Should I Ditch My Hourly Rate?
The majority of people that pursue you will come in through the door and will ask the dreaded 'What's your hourly rate?' question.
Hourly billing is often adopted due to normative behaviour, it's common, it's easy, and it's what others in your industry choose because they simply haven't read any books on pricing.
Don't feel left out, most CFO's of expert firms haven't read books on pricing. They're seen as dry topics in business until they're not.
Pricing is, in my opinion at least, the deepest topic in marketing, yet most marketers don't give it the time of day.
Once you invest in a pricing book, most over $100, you get a feel that this is a bit more than you expect to learn. People are conditioned to not buy books over 3-figures. Yet you pick up a pricing book and 250x your return almost immediately, it's insane that more people invest in this education.
Why Should I Ditch My Hourly Rate?
Having an hourly rate means you're not actually pricing! You're billing in arrears.
You are scoping the project up front before you even understand the value you will be providing. So you've already pre-framed yourself as an order taker, and put yourself in the position of simply a vendor for this client.
Well done. You're on your path to being an amateur.
Hourly Rate Limits Your Income Potential
You only have so many hours in a day. So why tie your price to a limit? You'd have to be a huge idiot to keep it after reading this nugget.
Hourly Rate Approaches Have Links to Depression
A lot of expert practice fields have ties to depression and even suicide. The 80hr weeks compounds to your mental health. Being on the hamster wheel, chasing that dollar and not accounting for quality of life.
Hourly Rates Approaches Focus on Effort, Not Results
You should succeed more, the more your client succeeds. Not because you stayed up late 5 nights of the week. This is commonly known as Marxism and is a fallacy. Karl Marx was a false prophet who exploited workers.
What's the % of labour that makes up Australia's economy? It's around 18%. Stop living in a dreamland, you're putting your business, employees and lifestyle on the line.
Your client doesn't care about how much you work. The client cares about the benefits your expertise provides.
Hourly Rate Approaches are Unethical and Indecent
You can drive up a huge bill for a client for no valuable reason at all, which they will hate. You didn't become an expert to piss off your customers, wow so ethical! Your parents must be proud.
Why Am I an Amateur?
You aren't seen as the expert in the room. You haven't set yourself up to have discussions around the expensive problem with the client, and the client will expect that they can interchange you easily if they find someone with similar skill sets at a similar rate.
How Should I Move Away from Hourly Rates?
I wouldn't say it's easy but the first step is to scope the project at end of the initial conversation.
If they start the conversation with "What's your rate?" reply with "I don't have a rate". This will then let the client ask you "how much will I pay?". Then you can go and say...
"let's have a conversation first, I have some questions...".
You've set yourself up for a valuable conversation about where the organisation wants to go. And if you can get them a 5x, 10x, 20x return on investment, if they don't want to answer your questions, part company, they've seen you as an amateur you won't make windfall profits here.
What If I Want to Keep My Hourly Rates?
Good luck. The majority of value-based priced firms outperform hourly rates firms. If you like being a slave to clients, being stuck on job boards, contracting to procurement firms and most of all not being the visible expert, by all means go ahead. I will feel sorry for you because you probably do deserve better, because I know what it has done for me.
I've used it for several years and refuse to work with anyone who wants a time-based approach.