5 Reasons Why Hourly Rates Suck

I was at a meeting with my lawyer the other day, hoping he would talk faster. Why? Because he charges $350 per hour. So the sooner he stops jabbering, the less I’ll have to pay.

I realize that hourly rates are the norm in the law business. But in my opinion, they are a lousy way to price professional services. Why? Because hourly rates keep the client’s focus on your fees rather than your value. And when that happens, you effectively become a commodity.

That’s just one of many reasons why hourly rates aren’t a good idea.

1. Clients don’t like it

To them, it’s too much like writing you a blank check. In his book, It Sure Beats Working, author Michael Katz remembers, “When I was billing my clients an hourly rate, I could actually hear them speaking faster when on the phone.”

2. You get paid less the faster and better you get

If your specialty is writing executive speeches, aren’t you going to be able to crank out your fiftieth in half the time it took you to write your first? Isn’t that fiftieth speech going to be better; perhaps even your best yet? And shouldn’t you be paid more for that level of expertise and productivity?

Of course you should.

But if you bill by the hour, you won’t.

3. You have to track your time. (What a hassle!)

If you charge by the hour, it’s not unreasonable for a client to ask to see a detailed report of the time you spent on a project. But how do you account for ideas you get while mowing the lawn? Or work you do in your head as you drive to your kid’s soccer game?

Trust me. Keeping timesheets for clients is a big headache.

4. Your income is limited.

When you bill by the hour, your income is determined by the number of hours you work times your hourly rate. If your rate is $45 per hour and you spend 25 hours per week on client projects (remember, you’ll need to spend time on such unbillable tasks as bookkeeping, marketing and refill trips to Starbucks) your income will be about $45,000 per year.

Not bad . . . but it will never get much better.

In addition, there’s a weird psychology to pricing a professional service. If you’re a logo designer, for example, it’s much easier to get a client to agree to your $2,000 flat fee than it is your $150 hourly rate — even if the hourly rate works out to be cheaper!

5. You attract competitors.

Hourly rates get stuck in a client’s head. If you’re a $95 per hour publicity consultant then that rate is — at least partly — how a client is going to define you. (When I think of my lawyer, his $350 hourly rate certainly comes to  mind.)

Why is this such a bad thing? Well, if a client defines you by your hourly rate, then anybody else in your field who charges less can compete with you.

In other words, you’ll find yourself competing on price (rather than value.) Not a fun place to be.

I could list even more reasons why hourly rates suck. But I think you get the picture.

Sure, coming up with a flat fee for a project (a “project price”) takes a little more effort. But, ultimately, it’s worth it.

By Steve Slaunwhite

Author of Start & Run a Copywriting Business, The Everything Guide to Writing Copy, and The Wealthy Freelancer.

www.ForCopywritersOnly.com

How Much Should a Freelancer Charge?

This is an often-asked question. The following is this freelancer’s answer.

First, one has to take into consideration the level of experience and the particular job the client has for the freelancer. Not all jobs or freelancers are equal. If the client wants high quality, they should be willing to pay for it. If the client desires high quality but is only willing to pay amateur rates, walk away and let them find someone else. Freelancers need to value their time, if they do not, no one else will either. If the client wants to negotiate the price, the freelancer should have a figure at hand of what the assignment is worth.

Second, the client location is a consideration. Is the client is in NY City, or in a small rural town? This should make a difference in what is a reasonable rate for the freelancer’s time and work. There is no one rate fits all. There are those that say, charge blank per hour, this is fine if all of your work is in one place, but if you are national or international, there is no one rate fits all in this freelancer’s opinion.

Third, are you part-time, or full-time? How much money do you need? What are your expenses? These questions should also lead to how much to charge a client. If you are starting out, you cannot charge the same as someone that has been in the business for years and has the reputation of the go to person. As a new freelancer, you will have to work at least twice as hard to find work and will have to be reasonable for your clients until you prove yourself as a quality freelancer. Then slowly, over time you can raise your rates.

You can do a search online about what freelancers charge. One such site is: Editorial Freelancers Association. There are numerous sites to check out and come to some average, and then pick a minimum rate and do not settle for less. This may mean that you will be passing up work, but you want to be paid, and not give your work away for nothing, right? There is no way this freelancer can tell you the number of writing assignment passed because of the pay offered.

As an entrepreneur, who freelancers are, think of this as business. You are offering a service, you are in business for yourself, and you are an entrepreneur, like it or not. If this is a foreign concept to you, learn about being an entrepreneur, and learn what business is all about.

Why freelancing is a business, because as a freelancer you will have to wear many hats, be it accountant, marketer, public relations, and business owner if you work solo. You may also need some form of license to work from home, even if no client ever comes to your home, be it a large city or rural town you live in.

All of the above is part of what you as a freelancer need to calculate your minimum rate, and a negotiating point with your clients.

Good luck with your freelancing.