#020: Hourly Rates: When Do They Make Sense? And How Do You Keep Them High?

If you’ve followed me for a while, you already know that I’m NOT a fan of quoting hourly rates.

At least not when you’re a freelance writer.

There are many disadvantages to the hourly rate model, and I still believe that in most cases it’s much better to quote flat project fees.

However, there ARE some situations where it makes more sense to quote project work by the hour. And if you do it right, you can still earn a great living and keep your client happy.

I recently corresponded with web content writer and SEO specialist Katherine Andes. Katherine quotes most of her work by the hour. And one of the many things I admire about her is how successful she’s been with this model.

In this episode, Katherine explains why she’s chosen the hourly rate model. How she makes it work for both her and the client. And how she handles pricing objections and pushback.

The notes that follow are a very basic, unedited summary of the show. There’s a lot more detail in the audio version. You can listen to the show using the audio player below. Or you can subscribe in iTunes or on Stitcher to get this show delivered straight to the Podcasts app on your smart phone, tablet or iPod.

This is a fascinating interview, and Katherine was very generous in sharing this wonderful, practical information, along with a copy of her own “email of understanding.” (This is very cool; make sure to check it out!)

The notes that follow are a very basic, unedited summary of our interview. You can listen to the show using the audio player below. And you can also subscribe to this podcast series in iTunes.

What services do you offer and who are your clients?

Most of Katherine’s customers are companies that serve their local communities located anywhere in the U.S. On average, their sales revenue falls between $10-$12M/year.

Although, she describes herself as a specialist in the home improvement industry that niche hasn’t been as great as expected. Consequently, Katherine has worked with a wide variety of clients in different industries including flooring and solar panel companies, accounting and insurance firms.

How long have you been doing this type of work?

Katherine started her freelance writing business in 2003 doing grants and resumes. Grant writing business started to dry up in California, where Katherine lives, because the state was in financial trouble.

Out of necessity, Katherine started doing print work for clients including a flooring company when the owner asked her to write the content for the company website.

While the website was nice-looking and the content was good, it wasn’t ranking high in the search engines.

Katherine saw an opportunity to expand her business and offer SEO in addition to content writing. She decided to learn SEO, hired a coach, and narrowed her focus on her website to promote these services only and re-launched in late 2008.

Do people understand what you do?

At first, no. It took a while to educate people. Katherine started a bi-monthly newsletter, wrote for the local business journal and did lots of networking to help business owners understand what SEO is and then the importance of it and how she could help them.

In the past year or two, business owners have become more web savvy and understand and more importantly, value SEO. Now she’s to the point where she has to turn away business!

How has your business shifted in landing clients since you re-launched?

The main difference is the consistency and volume of work. Katherine went from two or three weeks without work on a regular basis to having to turn away business. Now she’s booked through the year. This critical mass point seems to come at about the third to fifth year on average for freelancers.

Her business mainly comes from word of mouth, referrals and subscribers to her newsletter. Some business does come through her website too. Those that find her on the web tend to be more knowledgeable and understand the importance of good SEO, yet they typically want to pay less for her services.

Katherine is in a great position, but she’s struggling with having to turn down some business. Frequently, this makes one more attractive to do business; People seem to really want to do business with someone they have to wait for — a position we all strive to get to eventually!

Charging hourly rates rather than flat project fees.

Historically, Katherine tried to quote flat fees, but wasn’t able to land the jobs.

Additionally, when she did land the job, the hourly rate that she ended up earning was too low. After reading some of Bob Bly’s advice on the topic, she realized that billing by the hour for long complex projects made sense.

People would be interested in her writing their website, but once they found out she didn’t build the site too, they would end up working with someone else. She started using GoDaddy templates to build sites for small clients to get their business.

Consequently, her business expanded to handling the set-up for clients’ local listings with Google and Yahoo, Facebook pages, and other marketing items. Soon she became a consulting creative director/project manager. Both of these professions bill by the hour rather than project which made the transition to hourly easy.

It’s funny that prospective clients are OK with a quote for $100+/hour, but think $20,000 for a project is outrageous! Katherine has learned this over time and been able to build her business based on hourly rates.

Charging hourly rates for different customers and rate ranges

The lowest rate that Katherine charges is $75.00/hour which is with a favorite charity and she will probably not raise their rate. Her highest-paying clients are at $135.00/hour and older clients are at $100 or $125 an hour.  Now, new clients come in at $145/hour, but the wait is three or four months, so none have come on board yet.

Katherine increases her client’s hourly rate on an individual basis. She raises her rates when she feels the business isn’t profitable any longer. As far as how much to increase, she’s comfortable with raising in increments of $10/hour.

Keeping clients focused on the value provided rather than the hourly rate

A common fear among freelancers is that having their hourly rate transparent to prospective clients will take the focus away from the value of their service. In Katherine’s view, she is far more valuable than an attorney or an accountant, because the work she does for her clients contributes to bringing them new business.

At first the hourly rate may seem high, but economies of scale in the long run make her very well priced. Additionally, clients don’t have to renegotiate for each project. Katherine charges the same hourly rate for work done.

Do you pay much attention to what your colleagues are charging?

Not much anymore, because most charge by the project. Instead, she considers and watches what graphic designers and technical web developers are charging. Using their rates, Katherine takes into consideration that she does the copywriting too, and adds on to the rate.

On average what do you bill clients in a year?

Most clients are in California, but Katherine does have clients all over the country.

The average range Katherine bills a client over the period of a year is:

  • Most clients average $4,000-$7,000
  • Two or three clients at the top end of $15,000
  • A few clients that are filler $1,500 – $2,000

Regardless of where someone lives, Katherine charges all new clients the same rate. Her value is based on the services she provides, not on her client’s location.

How to avoid clients from freaking out

Around the $6,000 range, clients start to panic and get upset that the project is taking longer than they expected. Katherine simply says to the client, “If you have a budget cap, if you want to stop it now, tell me how much more you want to spend. I can then tell you what we can accomplish with that, and when you have more funds we can then resume the work.”

Katherine has found that by showing she is sensitive to their needs, most clients will calm down and finish the project.

How much pushback do you get when you quote hourly rates? How do you overcome these objections?

Now Katherine has learned to try to set the expectation up front, so clients are prepared for the number of hours it may take to handle their project. For instance, a big project could take $5,000 – $20,000 depending on what they want.

Because her creative brief can take 5-10 hours, the cost is included in the billable hours estimate to a prospective client. However, Katherine likes to do a web review of the prospective client’s current website to get a better understanding of what the project will entail. She charges $550 for this review. This way she can better assess the project and the client gets something of value.

Using an “email of understanding” rather than a contract

If a contract goes bad or if there is a disagreement, Katherine can’t go to court to have it settled. Therefore, she prefers to use what she calls an “email of understanding.” Her email of understanding summarizes the scope of work. It serves two purposes beyond telling Katherine what to do:

1)     It outlines the work for the client and helps them understand the depth of what she’ll be doing for them, and

2)     If the client questions something, she can reference it.

Katherine’s email of understanding (download a copy here) includes details about the following project items:

  • the goal
  • preparation steps
  • creative brief
  • how she’ll strategize and write the pages
  • how she’ll do SEO
  • how she’ll research  for key word phrases
  • how she’ll track for the key word phrases used
  • how she’ll manage the project
  • how she’ll work with the web developer
  • timing
  • web consulting – social media, linking issues
  • terms – including advance, and invoicing
  • Errors and omissions clause

The terms also include a phrase that allows either party to stop the arrangement at any time. Katherine feels this sets her apart from other SEO companies, because she doesn’t want clients to feel locked in. The typical SEO company requires yearly contracts for a set amount/month. When a client works with her, if they’re unhappy, they can pay their bill and be done with her.

Katherine has run into a few occasions where a contract was necessary on the client’s part and she was able to accommodate the request.

Billing issues?

Fortunately, Katherine has only been stiffed by one client for $200. She has had slow pay clients, but dealing with the business owner seems to ensure legitimacy and payment from her clients.

Advice to those who are afraid to quote the rates they know they deserve?

Start where you’re comfortable regardless of the rate. Once you have jobs, you’ll feel more confident and be able to charge more. And even when you’re trying to raise your fees but feel that the new rate you’d like to charge might be a bit high, if you can deliver, your client will feel you’re worth it.

Also, people who are sensitive to price will mock you no matter what you charge. They will be just as outraged by $20 an hour as $75. So you may as well ask what you’re worth! What’s the worse that can happen?

One last piece of advice…

Freelancers who do SEO work and web copywriting should “webmaster” their own sites to start learning what it entails and to be able to understand what the web developers are saying. You have to have a basic technical understanding so you can translate that into something your client will understand too.

Items mentioned in this podcast include:

•    http://www.andesandassociates.com
•    Katherine’s “email of understanding”

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