How do you charge for your work?
A question people in business often have is the issue of payment structure.
Depending on the product or service it can make sense to pay or charge by the hour. In other cases it can make sense to pay or charge by the project.
In business partnerships there is a client that is looking to hire a firm or a freelancer to perform work. On the other side of the partnership you have the service provider or the business that will deliver something to the client.
Each partner is looking to maximize their earning potential. The client is looking for help with a process that can make their business grow and become more efficient. The vendor is looking to provide a service or product that can achieve this result while making a profit of their own in the process.
If you are on either side of the equation and have questions about payment structure then keep reading. Hopefully the ideas included will help you determine the payment structure for your next business partnership.
When to Pay or Charge by the Project
One occasion when it is best to pay or charge by the project is when the project is reasonably familiar to both parties involved.
Imagine the relationship between a business and its design provider, which could be an entire design firm or a freelance designer. The new task is for the designer to create a new series of banner ads for the company’s online advertising program. This will be the fourth or fifth time the company has had the designer create banner ads.
Both sides are of the understanding that the designer is skilled at this task. Both parties are comfortable with the set fee for the group of banners. The project works best with a set fee.
In a situation like this there will be times when the company pays the same rate for a shorter amount of the designer’s time. The company decision makers probably understand that at this point they are paying for that previous experience instead of just the time it takes. There is risk on both sides. The company could pay more than it would cost them if they were to pay by time, but the designer also runs the risk of running into issues on their end of things, which can eat up time.
When the process is generally understood by both parties involved it is best to charge for the project instead of by the hour. This is generally more efficient for both parties involved.
When to Pay or Charge by Time
Let’s continue with the company and their designer.
In this case, the company wants the designer or the design firm to work on a smartphone application. The project hasn’t been completely laid out yet. The end result is to be determined. However, the company has a general idea and wants the designer to get started.
In this case it would be best to put the designer on a time payment structure since the timeline could be ongoing. The designer has no idea how long the project will last so they will be unable to quote the project simply for the work expected.
If either party is unsure of how long a project may take then it is probably best to work on a time payment structure at least in the beginning.
Often when new business relationships are started there is a little unknown on both sides. Paying and charging for time can be a way for each partner to gain an understanding of each other and the work. Once things go on for some time the payment structure can move to a project based model that can be more efficient for both.
Additional Thoughts for Consideration
An additional consideration is the nature of the relationship. If a vendor is truly working on one task such as a group of banner ads it can be best to work by the project fee.
However, if the nature of the relationship is such that the company has the designer of the design firm working on banners, website updates, email designs, etc. then it might make more sense to pay by the hour. If time is charged at the end of each month there will be some months that are higher than others.
There can be limits set on both time and project based relationships. It’s best to have things set beforehand so each party involved understands the possible outcomes. If things change you can refer back to the guidelines put together in the agreement.
These are some guidelines for business-to-business payment structures.
What payment method do you use and why?