Why I don’t work hourly–and neither should you

By Chris Haddad

Posted Monday, April 9th, 2007

One of the first questions potential clients ask me when I first meet them (right after “Is your head really that round?” and “Why are you smiling like that? Cut it out. It’s creepy.”) is “What’s your hourly rate?”

And they always get just a little bit stymied when I say “Err. I don’t have one.”

Because–except for in extreme cases–I don’t work hourly, and in my not-so-humble opinion, neither should you.

Why?

Because working hourly–asking clients to pay you a set amount of money based on the amount of time it takes you to complete a task:
-Turns what you do into a simple commodity.
-Is kind of demeaning.
-Encourages dishonesty and distrust.
-Is patently unfair both to you and to the people who are paying you.
-And just don’t make no sense.

Let’s take these two at a time.

Turns what you do into a simple commodity and Is Kind of Demeaning
The vast bulk of Bizniks are talented and tough-minded professionals who provide a valuable service. These are bright, eager entrepreneurs trying to make their way in the world and to shake off the shame and horror of working for “dah man.”

So it always shocks me when business folks new and old demean themselves and devalue what they do by working based on time. Why? Because if you say “I’m a designer who works for $X dollars per hour” you’re basically saying that while your effort (the time you spend on the project) is worth something, the end result of what you provide (a beautiful and powerful design that will serve your client for years) has no actual value of its own.

Basically you’re saying that your time is worth something, but your product is just another cheap and easily obtainable commodity.

Which is kind of ass backwards.

Now, personally I think this has a lot to do with the suffering mentality we Americans seem so addicted to. Work is HARD. Work is TOUGH. Work is NASTY and if I’m going to spend my TIME suffering like that, I’d better be PAID for it by gum!

And in a lot of ways, regular employees are indeed selling their suffering. The kid who slaves away at McDonalds isn’t providing anything particularly valuable that couldn’t be done by anyone with a 6th grade education level. A lot of employees (excluding executives and the like) are really just there to man the wheel.

And in that case, paying hourly makes perfect sense.

But as an entrepreneur, you aren’t manning the wheel, you’re providing a result.

Which we’ll get to in a second, but for now let’s move on.

Encourages Dishonesty and Is Patently Unfair to the people who are paying you

Ok. Disclosure time. Early on in my career, I had clients who insisted on paying me an hourly rate and I was too green to talk them out of it. Now, unfortunately I’m cursed with the ability to work really, really fast. I’m also good at what I do, so while another copywriter might take 10 hours to do this one job, I got it done in . . . err. . . 2 and did it really, really well.

And looking at the rent coming due, and looking at the fact that the client expected the job to take closer to 10 hours (and that in a lot of ways the client would value the work less if he knew it was done more quickly) I, um, lied.

Yup. I marked myself up. Or, possibly I just multiplied my hourly rate.

But either way, working at an hourly rate made it not just easy but attractive for me to be dishonest in a business dealing. I don’t like lying. It makes my head hurt. It gives me lines.

But even if you’re completely honest in your dealings, track every hour to the second and submit detailed time sheets for every gig, you’re still being unfair to your clients. Why?

Because if you’re charging hourly, you’re basically telling your clients that they’ll pay more if you @$%# it up.

If I knock a job out of the park and do it perfect the first time I’ll get hourly rate X 5 hours.

But If I mess up, do a crappy job and have to go back and do a second, third or even fourth draft I’ll get hourly rate x 10 hours (or 20 or 30.)

And suddenly my client’s budget is blown right out of the water and I’m looking around for a new beach house.

Like I said, unfair.

Which brings me to my final point. If you’re a business professional who delivers potent results, working hourly Just don’t make no sense.

Let’s try one of my wildly strange and shaky metaphors.

Imagine you just got back from the playa and your car is just CAKED in dirt. You’re driving back into the city and you see two car washes right across from each other. One car wash has a big sign that says “Get Your Car Clean: $10.”

The other car wash has a sign that says “Spend two minutes in our car wash: $10.”

Which one are you likely to go to? Which one is offering you actual value.

Now personally, I’d go to the car wash that promises a result. If I went through that car wash (whether it would take 30 seconds or 5 minutes) and I came out the other side with a clean car, I’d pay my ten bucks with a smile (and if the car wasn’t clean, I’d ask them to scrub a little harder until it was.) With this model, I’ve basically got one possible set of results:

* I pay 10 dollars, my car is now clean. I’m happy.

But what if I went through the “two minutes of scrubbing” car wash? All of a sudden I’ve got three possible sets of results:

* I pay 10 dollars, my car is scrubbed for 2 minutes. My car is now clean. I’m happy.
* I pay 10 dollars, my car is scrubbed for 2 minutes. My car is not yet clean. If I want my car to be clean, I will have to pay at least another 10 dollars, maybe more. I’m not happy.
* I pay my 10 dollars. My car is scrubbed for 2 minutes. My car is clean, but I really feel like that car wash was slacking and they could have done the job in 1 minute. I feel ripped off.

Now, obviously there’s a ton of conversation that could be had about how to price yourself, particularly if you’re in a “face to face” service profession such as massage therapy. (The only time I charge hourly is when I’m doing face to face consulting. Of course my hourly rate in that case is really high because, well, I hate meetings.)

But if you take anything away from this hourly post, it should be this: Hourly work sucks. You don’t suck. You shouldn’t have to work hourly.

Later

c

Chris Haddad is a direct response copywriter and marketing consultant in Seattle, Washington. You can learn more about him at http://haddadink.com

  • Kate Van Slyke

    Thank you, Chris! Your insights make sense and I appreciate your candid honesty. I’ve wondered myself how I could possibly charge by the hour unless I am simply consulting. What if the inspiration flows like a river & I’m done in no time flat? Is that fair to the person who gets me when my energy is low & it takes a little longer to get into the groove? I don’t think so! And what if the place is A) really flat & difficult to read, or B) so chaotic that it gives out conflicting messages? Maybe I’ll want to come back & just sit in the space alone when the place is closed and see what the residual energy is telling me. How would that look on an invoice??
    Some jobs are just going to be more challenging than others. By not working hourly, I won’t feel pressured to complete an analysis before I’ve had an opportunity to notice everything that wants to be noticed. I can “leave no stones unturned” so to speak!

  • http://www.chrisradant.com Chris Radant

    Great article — that seems to have been transcribed from many, many rants in my head over the course of my freelance career.

    I do understand that clients have to protect themselves from sticker shock, but the info they need is more of a general education than a number of hours.They truly don’t understand what we do (I’m also a writer…AND a painter.) And furthermore, many seem to think they could do it themselves if only they had more time. (Like ummm…washing their cars.)

    I once had a man commission a portrait by me. He actually asked me how many hours I thought it would take! My answer to him was that it’s already taken me 30 years…of observing, learning to draw, studying anatomy and skin tones for decades…on and on. I told him I’d cut him a deal and only charge him what the one painting was worth and I’d do the best I could for him. In other words, I’d try to make it as expensive as I could.

    This is the same full-of-holes thinking that some of my writing clients use. At least the portrait client couldn’t muck it up after sitting still long enough to get some photo references taken. Writing clients will get your hourly estimate and then become scope creeps without upping the writer’s ante, But that’s another can of worms…

    Chris, your presentation skills are local legend. Why don’t you go out there and educate clients for the rest of us who prefer our work slid under the door till deadline day? And make them pay you well for schooling them!

  • http://www.haddadink.com Chris Haddad

    Hey Chris,

    Thanks for the kind words, but educating people on how to be good clients is an upward battle no matter how many off color jokes I throw in.

    The part I didn’t really go into here is that if you charge a project rate and do a good job of building value in your prospect’s mind, you’ll not only make more money (often quite a bit more) but will also have happier clients. Weird that.

    A wise man once told me that in a business dealing, the first one to quote a number loses.

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  • http://roboticat.com/robokitties/ Daniel Talsky

    You know, this is a very valid, and oft-made point lately. However, many people who specifically do development and are experienced at making a living doing it recommend against doing bid work. I’m surprised at how often old-school programmers snicker when I talk about bid work.

    They just say, “You always get screwed doing bid work.”

    Why? Well, the result of a software program is awfully hard to define, for one thing, and it’s very difficult to keep the landscape from changing during the process. Even a spec can’t ultimately prevent feature requests. Part of this is that a software development process SHOULD change as the customer understands it better.

    Nonetheless, I am beginning to increasingly bid large scale web development projects, and just creating price adjustments for significant feature requests. It’s been a difficult road, but due to this kind of thinking I am giving it a serious try.

  • http://www.haddadink.com Chris Haddad

    I actually think this is a bigger topic than can fit in just my blog post. The bit you make about software dev–and how the end result of the project is a hard one to define–is definitely valid, as is the fact then when you’re in a direct service profession such as massage therapy, defining a hard result or deliverable can be very, very difficult. (A massage therapist can’t guarantee that your back will feel better at the end of a session, so really time is all they have to sell.)

    I’d love to hear alternate pricing structures though. Personally, I’m starting to dip into profit sharing and the like, but that’s not an avenue that’s available for most.

  • http://www.colbycreative.com/blog Mike Watters

    Amen, Chris! I got so fed up with working hourly that I now charge a flat rate to all of my magazine clients. They are happier, I am happier, and my pocketbook is happier. I just hope all the other designers out there are listening — charging hourly is so last decade.

  • http://www.biznik.com Lara Feltin

    Great post, Chris. I left a really long comment in the BizTalk post you started. But I wanted to add something here that hasn’t been mentioned yet.

    TWO THINGS to remember when you’re generating a bid for a project: PROJECT OVERRUN and PROJECT MANAGEMENT. 1) Every project takes longer than you estimate and the client always wants something a little different after the project is underway. After calculating a project fee, I always add 10% to the bottom line for project overrun. 2) Every project requires phone calls and emails exchanges with the client and depending on the scale, a couple face to face meetings. Client communication falls under project management and I add another 15% for that. Of course, you want to be upfront about these fees, and I include a few sentences about them in my proposals.

  • http://www.hannahalbertnd.com Hannah Albert

    This conversation is fantastic for people who create projects, objects, and stuff. But what about those of us in healthcare? What if some of our clients come with insurance, some pay out of pocket? And what IS it exactly we are promising? Because frankly, so much of what I give people is education and guidance. THEY are the ones who have to produce the result by changing their behaviors, taking the medicines, etc. I think there is exciting potential in offering packages for healthcare (what you invest is what you get from it), but how does one go about it? Anyone dealt with this one? It’s a biggie, because so many people walk in expecting a “fix,” then stop showing up because they didn’t want to do the work.

  • http://www.haddadink.com Chris Haddad

    Hannah,

    I think there’s huge potential to do package work in healthcare, especially if a big part of what you’re doing is giving advice. One of the ways I “sell” the idea of flat rate pricing for my services is to say that as part of the deal my clients are allowed to call or email me for advice for the life of the project at no additional charge. What I would recommend is that you come up with package programs for your most common ailments and boil everything down to a single price. Now, obviously in alt medicine it’s difficult to guarantee a result, but I think by creating a strong package you’ll make it easier for people to buy your services.

  • http://www.biznik.com Lara Feltin

    I like Chris’ idea for Hannah. Another idea for healthcare could be a retainer structure. Maybe for a set fee per month, they can call you x number of times.

  • http://www.biancaraffety.com Bianca

    Thanks Hannah for the question and Chris and Lara for the feedback. It was exactly what I was looking for when looking at Chris’s initial thoughts. It’s difficult to measure what we provide if the assessment is subject from the clients perspective, i.e. I feel better or I feel the way I did before my injury/illness. Your ideas are very helpful.

  • http://www.womenearning.com Mikelann Valterra

    Great conversation. I teach rate setting for people who do face-to-face consulting, such as therapists etc. And even in that arena, there is room for charging beyond just hourly. I have people come up with packages because people like to “shop” for services—meaning have more than one option besides a straight hourly charge. You can make a lot more money that way. But even if you are time based like a therapist, the focus always has to be on value more then time. Otherwise it is simple commodity pricing. There are many different massage therapists, but they are not all equal. That is why competing on price is a one-way ticket to poverty.

    By the way, the king of value-based fees, which is what Chris is talking about, is Alan Weiss. Check out his book Value-Based Fees. It’s worth getting the book for the appendixes. (Note- his audience is high end business consultants.) One great list of questions is “Questions to Establish Measures of Success”, which is crucial in setting values-based fees. One important point to remember with setting value-based fees is that you have to be talking to the economic buyer. If you are talking to someone who is not actually in charge of paying you (doesn’t really have power) they will think in terms of hourly. It’s really important you demonstrate the value of your project to the real buyers of your project. Then selling your “value” is easier. Food for thought. Maybe I’ll post over in the thread too, and talk about “price resistance.”

  • http://www.haddadink.com Chris Haddad

    Hey Mikelann,

    I haven’t read Alan Weiss’ book, but you’re right on the dot about Value based fees and making sure you’ve got access to a financial decision maker. I’ve been toying with doing a “Biznik Pricing Workshop” or a “Value Based Selling” workshop. Maybe we could team up?

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  • Brian Willoughby

    Why I Will Always Work Hourly-and You Should Too

    In response to your introductory points:

    1) What you do is a commodity simply because you charge for it, and that has more to do with competition than how the amount is calculated. Avoiding hourly terms does not magically save you from becoming a commodity. Nothing traded on the commodities market is priced in hours, so that should give you some perspective.
    2) If you create something that will serve your client for years, then you have sold yourself short unless they continue paying you for years. Any time the payment stops and the creation continues to be of value, you’ve sold yourself short. It has nothing to with how the payment is calculated.
    3) Dishonesty and distrust are bred by people who do not keep their word, not by the nature of the agreement itself. If you find that it only takes you 2 hours to complete the work that others bill 10 hours for, then you are selling yourself short by deciding to be dishonest and report that it took you 10 hours. Instead, an honest person would bill for 2 hours at the agreed rate and learn from the experience. In the future, you can bill 5 times as much per hour, and promise your clients that you will get the same job done in less time for the same cost. Clients value time as much as money – nearly all of my clients want the result yesterday. You build a reputation by doing quality work at a quick pace for a competitive cost.
    4) It is only unfair to the client if you bill full time when you are not performing to your full potential. If you’re doing a crappy job and mess up so badly that you have to do it again, then realize that a person with integrity will simply not bill for the hours lost. Your client will notice that you’ve not billed for a full day or a full week or whatever time frame has transpired, but they’ll see what you produced and what it cost them, and they’ll be happy. Meanwhile, you’ll have lost some time, but you’ve learned from your mistakes hopefully and are now better at what you do for a living.
    5) Billing hourly makes so much sense that I’ll never do anything else.

    The single most important reason to charge clients by the hour is that it sends them a clear message: It is not acceptable for them to waste your time. If you do not charge hourly, it tells the client that they can waste as much of your time as they like, giving you a moving target that you can never reach, and rejecting your end results by subtly asking for variations on what they originally ordered.

    Secondarily – and this will only be valid for certain types of people – charging hourly is a very good way to keep motivation pumped up. If you have pride in your work, then every time you bill a client you will review whether you are proud that you’ve done a competitive job, and your client will be reminded to stay in touch on longer projects. That’s always good. I think the best is biweekly invoices because weekly billing takes too much time out of the work schedule and monthly is a bit too long to adjust.

    I think these ideas work best in design or R&D, because there is no established value for providing a service that has never been done before. Hourly rates can be set based on market value and personal reputation. You’re right that clients don’t like the way that hourly contracts can be open-ended in terms of cost, but that’s the way it has to be because they are assuming the risk of designing something new. Any time a client enjoys the ability to create something that will continue to serve them for years, but pays a fixed amount, they’re assuming the risk of development. You should not have to assume any risk. If you want to be rewarded based on the utility of your work and not merely the time and effort involved, then you’re talking about taking the risk that the utility will last long enough into the future that you will be compensated sufficiently. Hourly work is the proper way to push risk to the client where it belongs. Anything else, and you’ve just invested time into your client’s company and/or project, and you had better have some sort of contract mentioning profit sharing, patent, copyright, or other legal rights so that you will be compensated on the value of your creation, not just the effort. It’s smartest to focus on how much risk you want to take before you decide whether to bill hourly or otherwise.

    P.S. Your car wash analogy is interesting, and I would choose the same as you if given the option, but no car wash is ever going to offer a flat rate for an unlimited amount of time using their equipment and space. They’re paying rent based on time, while water and electricity costs increase the longer you use their car wash. Besides, charging based on time gives customers incentive to get out of the way so more customers will come in. You will find in business that charging for time is the best way to give the proper incentives, even if it isn’t entirely fair or well-matched to the costs of providing the service.

    Much of what you recommend is appropriate only for a desperate business that needs to drum up additional clients, even if that means assuming more risk. Hopefully the tactics you suggest would only be used temporarily until the business establishes a reputation that commands more respect than simply being the cheapest.

  • http://www.haddadink.com Chris Haddad

    Hi Brian,

    I don’t have time to get into a big discussion here (lots of work to do, none of it hourly, all of it from very happy clients, most of them repeat) but you make some interesting points. I do have to say that of the most successful people I know (financially successful that is) not a single one of them charges on an hourly basis and that my own income increased dramatically when I decided to cut hourly work out of my life for good.

    Best,

    c

  • Brian Willoughby

    I agree that we don’t need a big discussion or debate. I was just kidding when I implied that everyone should always work hourly. I think the key is for business owners to pay attention to what works for them. In my case, anything but hourly is disastrous, as I recently confirmed on an 18-month contract – just too long to predict a fixed amount. I can see how a completely different business than mine would suffer when operated hourly. Either way, every business owner should be open to the different possibilities for assigning value to their service or product, and experiment with different clients to see what works best.

  • http://www.leads4insurance.com Jerry

    Lara’s idea about health care and retainers is an interesting one, and I have recently read about some docs starting similar practices down in Florida… rather than focusing on health insurance, they have a clientele of patients who pay them what amounts to a retainer fee, and the doc serves as the primary caregiver for X amount of families. It has the potential of leading to an entirely different way of viewing the doctor/patient relationship… but the article that I read seemed to show that most of the clients were quite well off financially. Intriguing concept, though.
    Jerry
    http://www.leads4insurance.com