We bill by the project but it’s based on an hourly rate. We track everything we do so we have a baseline of how much time we spend on projects and use that info to bid out new work.
If you are not sure if your hourly rate is appropriate here is a great calculator on Freelance Switch.This one works best if you are a one man shop - http://bit.ly/B6F2
The Creative Business Guide to Running a Graphic Design Business by Cameron Foote. - http://bit.ly/OmXJwk is an excellent resource for running a creative business.
Lots of resources on the Creative Business Web site. Worth subscribing to the news letter as well.
I like fixed pricing myself. One of my favorite arguments for fixed pricing
goes like this: People who are paid hourly have less incentive to solve a
problem quickly. People who are paid by the project are motivated to finish
sooner, as any time they save translates to profit. In either case you have
to be pretty good at estimating time and cost, as very few clients exist
who do not want an assurance of their budget. That is, the time it will
take YOU, and YOUR value of that time. You also have to be willing to live
within any arrangement you agree to, so learn from mistakes. Quickly.