Last updated November 6, 2026
General information, not tax or legal advice. The rules depend on your country and your situation, so check anything with a tax or legal consequence with your accountant.
A lump sum fee fixes the price of a defined scope, so the designer or engineer carries the risk of overrun. An hourly fee charges the time spent, so the client carries it. Use a lump sum when the brief is settled and you've done similar work, and hourly when the scope is still moving.
What is the difference between lump sum and hourly fees?
The difference between lump sum and hourly fees is who pays for the unexpected. Nearly everything else follows from that.
| Lump sum | Hourly | |
|---|---|---|
| What is fixed | The price, for a defined scope | The rate, with the hours open |
| Who carries an overrun | You | The client |
| Who gains from efficiency | You | The client |
| What the client wants to know | What's included | How many hours it will take |
| How you bill | By stage or milestone | Monthly in arrears, with an hours record |
| What gets disputed | Whether a change is extra | Whether the hours were needed |
When should you quote a lump sum, and when hourly?
Quote a lump sum when you can describe the deliverables and you've priced similar work before, and quote hourly when an important unknown stands between you and that description.
| Situation | Better basis | Why |
|---|---|---|
| Settled brief, similar past jobs | Lump sum | Your history makes the estimate reliable |
| Feasibility study or early options | Hourly, or hourly with a cap | Nobody knows the scope yet |
| Survey of an existing building | Hourly, until opened up | Hidden conditions decide the work |
| Client needs an approved budget figure | Lump sum, or hourly with a cap | Both give them a number |
| Third-party review could add rounds | Lump sum with stated rounds | The rounds set the limit |
| Expert advice or a witness report | Hourly | Demand is set by someone else |
| Varying site attendance | Hourly, or a price per visit | You can't control how often you're called |
A mix often works best: hourly with a cap for the early stage, then a lump sum once the scope is settled. The client gets a figure when one is meaningful, and you aren't pricing a job nobody has defined. Splitting a lump sum across a project's stages is covered in RIBA stage fees for UK architects, and the billing itself follows progress billing.
A worked example: where a lump sum stops paying
Here's an invented example. A structural engineer estimates 60 hours on a house extension, at a charge-out rate of €95. That's €5,700 if billed hourly. For a lump sum, the engineer adds 15% for risk (€855), making €6,555, and quotes €6,600. All figures exclude VAT.
| Actual hours | Hourly bills | Lump sum bills | Lump sum against hourly | Realised rate on the lump sum |
|---|---|---|---|---|
| 52 | €4,940 | €6,600 | +€1,660 | €126.92 |
| 60 | €5,700 | €6,600 | +€900 | €110.00 |
| 70 | €6,650 | €6,600 | −€50 | €94.29 |
| 85 | €8,075 | €6,600 | −€1,475 | €77.65 |
The break-even is about 69.5 hours (€6,600 ÷ €95). Up to there, the lump sum pays better than the same job billed hourly. Past it, you're working below your rate. The question to ask before quoting is how often jobs like this one pass 69.5 hours, and only your own records can answer it. The guide to budget hours vs actual hours shows how to collect them.
The risk allowance is also the honest answer when a client asks why a lump sum costs more than your hourly estimate: they're paying you to take on the risk of the 85-hour outcome. Your charge-out rate is the floor to test the realised rate against.
What should a lump sum fee define?
A lump sum fee should define the deliverables, the assumptions behind them, the number of rounds and the rate for anything beyond that. Most lump sum disputes start from a missing limit rather than a wrong price.
Our lump sum fee of €6,600 plus VAT covers structural design for the rear extension as shown on the architect's drawings revision B, up to two rounds of design changes and two site visits. Changes after design sign-off, further rounds and further visits are charged at €95 an hour, and we will agree them with you in writing before starting.
An hourly fee needs a limit of its own. A client signing an open-ended rate will want to know what to expect, so give a range and a promise to warn them.
Our fee is charged for time spent at €95 an hour plus VAT, billed monthly with a record of hours. We estimate 50 to 70 hours, which is €4,750 to €6,650. We will tell you before passing 70 hours and won't go beyond that without your agreement.
The figures here are invented. The guide to an engineering fee proposal covers the wider document, the guide to an architect's fee proposal does the same from past hours, and additional services deals with extra work once the job is under way.
What are the common mistakes with lump sum fees?
The common mistakes with lump sum fees come from pricing the hours you expect and ignoring the risk you are taking on.
- No allowance. A lump sum at exactly your estimate gives the client the upside on a good job and leaves you the downside on a bad one.
- No stated rounds. "Design changes as required" is an open-ended promise at a fixed price.
- Discounting because it's "only" a fixed price. You're carrying more risk than on an hourly job, not less.
- Starting extra work before agreeing the extra. Once done, it's hard to bill and easy to dispute.
- Not recording hours. Your next lump sum is then just as much of a guess as this one.
Quoting and billing both in ERPFlow
ERPFlow handles the quote and the invoices for either basis. It doesn't compare fees with hours. Engineers and designers who work with builders may want to read the construction page, and independent practices the page for consulting firms.
- Lump sum: write it as a quote with its lines and VAT. When accepted, convert it to an invoice once per stage, editing each draft down to that stage's share. ERPFlow has no e-signature or online acceptance, so you mark the quote accepted yourself.
- Hourly: create a service with the unit
hrand your rate, then type the hours as the quantity on the invoice line. - Recording hours: a card in Projects has a time spent field typed as hours and minutes, with totals per project and per customer.
ERPFlow doesn't have a timer or timesheets today. Time tracking, including converting tracked time into invoices, is coming soon. Budgets, budget-against-actual reports, rates on projects and per-project profitability aren't part of ERPFlow, so the table above stays on your own spreadsheet.