For coaches, consultants and other experts who exchange their time for money charging by the hour is the most common way of charging.
Often that pricing strategy is developed by replicating what you used to do when you had a “proper job” but also reviewing what everyone else in your industry is charging, you pick are rate which isn’t too high but doesn’t make you seem cheap as chips either and off you go.
There’s so many issues with hourly charging and that’s why I don’t and wouldn’t advise my clients too either.
Let’s take a closer look at the challenges with hourly rates.
It seriously damages your earning potential.
In the most basic terms your TIME is limited and therefore if you’re charging hourly then if you’re charging £50/ hour and working 35 hours per week your maximum income will be £1750.
That’s of course on the basis that you bill for each one of those 35 hours at your full hourly rate AND do everything else that comes with running a business, including your marketing, business development and admin outside of those hours.
Of course, you could increase your hourly rate, let’s say to £100/ hour and, on the same assumptions that would move your income to £3500 but you’d still be limited to the NUMBER OF HOURS you want to work.
The time you spend on a job doesn’t reflect your ability to resolve the problem for your client
The more you do something, the quicker and better you become.
So just because you’re able to resolve the problem more quickly should you be paid less?
No.
I don’t think so either.
If you’re a brilliant at what you do and it takes you a couple of hours to resolve the problem for the client because you’re SO EXPERIENCED and a specialist in what you do then why should be paid for half the time in comparison to someone who takes double the amount of time?
As you’ve worked with more clients, gained more experience you’ve just limited your earning potential.
Even if you’ve increased your hourly rate along the way, I’d bet on it that you’re subconsciously limiting your own earning ability because of your previous hourly rate!
You’ve no incentive to be fast!
Sounds obvious right? Why would you complete a job as quickly as you could if you were being paid by the hour.
You just wouldn’t. No matter what you said to the client!
What’s the alternative to hourly fixed pricing structures?
Of course you have to have some idea of how long things will take you to do but it’s not the only consideration.
You also have to consider the value and the impact on the work you do for the client. You may have heard the term “value led pricing”.
In order to price the work you do and set your pricing strategy correctly then you’ve got to be able to:
- Understand the impact of the work you do for the client
- What does the resolution of the problem you solve mean for the client and those in their inner circle?
- How much time/ money they’ve spent already trying to address and resolve the issue you can help them with.
- The most important thing, to understand the outcome you can deliver for the client.
The benefits of pricing based on the value, impact and outcomes is that:
- It’s simpler! You don’t have to keep track of hours so you can justify them on the invoice.
- You can close deals more quickly because you’re aligned and focused on outcomes.
- Your proposal is about what “they’ll get” rather than “what it’ll cost”
- Boundaries are easy to manage because you’ve already agreed outcomes.
If you feel like you’re stuck on the hamster wheel and have hit that income ceiling it’s possible to do the work to change it.
Book a 15 min call with me, let’s chat and see what action you need to take to switch your pricing model. Book your call here https://calendly.com/delyth/discovery-call
