The importance of knowing the different ways that web development companies and freelancers charge their clients for their services can't be understated. With this knowledge you will be able to find and negotiate the best deals for your project.
Generally, you will encounter the following four pricing arrangements once you start talking to developers and exploring other options:
- Hourly Pricing
- Project Pricing
- Package Pricing
- Monthly Pricing
Below you'll find explanations, thoughts and considerations for each type of pricing.
Hourly rates and pricing
Hourly rates are very common and are almost always the basis of all pricing for design and development services. Every web firm and freelancer should be able to tell you what their rates are. After all, this important figure enables them to calculate the price for everything they do.
Rates will vary depending on a developer's experience, expertise, demand and operating expenses. Location also has a big influence on rates (think New York City vs. Anchorage, Alaska).
While every company and individual will arrive at their hourly rates in different ways, once established, the rates themselves should never change throughout the course of your project. Only the hours required to fulfill any particular job will fluctuate. For example, an ecommerce website will normally require more time to develop than a typical small business website.
Unless you are willing to pay for as many hours as you are billed, before you agree to accept hourly billing, it's wise to not only get a written estimate but also an agreement that places a cap on approved hours and requires the developer to deliver regular detailed accounting for everything they've done to that point.
Sometimes, an hourly pricing arrangement may include an advanced payment that works similar to that of a retainer (e.g., placed into an escrow account) and deducted from by your designer or developer as work is completed. You should expect periodic billing statements reflecting the deducted amounts.
Nearly all well established and experienced firms, as well as freelancers, will provide complete project pricing (sometimes referred to as 'fixed pricing') in the form of a total cost estimate.
Arrangements like these require that the developer knows as many details as possible about your project so they can accurately calculate the time and resources needed to complete the work. This is accomplished through meetings and discussions (in person, on the phone, via email or by video conferencing) about your business, products, marketing, goals, competition and many other things.
Simplistically, the total amount of hours required are multiplied by their hourly rate to arrive at a total project price. More accurately, however, intangibles are often added to the price to account for overages, unknowns and incidentals. These things may or may not be fully disclosed to clients but it's prudent of developers to add them in so they don't incur losses.
Ultimately, a detailed proposal should be delivered to you with a summary and details about your project that were discovered during the meetings, a schedule and timeline of deliverables, and of course the price.
Assuming you've accepted the proposal, you should sign a binding agreement that clearly outlines expectations and responsibilities, among other things. Always make sure you have your attorney review any and all agreements. You should expect a portion of the total price to be due upon signing the contract.
The biggest advantage of project pricing is that it allows you to fully understand the total investment (and any ongoing costs) needed to make your website a reality. But there are two items that deserve more explanation as they're often a big (and sometimes surprising) part of project pricing: down payments and change orders.
Project pricing almost always includes an initial down payment at the beginning of the project. The amount of the down payment is usually some percentage of the total project price, typically no more than 50-percent.
Why would you want to pay for up to half of a project before it's even started? Because it provides the developer with the necessary revenue to cover their costs of taking on and producing your website. In some cases, the initial payment also acts as a gesture of good faith. After all, you want them to start working and dedicate their time and resources to your project now with the promise of receiving payment in full later, right? Also, sometimes a down payment will reserve your spot in the schedule of a developer who is in very high demand.
Changes are inevitable in every web project. And as a result, most experienced web development firms and freelancers will include in their agreements something referred to as a change order. Change orders define how (usually substantial) changes and additions materially effect a project when it's in the middle of production. When a large enough change or addition is requested by a client, the details are discussed, defined, written out and then priced accordingly (just as they were at the beginning of the project) on a change order document. After it's agreed upon, it then becomes part of the project. Change orders not only keep projects manageable and organized, they also help developers guard against something they refer to as scope creep and ensures that their projects and production schedules don't get out of hand.
When a website is simple and well-defined, a designer may have the ability to charge a flat fee or offer a package price. This makes sense since if the work is always relatively the same, the cost to produce the work should also remain relatively constant. This enables a developer to offer a flat fee, package or even a per page price for a website. Examples of what could be offered at flat fees may include blogs, email templates, or landing pages to name just a few. If your website requires custom elements (such as custom design, programming, user login areas, etc.), a flat fee package likely isn't the right choice.
Monthly pricing is almost exclusively reserved for online services known as website builders. Primarily for the do-it-yourselfer, website builders enable you to build your own website without the requirement of knowing how to code like professional developers (keep in mind that there is a lot more to web development than just design and code!). The configuration and customization process takes place directly through your web browser on the service's website. These subscription services charge a relatively small monthly fee. As long as you continue paying the monthly fee, your website will continue to be available.