Why Hourly Rates Are Unfair
Having been in the Consulting industry for almost 20 years, I’ve learned over time that hourly rates can be very unfair to you and your clients.
So let’s take a look at why hourly rates are unfair to your clients:
1. When you first start out you’ll be slower at producing materials for clients, that isn’t your client’s issue, so it’s unfair to charge them for your (or your teams) learning curve.
2. I’ve witnessed several instances where previous team members have drawn out their work rate in order to charge more. Fortunately I have 20 years experience and a good understanding of how long tasks should take, so I can manage this, but if you’re not sure how long a task should take, this could be an issue for you if you are building a team around you. You certainly don’t want to get caught in a situation where your team is taking too long, charging you by the hour, and you have to reduce your charge to your client to remain fair and competitive. It’s a sure way to wind up working hard just to pay your team.
3. Different tasks attract different rates due to their value, so it’s not fair to quote one flat rate for everything – this over inflates your price and eventually clients will decide to find more cost effective solutions.
4. Put yourself in the shoes of your client. Hourly rate agreements are uncapped. It’s like agreeing to write a blank cheque. There is no safety in this type of agreement for your client. Would you want to enter an hourly rate agreement with a service provider? How does that make you feel? Sceptical at best.
Why are hourly rates unfair to you:
1. Opposite to the first point I made about clients, as you get more experienced you will become faster and more efficient at producing strategies and materials. If you charge an hourly rate, you are penalizing yourself for being efficient.
2. You deserve to be rewarded for your experience and valuable insights and knowledge, which build up over time. The more projects you work on the more value you have to offer your clients. Experienced consultants can charge handsomely for their knowledge and experience – an hourly rate doesn’t reflect that value unless it is extremely high, which can then price you out of the market.
3. By quoting an hourly rate, you are setting yourself up for direct comparison with other consultants. If you offer a truly valuable service, you should charge based on the value to the client, not how long it takes to produce.
4. With most marketing services, especially strategic assistance the client derives ongoing value from your insights and direction. An hourly rate doesn’t reflect the future value of your service.
So my advice to you from the lessons I’ve learnt over the years is to use Fixed Price agreements as much as possible. Give your clients the security of knowing what to expect in terms of investment and outcomes. We’ll be sharing how to create a fixed fee pricing structure in the Consult Me Membership webinar series, which we’ll announce in the Facebook Group – Consult Me Community.
Just one last little take away. If a prospect asks what your hourly rate is, use some of the points I’ve made to highlight the benefits of your pricing strategy and show them why hourly rate is unfair to them. It works really well, and you avoid a direct comparison situation.