The majority of my clients are on retainer and within that retainer I provide Internet marketing services and/or copy writing/editing for the web (a subset of Internet Marketing). So those clients get me by the hour when I'm working on copy. It's a win-win for both parties because as I get to know their business more intimately over time, the writing/creative process becomes increasingly efficient. (Less back and forth stuff). And generally speaking, there is less overhead with repeat clients.
But if you are doing project work and you know you will have to do a lot of rewriting, you might want to consider charging by the word. Otherwise, if it's a straightforward project you could charge by the hour.
Just my two cents. Everyone does it differently based on skills, experience, their business model, and they type of clients they have.