We all have heard stories of someone who couldn’t sell something, they raised the price to a ridiculous level, and then they sold like hotcakes. This isn’t a new phenomenon. I’m sure if we had the data we could trace this human behavior back centuries.

So why is it that we insist in breaking down so much of our work into billable hours?

The Illogical Billable Hour

Let’s break this down a bit and check the logic of the billable hour for a moment…

  • I am a morning person, so my 8:AM – 9:AM is far more valuable than 12:PM – 1:PM. Should I charge more for it?
  • When I have one of those 2:AM flashes and work like an inspired demon until 5:AM, do I charge more for that time, and less for the next day when I am groggy and dopey from lack of sleep?
  • Or what if I am having an “off” day, and everything I do is a trudge? Do I charge more because it is taking more effort and time? Do I charge more because the work is harder? Or do I charge less because the work may not be as good?
  • Or what if I am “in flow” and generating oodles of amazing work? Does everyone get a discount because I had a great day?
  • When I come back from vacation fresh and rejuvenated and full of energy, do I charge $1000 an hour for my inspired visions and infectious energy?
  • And in the last two weeks before I head out on vacation do I charge less because I have “short-timers syndrome”?

In short, one hour is not equal to another hour, and the value I place on my time may be different than the value you place on my work. In short, billing by the hour is just wrong on so many levels. All the incentives are off.

And – to bring us back to the first line of this post – history has shown that humans regularly respond better to prices being RAISED rather than lowered!

And finally, hourly billing assumes one can define beforehand how long a project will take, and account for all factors.

We all know this is just guesswork based on experience (at best) and more commonly a number pulled out of thin air that simply “feels right”. The result is that when something goes wrong on the project and it takes more time than I projected, I lose money. If the project takes less time than was budgeted, then then incentive is to pad the hours out to the full price of the bid. In short, the incentive in that case is to lie.

Hourly billing just doesn’t make sense for most things because it doesn’t value the WORK, it values my TIME. But the part you want, the part you will use, the part that you will take home with you is the WORK.

Defining Value vs Time

Ask yourself: Do you want 10 hours of my time, or do you want a problem solved?

As I have shown, my time is not the thing that you value. It’s not what you want. You want my product, my work, my skills applied to your problem to make that problem go away.

If you sit and think about it for a few minutes you can place a value on having any problem solved. How much is it worth to not have X problem any more? How much would you spend to not have to write that press release? If a great elevator pitch gets you that meeting with the venture capitalist that funds your company, how valuable is that? The value here is not in my time, it is in the results you achieve due to my efforts.

The cool thing is that the incentives work great from my side of the fence as well!

For example, if I write content for a brokerage that has 25 readers a week, and content for an online retailer who has 10,000 readers a week, do those two pieces of writing have the same value? Or is the broader-read one more valuable?

Consider this, then: What if 5 of those 25 brokerage clients wind up doing $10k of business with the brokerage due to my work? What if 2,000 people do $1 of business with the online retailer? Now which post was more valuable? Which client got the better deal? Or did they both get a great deal?

Which brings us to Project Pricing

I price my work by the Project, not by the number of hypothetical idealized hours it is going to take to do the work.

You and I will sit down, discuss the problem, how I can apply my skills to solve the problem, and then we will arrive at a price. You will be happy with the price because you got to define it according to your needs and valuation of the work. I will be happy with the price because we have worked together to clearly define the scope of the project and the value. If I can’t make the numbers work on my end (a branded worldwide social media push for $1000, for example), then I’ll turn down the work and explain to you why it isn’t feasible for me to do it for that price.

Either way, we both leave the meeting in a good place. You either got free marketing consulting, or we decided to do a project together. Either way, we are happy.

Because at the end of the project I want you to be smiling and happy when you cut that check, no matter how big it is.

And that is why I don’t bill by the hour, and neither should you.

 

(UPDATE: September 2012 – I have refined my pricing structure again by simply packaging my most-requested services into fixed-price packages. This lets people know how much they are going to pay right up front, and exactly what I can deliver for those prices. The number of hours each project takes can still vary according to many variables, but this model has proven effective for both me and my clients. Although I did need to start charging hourly for copywriting, I do not think that significantly dilutes the points I made above.)