I was at a meeting with my lawyer the other day, hoping he would talk faster. Why? Because he charges $350 per hour. So the sooner he stops jabbering, the less I’ll have to pay.
I realize that hourly rates are the norm in the law business. But in my opinion, they are a lousy way to price professional services. Why? Because hourly rates keep the client’s focus on your fees rather than your value. And when that happens, you effectively become a commodity.
There are many other reasons why hourly rates aren’t a good idea.
1. Clients don’t like it
To them, it’s too much like writing you a blank check. In his book, It Sure Beats Working, author Michael Katz remembers, “When I was billing my clients an hourly rate, I could actually hear them speaking faster when on the phone.”
2. You get paid less the faster and better you get
If your specialty is writing executive speeches, aren’t you going to be able to crank out your fiftieth in half the time it took you to write your first? Isn’t that fiftieth speech going to be better; perhaps even your best yet? And shouldn’t you be paid more for that level of expertise and productivity?
Of course you should.
But if you bill by the hour, you won’t.
3. You have to track your time. (What a hassle!)
If you charge by the hour, it’s not unreasonable for a client to ask to see a detailed report of the time you spent on the project. But how do you account for ideas you get while mowing the lawn? Or work you do in your head as you drive to your kid’s soccer game?
Trust me. Keeping timesheets for clients is a big headache.
4. Your income is limited.
When you bill by the hour, your income is determined by the number of hours you work times your hourly rate. If your rate is $45 per hour and you spend 25 hours per week on client projects (remember, you’ll need to spend time on such unbillable tasks as bookkeeping, marketing and refill trips to Starbucks) your income will be about $45,000 per year.
Not bad . . . but it will never get much better.
In addition, there’s a weird psychology to pricing a professional service. If you’re a logo designer, for example, it’s much easier to get a client to agree to your $2,000 flat fee than it is your $150 hourly rate — even if the hourly rate works out to be cheaper!
5. You attract competitors.
Hourly rates get stuck in a client’s head. If you’re a $95 per hour publicity consultant then that rate is — at least partly — how a client is going to define you. (When I think of my lawyer, his $350 hourly rate certainly comes to mind.)
Why is this such a bad thing? Well, if a client defines you by your hourly rate, then anybody else in your field who charges less can compete with you.
In other words, you’ll find yourself competing on price (rather than value.) Not a fun place to be.
I could list even more reasons why hourly rates suck. But I think you get the picture.
Sure, coming up with a flat fee for a project (a “project price”) takes a little more effort. But, ultimately, it’s worth it.
To your success,
Marketing Coach & Author