It’s time we ditched the hourly rate, the time-based billing in arrears and the easy way to sell our expertise. This isn’t pricing and it’s causing the world a lot of pain. It’s time to unshackle yourself from what you don’t know, here’s why:
Hourly billing limits your income potential
Work with an ASX200 company for 6 months and your work will bring in billions of dollars for them. 7hrs a day, 21 days per month over 6 months (147hrs a month * 6 = 882hrs)….Now if you make $100/hr, you’ve made $88,200. Congratulations you just left more than 90% of the money you should have made on the table.
Hourly billing is tied to stress and suicide in expert firms*
Dentists and accountants lead suicide in the professions. This is usually tied to long hours of work, causing depression. This comes down to focusing on the wrong measurement in firms. That is hours sold.
Stress is the leading cause to most terminal illnesses, so if you’re not hitting hours, I’d guess your stressed, and surprise surprise, next month has the same amount of hours, so where’s that 20% of growth expected to come from?
Hourly billing diminishes quality of life
Focusing on 80hr weeks doesn’t leave much time for emotional contribution in your life. Family is everything to me. I wake and focus on what I’m doing for them. If I can’t be top of my game, I’m failing them.
Hourly billing does not differentiate your expertise
In my value-pricing methods I have 16 methods of pricing a proposal. Being the same as everyone as makes you inter changeable and commodified, losing your price premium.
Hourly billing ruins thinking
If you sell hours, you usually think in hours. Meaning you will try and find the most laborious reason to do the work. You could have just done a 5-minute change but you put your most junior person on it and done it in 4hrs. Greaaaat customer experience.
Hourly billing is a selfish pursuit
Amateurs insure themselves with hourly billing. They are scared, little people, afraid of what they will face in the world.
When Peter Drucker said “all profit is derived from risk” he wasn’t lying.
Get off the sinking life raft and swim to shore.
Hourly billing is an incorrect economic theory of value
I think it was around 1919 some lawyer invented hourly billing. So we’ve only really had 100 years of this Marxist tactic to slap on a price. When it’s no price at all. It’s just billings.
Hourly billing doesn’t reward the best in your business
Most firms put the same rate on a junior and a senior. Do you want to make real money? Do you want to be known as experts, get a grip.
Hourly billing kills windfall profits
If you value-price you’ll know that McKinsey starts of their value conversation by saying they’re going to take 1/3 of the outcomes they produce. An hourly billing firm gets excited over over simply being profitable.
Hourly billing ruins your brand
I just stated McKinsey above. How do you think they got to where they are? Pricing, you idiot.
Hourly billing is never tracked effectively, leaving with unethical and indecent staff
No one tracks their timesheet correctly to the second, how could they? And why would any self-respecting expert?
Credit to the following folks who I’ve gone and remixed: Ronald Baker, Jonathan Stark and Blair Enns