Stacks of cash

Settling on the best billing method is a legitimate challenge for any freelance project manager.

I’ve spoken with many colleagues over the years to help shape the methods I use for billing clients, so when I’m asked which method is the best, my answer is:

You should go with a billing structure that works best for you and for your client.

I know, sounds like a cop-out reply, but it’s true. Let’s dig into the details a bit.

What’s The Best Billing Method For Freelance Project Managers?

There are several billing concepts that I’ve used over the years, and I’ve tweaked those through lessons learned and ideas shared by others.

Since we’re talking specifically about billing for freelance or independent contractor PM’s, let’s set aside the salary concept.

Long-term projects or retainers might feel like you’re on salary, but we’re looking at billing structures for non-employee project managers for now.

With that in mind, the billing options I’d like to explore are:

  • Hourly
  • Daily
  • Per Project
  • Retainer

Billing Hourly for Freelance Project Management Work

This is my preferred method and a definite contender for best billing method for freelance project managers.

It’s not without flaws, and of course its validity depends on several factors, but for me the bottom line is: I want to get paid for the time I put in.

I’ve heard solid arguments against the hourly concept that have led me to go with alternate methods depending on the project and the client’s needs. But hourly is my go-to.

Pros of hourly billing

Billing hourly ensures that if change requests, scope creep, and time extensions happen — and let’s be honest, despite our best efforts to define scope and exclusions, they happen — you will still get paid for your time.

The hourly setup also ensures you have the means to allow for expanding scope and increasing timelines along the way — and therefore increasing your paycheck — without need to re-negotiate your payment terms.

I don’t like to focus on my paycheck while I’m working; I want to know there is an agreement in place, and then I want to go manage the project.

Being a freelance or independent contractor PM means handling your own sales, negotiations, bookkeeping and everything else related to running a business, as well as doing the actual day-to-day PM work.

So I prefer not having to renegotiate mid-stream.

Lastly, I’ve found that hourly billing can be beneficial in deterring clients from taking advantage of your time.

When the client knows that every phone call, email communication and change request is going to increase your portion of their expenses, they tend to be a bit more thoughtful about how they use your time.

Cons of hourly billing

Among the best arguments against billing hourly — for project management and many other types of freelance work — is an issue that has cropped up for me a time or two: the hourly billing concept doesn’t account for the varying speeds at which different people work.

If you can get a task done twice as fast as me, then the value you provide your client — particularly if the project has a tight deadline — is significant and arguably not properly displayed when your work is measured hourly.

The key to overcoming this con is to ensure you’re charging properly for the actual value of your time, but this is where things can get tricky with an hourly billing: large hourly requests can turn off potential clients before you even have a chance to show your skills.

It may very well be that you could actually save a client money by charging a little more per hour than the next PM, because you’ll get the work done that much faster (and, of course, we’re presuming in this scenario that your work is both fast and high-quality) but if you don’t already have a relationship with that client, all they might see is a high dollar figure and move on to the next applicant.

It does happen, and it’s one of the challenges associated with making sure you get paid according to your value while charging hourly.

Freelance Project Manager Hourly Rates

So how much should you charge per hour as a freelance project manager?

The answer depends on a number of factors. Here are some things to consider when setting your hourly rate:

  • What are others in your area and expertise level charging? Do some Google searches to find reasonable rates based on your city/state/region and experience level. If you were selling a house, you’d do something similar: check “comps” in your neighborhood and general area, find the final-sale amounts for houses that share similarities with yours, and price your home accordingly. Being able to show a potential client that your rate is in line with others’ can be very helpful.
  • Consider that you’ll have to pay taxes. This one is assumed by all parties, but you still need to factor it in when deciding on your hourly rate. So determine how much you need to set aside for taxes along the way, so that you can make your quarterly estimate payments, and make sure you’re at least aware of that when you establish an hourly rate.
  • What are the prospects for growing the client relationship? This mostly comes down to “feel” and experience, but it’s worth considering in case you need to negotiate a bit with a potential client. For example, if you see opportunity for additional work beyond the current project request, you might consider taking a slight rate cut in order to secure the account and the longer-term relationship. Just be careful about how low you go; it can be really difficult to raise your rate later on.

Invoicing Freelance Project Management Work by the Day

The daily billing concept is popular in Europe — a colleague in London was the first to introduce me to it — and it has some pretty strong merits, including a potential solution for the hourly billing cons I outlined above.

Pros of daily billing

Billing on a per-day basis can provide some flexibility and a means for compartmentalizing your work, if you’re handling multiple projects for multiple clients at once.

The client knows that using your time in any given day results in a flat amount of money invoiced, and you know that if you begin on Project A on a Monday, then Monday is all about that project and your day should be structured accordingly.

This concept also ensures that no matter how fast or slow you work, you will get paid for the day, and in this way it can help overcome the potential sticker shock associated with a large per-hour rate.

For example, a client might balk at paying you $50 per hour but accept a $400/day arrangement, even though in an 8-hour day, $400 breaks down to $50/hr.

Further, the daily setup offers some flexibility in billing options, as well.

I’ve talked with freelancers who offer a half-day rate to clients, with anything less than 4 hours billed as a half-day and anything over 4 billed as a full day.

Cons of daily billing

Unlike the hourly concept, it’s possible to wind up logging more time than you’re getting paid for using the daily structure.

More accurately stated — it’s possible to dilute your per-hour pay by working longer than the amount of time you used to set your day rate.

For most people, that’s 8 hours, and sure, if you wind up accomplishing your tasks for a given day in 6 hours, then you’re making more per hour than you set out for.

But the opposite can also be true, if you wind up working 10-hour days more often than not, you’ll very quickly dilute the value of each hour.

Part of making the daily billing structure work for you involves setting boundaries — for yourself and your client — to ensure your day is not going to be open-ended.

I don’t know about you, but when I’m in a groove on something, I like to ride it out and not feel like I need to unplug at that moment because the clock says so.

But if you can be disciplined about this to the point that your longer-than-usual days and your shorter-than-usual days at least even out in the end, then daily billings can be a very positive thing.

Charging on a Per-Project Basis for Freelance Project Management

Early in my career, I used per-project billing a lot more frequently than I do now.
It’s the method I’ve tweaked the most along the way because it’s given me the most difficulty.

Successfully using per-project billing is contingent on several factors, including your ability to tightly define scope, exclusions and timelines.

Pros of per-project billing

The primary positive of getting paid by the project is simple: You’re paid for the result of your work, and not just for the number of hours you log in a day.

I’ve spoken with a lot of freelance designers and other artistic types who prefer this billing method, because the quality of their deliverables is often more important to them than the time it takes them to create.

In this way, you can be faster — or, let’s say, more efficient — than the next project manager and potentially make more for each hour you log than you would otherwise.

If you’re very organized, efficient and are able to very tightly lock down the scope, exclusions and timeline with your client during the planning phase, then per-project billing can work very well.

Cons of per-project billing

The cons of billing by the project are many, however, and they generally stem from issues with those planning-phase items I noted above.

Billing on a per-project basis means you’re getting paid for the result, which we just explored as being a potential positive, but it can also be a negative.

As you no doubt know, projects can include a large number of hurdles — walls, even — that are completely out of your control, and your job as a project manager is to navigate those obstacles and deploy contingencies as you go.

But no matter how much planning you do, no matter how tightly defined your scope is, there’s invariably going to be something that crops up in the midst of some projects that requires more change requests than expected, adjustments to resources or some other large-scale issue that can wind up adding time to your project.

That added time can vary from hours to months, and I’ve known project managers who’ve gotten stuck in this reality without a good means for getting paid for the added time. They did wind up getting that pay in the end, but it required additional negotiation on their part, and I’ve already noted how I’m not a fan of that.

Another potential problem with per-project billing is it doesn’t always allow for much wiggle room or growth.

It’s not uncommon for me to wind up doing work for a client that’s outside the scope of the in-progress project.

Sometimes this means doing content work on the side, sometimes it means helping with other items for the organization in general.

If I’m billing hourly, I’m free to just shift gears and go do these things, provide additional value to the client and strengthen the relationship, and I continue getting paid for however much time I spend.

If I’m billing by the project, those types of requests can be difficult to respond to, I might have to negotiate further or employ a secondary billing method for work that’s outside the current project scope.

Per-project billing creates structure, sure, but that structure can sometimes be limiting.

Finally, per-project billing requires you to have a very tight scope, detailed exclusions and contingencies and an agreed-upon timeline for your project and your work.

These are not cons on their own; in fact, mastering those challenges will only make you a better and more-valuable PM.

But, these items are not always very easy to set up front, 100 percent of the time, even if you’re a seasoned project manager who is very good at defining those details.

So my advice is you get very good at those parts of planning, and establish a timeframe for your contract, so that if the project goes beyond that timeframe for reasons outside your control, you have a means for negotiating and getting paid for the additional time required to deliver.

Working as a Project Manager on Retainer

Retainer scenarios can vary wildly based on a number of factors, including client, project and industry.

I’ve found there are many positives to being a PM on retainer, and there are also few negatives worth mentioning.

Pros of retainer billing

Income and general work stability are among the biggest benefits of being on retainer as a freelance PM.

It’s nice to have steady paychecks and it can be rewarding to be part of a team that you work with regularly.

The retainer setup has also allowed me to build good relationships with clients and other stakeholders that have led to additional opportunities and even lasting friendships.

I’m a fan of the retainer concept, when it’s set up right for both myself and the client.

Cons of retainer billing

There are a few negatives with being on retainer, especially if it’s open-ended.

For starters, it can be very easy to blur the lines between freelancer and employee when you’re in a retainer situation and working regularly with a client or project team.

Not all retainers are built equally, of course, so this depends largely on your situation and the project setup, but if you’re working on the same account and with the same team on an ongoing basis for multiple days a week, it’s easy to start feeling like — and for your direct reports to start treating you like — an employee.

That in itself is not a bad thing, necessarily, but it can become one if boundaries are not properly set and agreed upon.

And, similar to traditional employment, it can be very easy for clients to increase demands on your time but at the same time difficult for you to renegotiate pay once you’re in the retainer.

Make sure you go into the retainer agreement with clear boundaries and a clear method for increasing your rates should you need to in the future!