Why hourly rates suck and are unnecessary

hourly rates are a trapWhenever I attend a business conference, the chatter among the delegates usually ends being about hourly rates. I always end up in some robust debate about why hourly rates suck and why they are unnecessary.

Here’s the take-away version.

Hourly rates suck because they force you to trade time for money. That’s bad for you and your clients. It’s bad for you because it doesn’t allow you to scale your business. There are only so many hours in the week that you can charge your client so your earning capacity is capped.

It’s also bad for your client because the longer it takes you to deliver the job, the more expensive it will be. I’ll let that sink in for a bit.

This lightbulb went off for me a few years ago when I put in a proposal to a client with a project outline, deliverables, fee schedule and timeframe. The client approved the proposal but wanted to negotiate on the timeframe. 4 weeks was too long, they needed the site live in three weeks. Based on the hourly rate model, to deliver the job in three weeks meant that it should have been cheaper, given that I didn’t have as many hours to deliver it as I had quoted.

It was at this point that I realised the client was not paying for my time but for my medicine to fix their headache. My client had key stakeholders he was answerable to and a budget to work with. The budget was okay, the timeframe wasn’t. This was the last time I used my hourly rate to calculate a job.

How do you get around the hourly rate?

An hourly rate is the simplest metric that two parties can use when they don’t agree on the value being transferred in a transaction.

If you can illuminate the value to your client from the moment your paths cross, your hourly rate becomes irrelevant. I haven’t had anybody ask me for my hourly rate in the last three years.

How do you illuminate the value you bring to the project? Ask better quality questions at the front end of the project.

Ask your client why they are doing what they are doing. Ask why a lot. Don’t accept their first answer. Ask why again.

Ask them what success looks like in their eyes.

Ask them what superpower they think you bring to the table.

Ask them why they are not ourtsourcing the project on Elance or Odesk? (Yes, I actually ask my clients that question).

Ask them what budget they have allocated for the project.

Asking these questions will elevate you above the “average web developer”. And that allows you to charge project fees that are above average.

The more you can illuminate the value you bring to the project before you submit your proposal, the easier it is to charge a fair and reasonable price for that value.

i’d love to hear your feedback on this so leave me a comment below. Oh and you might enjoy this article from Shane Pearlman of Modern Tribe too.

3 thoughts on “Why hourly rates suck and are unnecessary

  1. Thanks for this post. It’s very helpful with my issues right now. Here’s my issue. I’m new to doing this and I’m not really sure if a flat-price I quote is really a fair number for me and the client. Any thoughts on that?

  2. Great post thanks, Im actually grappling that exact same problem at the moment.

    My issue is not so much in the design/build its the ongoing consulting and support that is slowly killing me. (Hence Im here on VUM.com).

    • Hey Phil – have you considered packaging up your ongoing support and maintenance as a “Website High-Performance Package” and charging a monthly fee to your clients and then using something like ManageWP to streamline the process of delivering this service?

Comments are closed.