Fixed fees are a subcategory of billing rates which can also be hourly-based, task-based, or employee-based depending on the tasks and or company policy for client billing or client preferences.
Fixed Fee Explained
If you made a decision to use a fixed-fee model for charging client projects, then you will have the upper hand when it comes to providing upfront costs, which many of your clients will appreciate.
Billing clients with a fixed fee allows businesses, freelancers, or any type of service-providing enterprise to charge for the value of their work as a whole, as opposed to charging an hourly fee.
With a fixed fee billing method, both you and your client know the billing criterion of each project. This could work wonders if you’re good at planning ahead or if you have enough experience under your belt.
However, if you’re just starting or planning is not your forte, there’s a chance you might underestimate the time it will take you to finish the project. As a result, you might bill your clients less than you should have.
Why Track Time on Fixed Fees?
If you thought that having a fixed fee would rid you of timesheets and tracking hours, you’d be disappointed to learn that counting time is as important with fixed fees as with hourly fees, if not more.
Fixed fees actually require quite a bit of planning because you’d have to explain to your client what’s actually included in the project costs, the scope limitations, and the project timeline.
Moreover, by tracking the time you spend on projects, you can gain insight into many comings and goings behind the curtains. The sooner you start tracking time, the sooner you’ll have the necessary data to keep your business healthy and more profitable.
How to Develop a Fixed Fee System
If you want to develop and implement a fixed fee system, you have to be prepared to learn and develop excellent time management skills, such as project estimations, project management, long-term project milestones, etc.
These skills are important to avoid situations where you miscalculate the hours needed to complete a project and put in more work than your client is paying you for. If a project takes you longer than you’ve estimated, you might not make enough to cover your expenses and, thus, you won’t be able to break even, let alone turn a profit.
That’s why in order to apply an efficient, fixed fee billing system, you need to have great time management skills or a manager that can keep things in check. My Hours offers a project profitability calculator, so things should be fine in that department if you do your estimates right.
Short-term projects are usually easy to estimate, but long-term projects might be tricky as they are prone to changes mid-project. To avoid falling behind, you should create a project milestone and send a monthly report to your client to gain feedback and allow them to make additional suggestions. This way, you’ll both be on the same page.
Although you won’t have to track your time to bill clients, counting work hours retroactively will help you gain insight on how to approach future projects, especially when it comes to recurring projects.