Hourly pricing vs Package pricing – Which is better?

 

Are you trying to work out whether you should use hourly pricing or package pricing for your services? Pricing your services can be tricky and there is a lot of conflicting information out there. Some people say to use hourly pricing, some people say to use project pricing, some say to use package pricing – and you are left thinking “How should I price my services?”. If you are confused about how to price your services you are in the right place. Keep on reading to find out what is better in relation to hourly pricing vs package pricing.

 

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HOURLY PRICING vs PACKAGE PRICING – WHICH IS BETTER?

 

What is the difference between project pricing and package pricing?

If you’ve been spending some time trying to work out how to price your service you might have come across the terms project pricing and, package pricing. Essentially, they both mean the same thing, but  depending on your industry one term may be used more than another. Whether you decide to use project pricing or package pricing you are essentially grouping your services together and charging a fixed price to the client.

 

 

Hourly pricing

Hourly pricing is where you charge based on time. In this case by the hour. It is a straight trading time for money situation. It is a common way to price services where a client is charged specifically for the time a service provider works with/for them.

 

PROS AND CONS OF HOURLY PRICING

 

Pros of houlry pricing

• It is easy for you to calculate what your pricing should be to achieve your financial goal – When you use hourly pricing is it easy for your as a service provider to be able to work out what your pricing should be in order to achieve a specific financial goals. If you have a clear financial goal for your revenue across a year you can work out the number of hours you can work and then calculate what your minimum hourly rate needs to be.
• You are guaranteed to get paid for all the work you do – In theory charging by the hour means you are guaranteed to get paid for all the work you do. You might have come across the term ‘billable hours’ before. The fact is that there might be some hours that you can charge a client for (billable hours) and some that you can’t.

 

Cons of hourly pricing

• As you get more efficient you are penalised – As you get more experienced you are likely to able to deliver a service faster than previously you were able to. This will mean that for the same service you’ll get paid less.

• You have to track your time – If you are charging by the hour then you’ll usually have to keep track of your time so that you can prove to the client the number of hours you worked.

• Clients may question the amount of time it takes you to do something – When a client can tell the time you spend on specific tasks they may question the amount of time you are spending on something. Very often a client might not fully understand what is required to perform a certain task and if they believe you are taking longer than required this can cause issues.

• Harder to predict income and forecast cash flow – When you are charging by the hour it is harder to predict your income. It could be that month to month the number of hours you work for a client changes and you aren’t aware of that in advance. This makes your income unpredictable and will make it more difficult for you to do cash flow forecasting.

• Can be harder to know how many clients you can work with simultaneously – If you are charging by the hour and working on a retainer basis where you do work as and when required (such as a virtual assistant (VA) then you may find the hourly requirements on a weekly or monthly basis fluctuate. This makes it hard for you to be able to know how many clients you can manage simultaneously. It is easy to get in a situation where you end up with not a lot of work one week, but then overworking the next week.

 

OVERWHELMED WITH ALL THE OPTIONS AND WANT HELP TO ENSURE YOU HAVE THE RIGHT PRICING STRATEGY FOR YOUR BUSINESS?  I offer Pricing Power Hours where I will help you to quickly and confidently set, or reset, your coaching prices. You’ll leave confident that all the number crunching has been done correctly and you’ve set your prices to ensure financial success for your business and kept your bigger mission in mind. To find out more and book a Pricing Power Hour click here.

Package Pricing 

Package pricing, or project pricing, is where you will group your services together and over a set price for a predefined service. For example, a coach could have a 3-month coaching package and a copywriter could charge per blog post.

 

PROS AND CONS OF PACKAGE PRICING

 

Pros of package pricing

• Predetermined income which makes it easy for cash flow forecasting – When you sell a package you know exactly what you are going to receive. This makes it much easy to predict your income and do cash flow forecasting.

• Easier for you to understand how many clients you can work with simultaneously – For your packages you should have an idea of how many hours work that requires. This knowledge will enable you to understand how many clients you can work with simultaneously. You’ll be able to easily know what your version of fully booked is.
• You can potentially charge a higher “hourly rate” – When using package pricing a client doesn’t know how many hours something is going to take you. As a result, you have the ability to charge an equivalent hourly rate that is higher than you would be able to charge if you were clearly charging by the hour.

 

Cons of package pricing

• It is easy for you to price your packages incorrectly – There are lots of variables when pricing packages that it is easily to price your services incorrectly. You can make incorrect assumptions about the amount of time it will take for you to deliver a package and it’s easy for you to end up working for less that your minimum hourly rate.
• Scope creep – It is easy for projects to have scope creep where you get asked to do more than initially agreed. If that happens and you do the work it’s a bit like a salaried employee doing overtime – you don’t get any more money.

 

Hourly pricing vs package pricing – which is better?

The honest answer is it depends. Pricing by the hour means you are directly trading time for money, but if you are able to demand a high rate and you are able to control the number of hours your work with each client then it can work well. Package pricing gives you the opportunity to charge a more premium price and can be easy to quantify how many clients you can work with simultaneously. However,  it is easy to underestimate how long delivering a service will take or to overdeliver.

Learn more about to properly price your coaching or consulting packages here.

There you have it! You now know which is better in relation to hourly pricing vs package pricing.

 

Pricing services can be difficult and you don’t have to use only one type of pricing. For example, you could offer a package and then offer additional support at an hourly rate. The main thing is to truly understand how your pricing impacts the overall revenue your business can generate and ensure you are happy with that reality.

 

In the comments share how you’ll be pricing your services.

 

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