13

I ran into an interesting discussion below this question regarding ethics in billing.

Where I think hourly billing is the most transparent way to bill, the other side has written, extensively I might add, on why it isn't and one should go for fixed price instead.

In my opinion the way you charge a project does not determine whether you charge unethically or not. I can charge more hours than I actually worked because I actually work much faster than the customer thinks I do. On the other hand, fixed price projects offer an ideal opportunity to set a price that is too high which the customer will always be forced to pay whether a project took three weeks or only one to complete.

---edit: clarification that the question is not about ethical business in general, but specifically billing ----

I understand doing business in an ethical way does not need to be determined by the billing, if you want to pull one over on your customer it can be done in any way number of ways. However, I think hourly billing at least is the best way to bill: you are transparent on the amount of work you performed and that's what you bill. No black box lump sum amount which may or may not represent work. If you want to account for experience and skill, just raise your hourly price.

---end edit----

So what is the most honest, transparent or ethical way to bill in your opinion? Hourly or fixed price?

I realize this might be more of a discussion than a question and I'm unsure if this falls within the scope of the site, but I think it is a very relevant topic for many freelancers

We're looking for long answers that provide some explanation and context. Don't just give a one-line answer; explain why your answer is right, ideally with citations. Answers that don't include explanations may be removed.

  • 2
    Hi user, see Good Subjective, Bad Subjective. More specifically, scroll down to the section on the "Guidelines for Great Subjective Questions". While subjective, your question includes enough detail and lists out assumptions to the point where people should reasonably be able to answer in Q&A format, as long as they adhere to those guidelines and/or back up their answer with facts, references, or experiences that happened to them personally. – jmort253 Mar 21 '14 at 2:29
  • In short, on this question we're not looking for unsubstantiated opinion but instead seek expert opinions that can be backed up. Hope this helps. – jmort253 Mar 21 '14 at 2:29
  • 2
    Not a full answer, but... I always do per-hour billing unless it's a project that has been well thought out, and my input validated for the customer. My industry is fixing things, and sometimes, things pop up. My customers realize this, and prefer it this way. – Canadian Luke Mar 21 '14 at 15:13
  • @CanadianLuke I think I captured a where you're going in my answer. – Tim Lytle Mar 25 '14 at 20:51
13

Unethical people can be unethical completely regardless of any payment structure.

Pricing high does not instantly make someone unethical. Perhaps that price for the three week project is accurate even though experience allows the work to be done faster. There are simply too many variables here to answer in any sort of definitive manner

Here's a scenario....

Bob has 20 years experience and charges $500 an hour.
Chuck has 2 years experience and charges $50 an hour

Both are presented a project.
Bob estimates it at 10 hours totaling $5k.
Chuck estimates 100 hrs totaling $5k.
Both provide the client with a flat rate quote of $5k and 2 weeks to complete.

It actually takes Chuck 86 hours to complete the project.
Bob takes 9.5 hours to complete it. Because experience allows him to estimate with slightly more accuracy.

It would sound as though you feel Chuck is then unethical if he invoiced for the agreed upon $5k because technically, based on the stated hourly rates, he should invoice for $4300. Or you feel Bob is unethical because if it only took him 9.5 hours he should somehow not charge his standard hourly rate... or that everyone should have the same hourly rate (which makes absolutely no sense).

I don't understand how that would be logical. And I don't understand how, if the client agrees upon the $5k why it's even an issue.

Hourly rates are never hard quotes, at least for me. Hourly rates are always estimates.

In my field (design) hourly rate work is reserved for edits and maintenance, not projects on the whole. Flat rate (or value-based) pricing is always a much better pricing model in my opinion. There are solid reasons you should fire your hourly rate which I won't go into here. However, one thing is certain hourly rates are a sure way to ensure you lose money as you gain experience.

We all know those clients that freak out at higher hourly rates but have no issue paying larger invoices. If both Chuck and Bob quote the job at $5k and the client is happy there's no issue - ethical or otherwise. However, it is doubtful that Bob get any work if he quotes the project at $500/hr for 10 hours and Chuck quotes it at $50/hr for 100 hours. Bob can't spread out the 10 hours needed over 100 hours and it makes no business or financial sense for Bob to lower his hourly rate to match Chuck.

The easiest, hardest to discover, way of over billing is to bill hourly then forge or fabricate the actual hours needed to complete something. I would hazard a guess that this is the most used unethical manner of pricing.

Flat rate pricing ensures the client knows what they will be invoiced before a project begins. If that figure is agreed upon, and the work is completed on time and in satisfactory condition, everything else is somewhat irrelevant. To me, if you deliver a solid, complete project, on its scheduled deadline, there's really very little way one could be unethical with flat-rate or value-based pricing.

  • Agile planning is a good way to give a client an estimated quote, based on the hours you think it will take, plus support, plus anything else. We do it the whole time. The client want to know how much, we draw up a spec, eveybody checks it, if they think time is underestimated, they fix it, and quote client based on time it might take. Usually delays are compensated by inflating the initial projection by a reasonable amount. – WillyWonka Apr 10 '14 at 22:46
6

Short version: the easiest way to bill ethically, is to match what you're selling.

Longer version: My product is very clearly my time. Clients hire me to build custom web applications, and many times the specifications around that are very fluid (and they should be), so the client is really purchasing my time to work with them refining and building their idea iteratively.

If I tried to break that into deliverables with fixed prices, one - or both - of us will get the short end of the deal.

For other freelancers the product is very clearly not time (at least they way the approach it). They may be selling things like wordpress installations, HTML slicing, etc. You can certainly track those things in time, but it's a very definable product.

Clients know what they're buying, and the deliverable is easy to recognize.

In those cases, you set a price the market will bear, and create the most efficient and quality workflow to maximize profit.

So charge for what you're selling, if you're selling your time, bill hourly, if you're selling a deliverable, bill for the 'thing' (fixed billing). That's not a guarantee of ethical billing, but considering what it is you're selling, and billing for that, makes it easier to bill ethically and reasonably - for those that have that goal.

6

I have use both hourly billing and flat fee billing. I used to always favour hourly billing on the basis that I felt it was more ethical, but soon changed my mind about this.

The main reason for my change of mind is that time is not always a valid reflector of the value of the work done, e.g.:

  • A job might take longer but contain more repetitive unskilled work; should it then cost more?

  • A job might take a shorter amount of time but depend on my primary area of expertise for which I have trained for (at cost) and practised for many years; should I then charge less than someone with less experience and less training?

I will, however, still sometimes use hourly billing. My choice of billing method usually depends on a number of factors:

  • What the client asks for / insists on. Whether or not I agree it is the best fit, do I refuse for ethical or practical reasons, even if I want the contract? Often I will just accommodate but explain why I think it is a bad idea e.g. that they may end up paying more. I will explain, if necessary, that my hourly rate is quite high for this one because I am charging for my experience/skill level. If I know the client well or they are favoured and I want to keep their custom, I will be more accommodating than with others.

  • If it is a short and easily estimable job, particularly if it does not require much skill (e.g. making customer-requested edits to a finished work). In these cases it is sometimes easier to just say "This will take me two hour to do and I will charge £60 an hour."

  • If is a long and not-so-easily estimable job, and I know that I will likely either over or under-estimate it, I will use my best estimate of the hours worked (with some slippage time) but quote the fixed fee because I cannot determine if an hourly rate would work out better or worse for the customer. If the fixed fee I give is agreeable to the customer, then there's no worries on either side - we're both happy.

As you implied in the question, and you can see from the above, that this is a more complex topic than just saying one is more ethical than the other. It depends on several factors such as the the particular circumstances of the business arrangement.

In my view, neither is better or worse that the other ethically because it is impossible to pin the answer down to one that fits every circumstance.

Ultimately, in my view, if you value your work at a certain level, and the customer agrees with your valuation in the form of a signed contract, and you deliver on the contract on time and to spec, then there is nothing ever unethical in the method with which you bill.

What raises issues of good/bad ethics in billing are:

  1. Your intention - do you intend to deceive your customer?

  2. Your honesty and clarity upfront in the contract.

  3. Do you stick to your contract/fee even if your chosen billing method resulted in a loss to you and chalk it up as a learning experience?

  4. Are you willing to shift your fee position if your mistaken choice of billing method ended up causing loss to your customer? (If it's your mistake, your customer should not have to pay for it.)

The above can happen with either hourly or fixed billing, so clearly it's not the billing method, but the biller, that is the determining factor in matters of ethics.

So my answer to your question is:

Neither hourly or fixed price is more or less ethical than the other generally. But, in any particular circumstance, one method may be more ethical depending on the details of the circumstance.


EDIT: Subsequent to posting this answer I found a series of articles that addresses some of the ethical issues of choosing a billing method:

How to Charge for Websites: Fixed-Price Projects

How to Charge for Websites: Pay-Per-Hour Projects

How to Charge for Websites: the Agile Way

The third article may resolve some of the quandaries a freelancer might face in determining how to bill in the most ethical and transparent way.

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.