Scrap the hourly rate

Date: 19th May 2016  |  Author: Sean Toomer

The hourly rate has been around probably since the dawn of time. In this post, we’ll discuss why you need to stop charging by the hour, why it’s hurting your business and profits and what the alternatives are.

Here’s why you need to stop with the hourly rate, right now:

You’ll be less efficient and cap your earning potential

If you charge by the hour, it will only be natural for you to work less efficiently than if you had priced on a per job basis. And given that you only have a certain number of hours available in the day; you are essentially capping your maximum earning potential.

If on the other hand you price on a per job basis, you are limited only by the speed in which you can complete your work. You will learn to work more productively, and in turn, will earn a higher equivalent hourly rate (and impress clients with your efficient style and quick turnaround).

Hourly rate is old-school

Hourly rate is archaic – it has no logic. You pay for something, be it a website, your accounts to be done or a piece of copy. You don’t pay for someone’s time anymore, it’s not the 1800s.

It’s psychological

Hourly rate presents a big psychological hurdle. You’re essentially slapping a price on your head. The same job priced in two different ways can provoke wildly different reactions.

Let’s say you charge for an article to be written. Given the nature of the article, the client is happy to pay £150 (he may assume it’ll take 3 hours or so).

You have two different ways of approaching the price on this:

1 .The article will cost £150 to produce

2. The article will take you around an hour and will cost £150 per hour

Option 2 suddenly seems very expensive.

Or, to look at this a different way; if you can get a £500 job done in 2 hours, you’ll find yourself at a very respectable rate of £250 per hour.

If, however, you agree to hourly pay, you may have a hard time getting a “rate” of anywhere near that.

People buy the end product or service, they aren’t so interested n your time; until you slap a price on your head. Its simple psychology and the perception of value.

Hurts Client relationships

If a client knows you charge by the hour, they may well hesitate to call or e-mail or ask for a revision. They’ll become very cost conscience and will know every time they speak to you, they are paying more. Looking at this against a fixed fee, the client will be more relaxed and happier to talk to you, which will foster the relationship you have with your client.

Those horrible Time Sheets

Another big bug-a-boo! We HATE timesheets. Which clients will you charge once you’ve just been to the toilet?!

If you don’t have hourly rates, you can scrap the time-sheet and stop the feeling you’re working in a sausage factory (no offense to the sausage workers of the world).

How should you charge?

There are so many other ways you can charge other than the hourly rate. We touched on a few above. Some of these can drastically change your business overnight. We’ve seen business where their main USP is simply a different way of charging.

We’ve advised clients on this change which has transformed their business from a simple freelancer, to a bustling, growing business with many employees.

Fixed Fee

Fixed Fee’s have been around for a while. It shows you’re selling ‘something’ as opposed to just your time. This promotes perceived value, means you can charge more, and learn to be more efficient with your time, without hurting your bottom line.

Clients will love it as they’ll know exactly how much a project will cost before starting.

It allows you to budget better too – not just your time, but your cash flow too.

Recurring Income

If we go further with this, we can start to change our entire business model, just by adjusting the way you charge.

Almost any business can get recurring income form clients – especially if the service they provide is needed all year round.

Take our service for example, rather than charge an hourly rate, or even a fixed fee to do your accounts at the end of the year, we charge a monthly fee, and we’re your accountants, all in.

This means our business is solely focused on winning and keeping clients; which focuses our attention on being as efficient as possible and providing clients with a world class service. It also allows our growth to be very predictable and cash flow is easy peasy.

This can be replicated for almost any business, websites, car servicing, digital media, you name it. If you don’t believe me, call me and I’ll tell you how.

We discuss this further in our blog post – How to get recurring income.

So, are you still going to charge by the hour?

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