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4e80120c
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Fixed vs hourly

Hi all!  Here's a quick question for those that might assist us.  

The best process to use - FIXED price or hourly? So, I've hired contractors for a set amount of hours BUT TRULY the goal is 1) Let them use as many hours per week they'd like and 2) just have a NOT TO EXCEED price. Would it better-fixed price OR hourly? 

5 REPLIES 5
prestonhunter
Member

re: "The best process to use - FIXED price or hourly?"

 

Hourly.

 

re: "So, I've hired contractors for a set amount of hours BUT TRULY the goal is 1) Let them use as many hours per week they'd like and 2) just have a NOT TO EXCEED price. Would it better-fixed price OR hourly?"

 

Hourly.

 

But I'm simply pointing out that hourly is better in general. There are specific circumstances in which fixed-price can be an effective contract model.

 

You asked a general question. I'm sure you already know that there are some work niches that never or nearly never used fixed-price contracts. And some work niches that use fixed-price contracts extensively.

 

Understand the differing objectives of the two contract models:

- hourly: maximize quality

- fixed-price: contain/predict cost

 

An advantage of the hourly contract model is you can fire any freelancer at any time, and there is no money tied up in escrow.

 

With fixed-price contracts, you may be able to do a better job predicting what specific modules will cost, but you won't necessarily do a better job at predicting how much a large project will cost in total. With fixed-price contracts, money gets tied up in escrow, and it is more complicated to fire a freelancer and assign her tasks to somebody else.

 

It really isn't the freelancer's job to contain cost. It is the freelancer's job to do the work.

 

If you want to better control cost, then you need to undestand that is the PROJECT MANAGER'S job.

 

The project manager is the one who hires multiple freelancers, assigns work to them, evaluates the work that they submit, and decides who to fire. The project manager also is the one who understands the strengths and weaknesses of the various members of the team. The project manager understands that if he assigns Janet to create the new admin tool, it will cost more, but the quality will be higher. If the quality isn't as important, he can assign Francesca to do it.

Thanks but we not to worried about management, the question is just if I want to grant 100 hours to someone and the first week they have time to use 30 and the next week 35 and then the balance the following, is this best served hourly or fixed price?

 

The goal is to have a not-to-exceed maximum to be spent and then apply as the contractor has time and we approve.  

re: "the question is just if I want to grant 100 hours to someone and the first week they have time to use 30 and the next week 35 and then the balance the following, is this best served hourly or fixed price? The goal is to have a not-to-exceed maximum to be spent and then apply as the contractor has time and we approve."

 

Then your question isn't really a general/philosophical/management style question. It's really a mechanical/technical question.

 

Which means your question can be answered in a purely factual, objective manner.

 

Fixed-price is out of the question as a possible answer to your question, because the number of hours that a freelancer works is not a component of the fixed-price contract model.

 

So it's like asking: "I want go get a hamburger and French fries. Should I go to McDonald's or the Department of Motor Vehicles?"

 

The only possible answer is to go to McDonald's. Because the Department of Motor Vehicles doesn't sell hamburgers and French fries.

 

Fixed-price contracts don't have hours. And any attempt to involve hours in fixed-price contracts is nothing but an awkward work-around and a "scheme."

 

re: "The goal is to have a not-to-exceed maximum to be spent"

 

If your goal is to have a "not-to-exceed maximum to be spent" then you need to use fixed-price contracts.

 

Because hourly contracts do not have a "maximum-to-be spent" component to them.

 

In an hourly contract, you pay for a freelancer's time. You do not pay for a specific deliverable. So if you hire a freelancer to adapt the Henderson file to A-998 format, and she says it will take about 5 hours to do that, you might PREDICT about what it will cost. That prediction may be accurate. Or it might be too low. Or it might be too high.

 

With an hourly contract: She might work for 5 hour and only get half-way done. That's just the way it is. You can't "dispute" that or anything. You can fire her. But you can't get your money back.

 

If you hire her using a fixed-price contract, you can ask how much she'll charge, and she says "$100," so you set that up. At the end of the work, she gives you the file and you need to release the $100 to her.

 

You might notice that she didn't maximize the Trend Posts. Too bad. She doesn't have to maximize the Trend Posts. Because your original task agreement did not specify that she would need to maximize the Trend Posts. If you want her to do additional work to maximize the Trend Posts, then you need to set up a NEW contract to pay her to do that. If you hire her with an hourly contract, then you do NOT need to set up a new contract. You can use the same hourly contract, and just ask her to do that, and pay her more to do that.

 

The client-side interface allows you to specify the maximum number of hours per week that a freelancer can work on any hourly contract. You can change that maximum number at ANY TIME. You can change it as often as you want.

 

But you can not create a chart that specifies something like this:

Week 1: 100 hours

Week 2: 30 hours

Week 3: 35 hours

 

If you want to change the number of hours that a freelancer can work, you must manually make that change every time.

 

And you need to understand that the change is forward-looking.

 

If a client has 40 hours allotted THIS WEEK... Then you can change the number to 5 hours. But if the freelancer has already logged 40 hours, that change won't go into affect until next week. They'll still get paid 40 hours for this week, but next week they won't be able to log more than 5 hours.

 

THERE IS NO WAY TO SPECIFY a maximum number of hours for the total contract other than by manually adjusting hours each week.

 

You can't say "You have 100 hours for this project," and then let that project span multiple weeks. You would need to do the math and make the changes each week.

 

====

The one way that you can pursue both of your goals:

"Number of hours" and "maximum amount of money to be spent"

...is to do what I spoke of in my first post in this thread, which is to have the project manager handle that.

 

The project manager can use a MIXTURE of fixed-price and hourly contracts with multiple freelancers to try to pursue these goals. But this implies a larger project.

 

For a small project you aren't going to have the "room" for multiple freelancers and many different projects, all managed by the same project manager.

 

For a small project, you may only have a single project, for which you need to pick a contract model: hourly (qualify/flexibility) versus fixed-price contract (predict costs ahead of time).

 

Some of this boils down to the general project management principle:

"You can have it good. You can have it fast. You can have it cheap. Pick two."

Screen Shot 2021-06-10 at 5.16.38 PM.png

 

The overlap between what you are asking about and this concept is not perfect.

Some key ways that this concept overlaps with what you are talking about is the idea of having a "not-to-exceed" number of hours is based on a disire to "have it cheap."

 

This doesn't mean that "you are cheap," but it means that containing cost is one of your primary goals. If you choose that as one of your primary goals, that is fine. That simply means you have one remaining choice to choose from out of the two remaining options: "good" or "fast."

 

If you decide ahead of time that you are going to do whatever you can to predict cost and maintain cost, then you may need to sacrifice project quality (meaning: using fixed-price instead of hourly), or you may need to sacrifice speed. This means you may need to go slow in finishing the project because you are setting up successive fixed-price contracts with different freelancers to see how their work is, evaluate it, approve it, and continue working with them if they deliver what you need, but end the contracts with them and hire other people if they don't meet your objectives.


Matthew K wrote:

Thanks but we not to worried about management, the question is just if I want to grant 100 hours to someone and the first week they have time to use 30 and the next week 35 and then the balance the following, is this best served hourly or fixed price?

 

The goal is to have a not-to-exceed maximum to be spent and then apply as the contractor has time and we approve.  


It probably depends on the work. I only work hourly so I don't have to deal with escrow, but if we agree on not going over a specific hourly number, I won't. But I also make sure not to promise a certain hourly number if I am not sure if I can do it. It would probably be best if you talk to a freelancer who really knows what they are doing, has a long history on the site, is currently active making good money so that any fraudulent behavior would not be worth the 30 hours you set for the week, and they have a good sense of what needs to be done. This takes someone with experience.

 

You will also come across freelancers who will only work one way or the other, so keep that in mind. You might want to work with a freelancer but they won't work hourly and will want escrow.

It's fine to hire people without experience and people with very low rates, as long as you take into account the failure rate.

 

If you do enough hiring, then there is a simple linear plot that can be drawn for failure rate for any job niche/dollar rate combination.

 

For example, if you hire a freelancer to create oslonos, you can know that at the $3 to $6/hour level, you will need to hire 5 freelancers to get usable results. At $6 to $15/hr, will need to hire 4 freelancers, $15 to $30/hr, will need to hire 3. And $30/hr and above, you can hire just 2 to ensure usable work. Or hire only one $30+/hour rate freelancer and see if their work is usable (because there is a 50% chance it will be), and only hire a second freelancer if the first one fails.

 

You only need to hire multiple freelancers simultaneously to do the same task if TIME/DEADLINE is a component in your hiring goal. If you need the work done by a specific deadline, then you need to hire multiple freelancers to account for the failure rare. But if the deadline isn't tight, you can hire in a SERIAL (or "sequential") fashion. You can hire only a single freelance at a low rate, and then if her work can't be used, you toss it and hire the next freelancer to do the task, and so on until you get what you need. If you hire in a SERIAL fashion, then you have a good chance at lowering overall COST, but the TIME it takes to complete the work may be longer.

 

Of course, if your primary goal is to maximize your number of options ("I want to to see 10 different interpretations of this oslono brief, demonstrating a wide variety of styles), then you will hire multiple freelncers.

 

This can be summarized simply:

 

GOAL: minimize cost

METHOD: serial/sequential

 

GOAL: finish by tight deadline/finish quickly

METHOD: simultanous multiple freelancers

 

GOAL: maximize variety/options

METHOD: simultanous multiple freelancers