Ditching Hourly

If you bill by the hour, there's no financial incentive to get better at what you do.

Usually when I say this to people who bill hourly, their knee-jerk reaction is to reject the idea out of hand. They'll point out that they love getting better at what they do and that they often invest time and money in their professional development.

And I'll say, "Sure, but whatever your incentive is to do that, it's not financial. The faster you get, the less money you make."

Eventually, it will begin to dawn on them that there is a paradox at the center of their professional life. On the one hand, they love getting better at their craft. Who doesn't? On the other, there is no financial reward for getting better. In fact, there is often a financial penalty.

Faced with this conundrum, they will sometimes deploy impressive mental gymnastics to avoid having to change anything. The most breathtaking effort I've heard so far goes like this:

The first time I heard this one, it made my head spin. It was so misguided that I didn't know where to start debunking it. It was like the guy said to me, "Sure, it's a race to zero, but hey... a race is a race and I want to win!" Unfortunately, this wasn't the last time I've heard this argument so maybe it's worth me walking through it.

Here goes...

For the sake of discussion, let's say Bob charges $100 per hour and gets twice as many new project leads as he can handle. His success rate with landing new projects is 50%. He's confident that if he could cut his estimates in half, he'd land 100% of these new projects.

So, Bob invests time and money into tools, training, and systems that make him twice as fast at what he does. Now, his estimates for new projects are half what they would've been, and he does in fact start landing 100% of his incoming leads.

Okay, so... what has Bob accomplished?

He's now working on twice as many projects as before, but making only half the money on each as he would have. Therefore, his overall revenue has not changed, but his administrative duties and switching costs have increased. And he's out the time and money he invested in getting more efficient in the first place.

Here's the thing...

Even in this oversimplified example, there's clearly no financial incentive for Bob to invest in getting better at what he does. In a more real-world scenario, it makes even less sense for hourly billers to get better at what they do.

In my experience, the problem that most self-employed professionals are wrestling with is not that their close rate is too low, it's that they don't get enough leads in the first place.

Getting better at what you do so you can undercut your competitors and close more deals doesn't solve for the "I'm not getting enough leads" problem. In fact, it makes it worse because if you get twice as fast, you'll probably need twice as many leads to make the same money.

(Regardless, you don't have to go to all the trouble of getting better at what you do just to beat your competitors on price... just cut your hourly rate in half. Boom. Done.)

Hourly billing does not reward expertise, it punishes it. The better you get, the less you make. That's the hourly trap.

Yours,

—J 

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Before you go!

The next time someone asks you for your hourly rate, I want you to stop what you're doing and head on over to valuepricingbootcamp.com to sign up for my free value pricing email course.

Hope to see you there!

It's not uncommon for a student to come to me for advice about some sort of relationship-related dilemma they're facing. Stuff like: 

1. "I agreed to hire my good-for-nothing brother-in-law and now he's destroying my business!"
2. "After working together for years, my biggest client is considering a cheaper firm and wants us to cut our price in half!"
3. "My business partner wants to pivot into a business direction that I feel is unethical and I can't talk him out of it!" 

Statements like these are usually followed by thousands of words of backstory full of slights and subtleties and worries and so forth. When they finally run out of steam, they conclude their monologue with the question:

"So what do you think I should I do?" 

To which I would reply (in order of above list):

1. "Fire him." 
2. "Politely refuse." 
3. "Split up."

Usually, this is greeted with a few seconds of stunned silence, followed by:

"But it's not that simple!"

Yes. Yes, it is that simple. It's just not EASY. There's a big difference.

When a problem is complex, a reasonable approach is to do research. When a problem is simple, research is procrastination.

If your good-for-nothing brother-in-law is destroying your business, you need to fire him. It's not a complex problem, it's simple.

The additional backstory (e.g., how mad your sister might be or what the BIL might do in retaliation or that your parents might disown you) doesn't change the fact that you have to fire him if you want to save the business. If your sister gets really mad at you or whatever, that's a separate problem to be dealt with separately.

You might think I'm splitting hairs about the difference between "simple" and "easy". It's true that these two words are very similar and can be used synonymously sometimes, but in cases where you've got a hard decision to make, one's mind seems to want to put it off by tricking itself into thinking it's complex.

Deep down, you know what needs to be done, you just don't want to do it. So you pretend it's complex and respond to the phantom complexity by "researching it" (e.g., asking for outside opinions, waiting yet another day to see if things change, back-channeling with parties who are familiar with the matter but not in a position to influence anything, etc). It's just stalling, which makes the problem worse.

Once you recognize that what needs to be done is simple (albeit hard), your next steps will become clear.

Yours,

—J

P.S. Are you wrestling with a business problem that you'd like to get clarity on? I'm available for a limited number of 1-on-1 coaching calls each month. You can book yours here: jonathanstark.com/call

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Before you go!

The next time someone asks you for your hourly rate, I want you to stop what you're doing and head on over to valuepricingbootcamp.com to sign up for my free value pricing email course.

Hope to see you there!

Guest Bio

Michael Zipursky – Michael has consulted for organizations and advised leaders throughout North America, Europe, Asia, Africa, Australia and the Middle East in over 30 industries, from service providers to billion dollar multi-national corporations including Panasonic, Dow Jones, Financial Times, Royal Bank and many others. 

Michael is an in-demand speaker and gives keynotes and workshops for the Certified Management Consultants Association, Canadian Internet Marketing Conference, Social Media Camp, and others. 

Michael’s work has appeared in MarketingProfs, Huffington Post, Financial Times, FOX Business, Maclean's, HR Executive, Business Edge, Marketing Magazine, and in several other media and publications. 

He is the author of 5 books, including: 

• Elite Consulting Mind
• Consulting Success®
• ACT NOW

Follow Michael on Twitter @MichaelZipursky LinkedIn: Michael Zipursky

Related Links

• The Introduction Game by Jonathan Stark (PDF)
• Should You Write A Book? (AUDIO)
• How To Build Your First Productized Service (EMAIL COURSE)
• Built To Sell by John Warrillow (BOOK)
• Creating a Business That Can Thrive Without You with guest John Warrillow (AUDIO)

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Before you go!

The next time someone asks you for your hourly rate, I want you to stop what you're doing and head on over to valuepricingbootcamp.com to sign up for my free value pricing email course.

Hope to see you there!

The lovely and talented Alex Hillman of PhillyFreelance.com invited me to speak to their membership last week about repositioning your freelance business in response to COVID-19. 

Here's the event description:

With all the belt-tightening going on, it’s never been more important to quickly and clearly communicate your value proposition to potential clients. 

Whether you need to pivot from an old positioning statement to a new one, or to firm up your soggy positioning statement in response to a crisis, this interactive session will help you clarify your value proposition so that anyone you meet can easily understand: 

• What you do 
• Who you help 
• What you help them with 
• Why you're the best person for the job 

Who is this talk for? 

This webinar is for freelancers, consultants, coaches, contractors, and anyone else who sells their services for living. 

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The reaction from the audience was quite positive, especially regarding the Q&A segment at the end. Alex graciously allowed me to republish the audio of the talk as an episode of Ditching Hourly so other freelancers could potentially benefit from it. 

Alex has a long history of creating cool, useful, and innovative products and services, so if you're a freelancer or consultant you should really check out his stuff: 

• IndyHall.org
• StackingTheBricks.com
• PhillyFreelance.com

If you'd like to have me speak to your community or appear on your podcast, just shoot me an email at [email protected] and let me know what you have in mind. 

P.S. Here’s a link to the diagram that Alex mentioned in the intro: 

Make More For Less

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Before you go!

The next time someone asks you for your hourly rate, I want you to stop what you're doing and head on over to valuepricingbootcamp.com to sign up for my free value pricing email course.

Hope to see you there!

This episode is an audio version of a message I sent to my daily list. Here's the text:

https://jonathanstark.com/daily/20200410-1624-tack-on-a-zero-and-try-again

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Before you go!

The next time someone asks you for your hourly rate, I want you to stop what you're doing and head on over to valuepricingbootcamp.com to sign up for my free value pricing email course.

Hope to see you there!