Billing by the hour is the most common way to make money in the freelance world, and it can be both safe and profitable. But it does have a few drawbacks. First, potential clients tend to balk at higher hourly rates, mainly because they're comparing you to other freelancers based solely on your rate (and not the talent or work that comes with that rate). Secondly, hourly rates offer little reward for the freelancer to be either fast or efficient. And as for the client, besides worrying about a freelancer who's freeloading, he will have a hard time pegging an actual cost and budget to the project. So for those reasons (and perhaps others), there are times whenproject pricing becomes a great way to make both parties happy: the client gets a fixed cost and the freelancer can earn more than he could hourly (without being compared to low-cost outsourcers).
So how should you go about project pricing? Consider these questions:
How large is the project?
For many, maintenance work or small projects are rarely worth the effort of putting together a formal scope/contract. Besides, most clients aren't keen on making a project out of a four hour job. Furthermore, if you "project price" small pieces of work, it's easier for clients to string you along with more and more edits. Furthermore, you don't want to become known as the freelancer who does "jobs for a couple hundred dollars" -- you'd much rather have an hourly rate and larger project pricing. So if your work will only take a few hours, you can avoid unnecessary hassle by sticking with hourly pricing.
How well do you know the skillsets involved?
Accurately quoting a project is directly related to your knowledge of the tasks involved (or your ability to ask others concerning the tasks involved). It is a common mistake for a new freelancer to bid too low on a project with certain aspects he decides "he can figure out on his own." Take the time to properly understand what skills are necessary to finish a job -- if you feel uncomfortable with parts of it, find subcontractors. Don't be caught in projects that take you much more time than you thought because you assumed certain skills would be easy to learn.
Will the extra earnings (over an hourly wage) be significant enough?
Project pricing involves extra overhead that hourly pricing does not. You need to take the time to plan out a project, communicate very specifically with the client, and carefully write out all the necessary obligations and responsibilities of both parties. Furthermore, you can be sure that the client won't be in any hurry when it comes to meetings, making edits, or streamlining certain tasks. Consider all these additional time factors into account when deciding on project pricing.
What type of client are you dealing with?
Even with a carefully drawn-out contract, there can still be many gray areas in the course of a project. The client is trying to get the best work for his money and the freelancer is trying to make the best business decisions. Issues like endless edits, maintenance work, and interpretation of certain tasks can lead to one party or the other becoming frustrated. So before diving into a project, it's always wise to consider the type of client you're dealing with. Are they understanding and trusting? Or are they demanding and high maintenance? Of course, both can be profitable, but you'll have an easier time with project pricing for the former.