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the first priority is, don't underbid! one of my bands had an offer from a buddy to track a 6-song demo for $150. even after we kicked in an extra $100, he ended up making about $3-4 an hour. he didn't mind, because he was doing it largely for the experience anyway.
if you go for a flat rate, be clear on how much they want to do and charge extra for anything above that -- you know how bands get "inspired" at sessions and particularly postproduction, and want to add this or change that. if you go hourly, they'll be more likely to keep the frills to a minimum! maybe a flat rate for tracking plus x hours of editing/mixing, and an hourly surcharge for everything over that.
good luck with it ... keep us posted on how it goes!
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