Are fixed fees better than hourly rates?
When hiring professional services like accountants, consultants, lawyers, or designers, one question often comes up: Is it better to pay a fixed fee or be charged by the hour?
Both pricing models are widely used. Each has its own advantages, drawbacks, and ideal use cases. The right choice depends on the type of work, the complexity involved, and how both parties prefer to manage expectations.
This article explores how fixed fees compare to hourly rates, and whether one is actually “better” than the other — or simply better suited to different situations.
What Is a Fixed Fee?
A fixed fee means the client pays an agreed-upon price for a specific job, regardless of how long it takes.
For example, an accountant might quote £750 for preparing a set of annual accounts and a tax return. Whether the task takes 8 hours or 18 hours, the fee stays the same.
What Is an Hourly Rate?
An hourly rate charges the client for the actual time spent on the work.
If the hourly rate is £100 and the job takes 6 hours, the fee is £600. If complications arise and it takes 10 hours, the fee becomes £1,000.
Pros of Fixed Fees
✅ Certainty Over Cost
The biggest benefit is knowing upfront how much the job will cost. This helps with budgeting, especially for small businesses or individuals who don’t want any surprises.
✅ Encourages Efficiency
The professional has an incentive to work efficiently. Their income isn’t tied to how long the job takes — it’s about getting it done correctly within the agreed scope.
✅ Easier for Standard Tasks
Fixed fees work well when the job is routine and predictable — like preparing tax returns, doing payroll, or submitting annual accounts.
✅ No Clock-Watching
Clients don’t have to worry about costs creeping up for every email, phone call, or small question. The price is set.
Cons of Fixed Fees
❌ Scope Creep Risks
If the job expands beyond the original agreement — for example, if unexpected complications arise — either the fee increases, or the professional may feel under pressure to limit extra work.
❌ May Be Priced for Risk
If a job has uncertainties, professionals may build those risks into the price. In some cases, this could mean paying more than if it were charged hourly — especially if the job ends up being straightforward.
Pros of Hourly Rates
✅ Pay for What You Get
If the job is genuinely small or quick, you only pay for the time spent. There’s no minimum or upfront flat fee.
✅ Flexible for Open-Ended Work
Hourly rates are useful for advisory work, troubleshooting, or situations where the full scope isn’t known upfront — for example, dealing with HMRC enquiries or tax investigations.
✅ Fair for Changing Requirements
If a client keeps changing instructions or adding work, hourly rates ensure the professional is paid for the extra time without constant renegotiation.
Cons of Hourly Rates
❌ Unpredictable Costs
If the job takes longer than expected, costs increase. This unpredictability can cause anxiety for clients, especially when the outcome is unclear.
❌ No Incentive for Speed
While most professionals act with integrity, hourly billing means the longer the job takes, the more they get paid. There’s less financial motivation to be highly efficient.
❌ Every Interaction Costs
Clients might hesitate to ask questions or seek advice, knowing the clock is ticking for every phone call or email.
Which Is Better? It Depends On…
The Type of Work
Routine, predictable tasks (like tax returns, payroll, bookkeeping) are generally better suited to fixed fees.
Open-ended or uncertain tasks (like tax investigations, advisory work, complex problem-solving) often fit better with hourly rates.
Scope Clarity
If both parties have a clear understanding of what’s required, fixed fees offer fairness and simplicity.
If the scope is unclear or highly changeable, hourly rates may prevent misunderstandings.
The Client’s Preference
Some clients like cost certainty.
Others are comfortable paying for time as needed, especially if they trust the professional to be efficient and fair.
Hybrid Approaches — The Middle Ground
Many businesses combine both models. For example:
A fixed fee for standard services like year-end accounts.
Hourly rates for additional advisory work outside the agreed scope.
Alternatively, firms may offer packages — a set monthly fee covering a bundle of services, with clear boundaries on what’s included and what isn’t.
How Fixed Fees Are Usually Calculated
Fixed fees are typically based on:
The estimated time the job will take
The complexity of the work
The risk involved (e.g., tight deadlines, likelihood of complications)
Overheads and desired profit margin
If the job turns out easier than expected, the professional benefits. If it’s harder, they absorb the extra time.
Transparency Matters More Than the Model
Whatever the pricing structure, the key factor is transparency:
Are the terms clear?
Are both parties aligned on what’s included and what isn’t?
Is the professional upfront about how additional work will be charged?
A well-defined agreement prevents disputes, regardless of whether the price is fixed or time-based.
Conclusion
So, are fixed fees better than hourly rates? The answer isn’t one-size-fits-all. Fixed fees offer certainty, predictability, and simplicity for clearly defined work. Hourly rates are fairer when the scope is uncertain or the job is open-ended.
In many cases, a combination of both models works best — fixed fees for regular services, with hourly rates for anything bespoke or unpredictable.
Ultimately, the “better” option comes down to clarity, communication, and trust between both parties.
