I use an hourly rate to calculate my fixed prices based on estimates. It's rare that on a large project a client will accept an hourly rate (hourly rates usual

I use an hourly rate to calculate my fixed prices based on estimates. It's rare that on a large project a client will accept an hourly rate (hourly rates usually occur on maintenance agreements in my experience with a cap over which extra approval is required). The trick to staying profitable is to iterate in very small chunks, the earlier in the relationship, the smaller the iteration. Deliver discrete value with each iteration so if they're not happy, they can walk and reasonably expect another competent contractor to finish the work (this means using popular tools and good documentation). As you get further along in the relationship and on each project you get a better idea of how long things typically take and can provide higher fixed price quotes with less risk. Also as the relationship improves and your client trusts you more, you can do things like give "best case" estimates with the proviso that it may be revised upwards if a task turns out to be more difficult than you'd thought (in exchange for this, you can charge the client less money because you don't need as much "padding" to absorb the risk yourself). Eventually you move into the maintenance phase where you bill by the hour and by that point the client generally trusts you enough so they know you're not trying to screw them.