

  3. This is so interesting. I went to a “packing” workshop to learn what is best. Hourly rates were never mentioned, but the way that you described it here and how you can make it more of an a la carte makes sense especially if one is starting out. But one rule of thumb that speaks volumes from that workshop was, regardless of a la carte or a flat rate, one must charge what they are worth (the value of your information). Consumers respect that as well. Thanks for sharing!

  4. Makes complete sense – as a great example painters charge by the job, and extra worked requested may be charged or given as a little bonus. Nice post and important for us all to remember, Benita! 🙂

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