6 Reasons to Stop Charging a Consulting Hourly Rate

Stop-Charging-Hourly-Consulting-Rate

I get it. Society has made the hourly rate the standard way to get paid.

The news talks about hourly wages almost every day.

But if you’re charging a consulting hourly rate you’re not only doing a disservice to your client and your business – you’re also leaving a great deal of money on the table.

Here are 6 reasons to avoid the deadly hourly rate:

  1. Your client will always want you to work less because they’ll pay you less
  2. Your client will avoid getting you to do important work because they know it will cost them more
  3. Your client will hold back calling you and asking you for feedback because it might lead to more work
  4. You’ve grouped yourself together with every other person working on an hourly rate (plumbers, fast food servers, administrative assistants, etc)
  5. You’re incentivized to take longer to complete the work because you’ll get paid more
  6. You limit your ability to scale your business because more income means more work for you to do

Scare Clients With Your High Hourly Rate

Some consultants believe that charging  a high hourly rate fixes this problem.

Instead of working 100 hours at $150/hr what if you could charge $25,000 or $40,000 and get the work done part time over two weeks?

Instead of charging $150/hr why not $350/hr.

But how many hours a day are you actually able to spend on client work?

What if you want to grow your business to $50k-$100k+ per month?

Not only does this limit your ability to scale your business there are far fewer clients willing to pay ‘high’ hourly rates.

It simply scares them off…because they compare it to every other hourly rate they’ve seen.

The Structure to Growth

If you want to experience significant growth in your consulting business avoid the hourly approach.

Instead choose a structure that allows you to maximize the value you’re providing.

While minimizing your time involved.

Because the greatest wealth anyone has isn’t ruled by money – it’s the time they have to do what they want.

Structures that work well in this regard include project consulting work, retainer work – all with a focus on value over volume.

Both of these structures have several nuances. And they each require the right approach and positioning.

If you’d like to talk about how to maximize the value of every project you take on let me know here.

The main point I want you to take away today and to share with your colleagues and friends (click linkedin, facebook, twitter, google+ buttons) is that a consulting hourly rate is to be avoided.

An hourly rate means you’re losing money.

When you shift your focus from charging by the hour instead to charging based on results and value your income can skyrocket.

Instead of working 100 hours at $150/hr what if you could charge $25,000 or $40,000 and get the work done part time over two weeks?

Sound like a stretch? It’s not.

It’s actually what many consultants experience when they shift from charging by the hour to charging based on results, value and the project.

What About Lawyers, Doctors and Other High Paid Professionals?

Great question…

I can see the questions coming saying “Michael, I know lawyers charge $300+ an hour. It works for them…”

You’re right it does. But their focus is on volume, not value.

Instead, shift your pricing and fees to a model that benefits your client and significantly increases your income.

They have significant costs associated with their business.

In almost all cases they have several staff too.

That’s not the type of business most consultants want.

Most consultants I know want to avoid complexities, high-overhead and overwhelm.

If you want to keep your business simple…

If low overhead is preferred…

And if you’d like to work with a fewer number of clients yet earn more from every single one…turn away from an hourly consulting rate and instead to one of the other pricing structures I mentioned.

How to Get Paid More

It all comes down to knowing how to communicate the value of your offerings.

And ensuring that you’re providing a significant ROI for the client.

You see, clients don’t mind paying ‘more’ (and in there mind they aren’t paying more because they don’t know what the ‘other’ cost would be)…as long as they can clearly see the ROI and that you can deliver the results and outcome they desire.

So if you’re charging a consulting hourly rate – stop it. It’s not doing you or your client any good.

Instead, shift your pricing and fees to a model that benefits your client and significantly increases your income.

You can learn a lot more about consulting fees and pricing in the Consulting Success System 2.0 here.

  • Rich Layton

    That’s advice that goes back to Alan Weiss in “Million Dollar Consulting” and it’s a hard nut to crack. The procurement departments in the global energy companies that are my major clients don’t support that approach. Everyone wants a “unit price” to compare, and hourly rates are the universally accepted yard stick when providing a bid. About the closest I come is getting to bill more hours than I actually have in the job.

    • Daryl

      As consulting engineers, we’ve used “project fees” for years. When quoting, we provide a budget and a general estimate for time. We use an internal hourly rate for estimates, but don’t include that in our quotes.

      To me, hourly rates are useless anyway — if I’m getting a kitchen remodel, I don’t care what the contractor’s hourly rate is — I just want to know how much the project will cost. BTW, I’ve used that analogy on procurement people with success.

      Finally, we don’t bid “fixed fee.” Rather, we include a statement that “we will not exceed the budgetary estimate without client approval.” This gives us some room for contingencies or small changes. Clients and procurement people seem to like it too.

      Hope this helps. I always appreciate Michael Zipursky’s insights.

    • Rich – great comment. Shift the conversation from the ‘procurement department’ to the CEO or directors that have greater influence and see the value you’re providing – so it’s not just about hours.

  • Katie

    I would love to bill by value than by volume. Whenever I try to shift to that model, I get prospect push-back. They want the hourly rate. So, up it goes every year to all the newbies! I’m sure it’s not the best model.

    • Katie – great share. Sounds like you want to focus on better communicating the value you’re providing to the buyer. Once they really get that it’s never about hourly or project fees but rather how soon can you start.

  • Great article Michael. The sooner we move toward a focus on value rather than cost, the sooner we have a win-win scenario for both the consultant and the client.