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Freelancers And Consultants: 3 Reasons You Shouldn’t be Billing Hourly

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Freelancers And Consultants: 3 Reasons You Shouldn’t be Billing Hourly

Imagine a method of paying for a time-sensitive service whereby the slower the service provider is, the more they’re paid; and by contrast, the faster they are the less they earn.

One bizarre consequence of this arrangement is that the more experienced professionals in a given field, whose experience typically makes them faster than newcomers to the profession, will be treated as less valuable than the inexperienced practitioners who usually take longer to complete the same amount of (often inferior) work.

And consider also that this payment method means not only that the service provider has incentive to drag out his work as long as possible, but also that the client paying for the final product has incentive to rush the work.

Insane, right?

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And yet this is how tens of millions of service providers, consultants and other freelancers charge their clients. Hourly billing. What on earth are we thinking?

For the same reason the “Print Screen” key persists on desktop keyboards years after its real estate should have gone to, say, a “.com” key, consultants in just about every profession continue to bill by the hour. Because we always have.

If you’re a consultant, freelance contractor or the sole proprietor of a service business, there will of course be times when a client insists on paying you by the hour. (That simply means the client hasn’t given enough thought to this arrangement, either, because it works against their interests as much as against yours.) In those cases, what can you do?

But if you’re given the choice, or asked to define your preferred method of billing, here are 3 reasons you should not opt to charge by the hour:

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1)  It creates an adversarial relationship between you and your client — when such conflict is totally unnecessary and another billing arrangement would better benefit both sides.

Say you’re a graphic artist, and you and your client agree upfront that the new icon set you’re going to create for their website is worth $1,000 — for the first set, plus one round of revisions. (Tweaks beyond that are another matter, not important here.) You’re happy with that figure, and your client is as well.

Now that you’ve got that out of the way, you both have an incentive to arrive at an icon set everyone loves as soon as possible. The sooner it’s done, the sooner your client starts reaping the benefits of their new icons — on their website, in marketing collateral and in other branding channels. And the sooner it’s done, the more time you have for other paying projects — and the more “per hour” you’ve earned, if you want to think of it that way.

In other words, once the client has determined what the final work product is actually worth to them, the fact that you can bang out an excellent icon set in a hurry becomes a virtue for both parties. When you’re billing by the hour, by contrast, you have a perverse incentive not to finish your excellent first draft too quickly, because it means you’ll get paid less.

And this inherent conflict of interest carries through your entire relationship with your hourly-paying clients: If you demonstrate you can complete an icon set very quickly (and in fewer hours than the job’s compensation would be worth to you), you also have to worry you’re setting a precedent that the client should expect all of your design work to be completed fast — and not to have to pay you much for it.

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2)  It measures and rewards the wrong things (and neglects the right ones).

Let’s stick with our $1,000 icon set example. Imagine you’re billing hourly — say, $50 an hour — and you nail the icons on the first shot. Your client is thrilled with the work! You’re thrilled with the great feedback you’ve gotten. And because the job took you 20 hours, you can bill them $1,000. Not bad!

Now a different scenario: Your first draft falls flat. The client calls you frustrated and a bit panicked. After an unpleasant conversation, you crank out a second draft and, after you send in the new icons a couple of days later, the client responds that they’re pleased. Not thrilled, but pleased. And because the two drafts took you a combined 31 hours, you can bill the client… $1,550?

But wait. In the first scenario, you nailed the work on the first try. And they loved it. Second scenario? Not so much. It took you two tries, you shook your client’s faith in you, and you didn’t turn in an approved draft for an extra couple of days. But they paid you 50% more!

In a perfect scenario — or at least one where the client pays you for your work based on criteria less arbitrary than the number of hours the job takes — you’d whip up a brilliant design ASAP and then get yourself back out there working on other billable projects. And your client would start reaping the benefits of your completed work sooner.

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But in this nonsensical hourly-billing arrangement, you and your client are actually both working counter to your own best interests. You are, because you’re spending more time than necessary on the project (or at least holding back on delivering until you’ve racked up a number of billable hours you can live with). Your client is as well, because they’re rushing you to hurry the work rather than take the time you need to make it outstanding.

All because you and your client are measuring the project’s worth based on the totally arbitrary “total hours worked” rather than what really matters.

3)  It creates a built-in mechanism to make your work less compensated as you gain more relevant knowledge and expertise for your client.

Imagine you’ve been working with your icon-set client for a few months now. You’re learning about their organization, products, vision, customers and competitors. In short, you’re becoming faster at understanding new projects and banging out great work. Doesn’t this mean you’re becoming more valuable to your client than you were on your first assignments for them?

And yet, if you’re billing them honestly, the fact that you’re becoming quicker at completing assignments — and turning in work that delights your client — means that your compensation from this client goes down the more the relevant knowledge and experience you gain for them goes up.

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My advice: Bill by the project. Once you and your client agree on the ultimate worth of a given task or service, your interests become nicely aligned from that moment forward. And you can both get on with the business of generating the best work possible in the shortest time possible.

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robbie hyman

Copywriter

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Last Updated on January 5, 2022

33 Painless Ways to Save Money Now

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33 Painless Ways to Save Money Now

In a difficult economy, most of us are looking for ways to put more money in our pockets, but we don’t want to feel like misers. We don’t want to drastically alter our lifestyles either. We want it fast and we want it easy. Small savings can add up and big savings can feel like winning the lottery, just without all of the taxes.

Some easy ways to save money:

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  1. Online rebate sites. Many online sites offer cash back rebates and online coupons as well. MrRebates and Ebates are two I like, but there are many others.
  2. Sign up for customer rewards. Many of your favorite stores offer customer rewards on products you already buy. Take advantage.
  3. Switch to compact fluorescent bulbs. The extra cost up front is worth the energy savings later on.
  4. Turn off power strips and electronic devices when not in use.
  5. Buy a programmable thermostat. Set it to lower the heat or raise the AC when you’re not home.
  6. Make coffee at home. Those lattes and caramel macchiatos add up to quite a bit of dough over the year.
  7. Switch banks. Shop around for better interest rates, lower fees and better customer perks. Don’t forget to look for free online banking and ease of depositing and withdrawing money.
  8. Clip coupons: Saving a couple dollars here and there can start to add up. As long as you’re going to buy the products anyway, why not save money?
  9. Pack your lunch. Bring your lunch to work with you a few days a week, rather than buy it.
  10. Eat at home. We’re busier than ever, but cooking meals at home is healthier and much cheaper than take-out or going out. Plus, with all of the freezer and pre-made options, it’s almost as fast as drive-thru.
  11. Have leftovers night. Save your leftovers from a few meals and have a “leftover dinner.” It’s a free meal!
  12. Buy store brands: Many generic or store brands are actually just as good as name brands and considerably cheaper.
  13. Ditch bottled water. Drink tap water if it’s good quality, buy a filter if it’s not. Get 
      a reusable water bottle and refill it.
    • Avoid vending machines: The items are usually over-priced.
    • Take in a matinee. Afternoon movie showings are cheaper than evening times.
    • Re-examine your cable bill. Cancel extra cable or satellite channels you don’t watch. Watch the “on demand” movie purchases too.
    • Use online bill pay. Most banks offer free online bill paying. Save on stamps and checks, and avoid late fees by automating bill payment.
    • Buy frequently used items in bulk. You get a lower per item price and eliminate extra trips to the store later on.
    • Fully utilize the library. Borrowing books is much cheaper than buying them, but in addition to books, most local libraries now lend movies and games.
    • Cancel magazine/newspaper subscriptions: Re-evaluate your subscriptions. Cancel those you don’t read and consider reading some of the other publications online.
    • Get rid of your land-line. Do you really need a land-line anymore if everyone in the family has a cell phone? Alternatively, look into using VOIP or getting a cheaper plan.
    • Better fuel efficiency. Check the air pressure in your tires, keep up with proper auto maintenance, and slow down. Driving even 5MPH slower will result in better fuel mileage.
    • Increase your deductibles. Increasing the insurance deductibles on your homeowners and auto insurance policies lowers premiums significantly. Just make sure you choose a deductible that you can afford should an emergency happen.
    • Choose lunch over dinner. If you do want to dine out occasionally, go at lunchtime rather than dinnertime. Lunch prices are usually cheaper.
    • Buy used:  Whether it’s something small like a vintage dress or a video game or something big like a car or furniture, consider buying it used. You can often get “nearly new” for a fraction of the cost.
    • Stick to the list. Make a list before you go shopping and don’t buy anything that’s not on the list unless it’s a once in a lifetime, killer deal.
    • Tame the impulse. Use a self-enforced waiting period whenever you’re tempted to make an unplanned purchase. Wait for a week and see if you still want the item.
    • Don’t be afraid to ask. Ask to have fees waived, ask for a discount, ask for a lower interest rate on your credit card.
    • Repair rather than replace. You can find directions on how to fix almost anything on the internet. Do your homework, and then bring out your inner handyman.
    • Trade with your neighbors. Borrow tools or equipment that you use infrequently and swap things like babysitting with your neighbors.
    • Swap online. Use sites like PaperBack Swap to trade books, music, and movies with others online. Also, look for local community sites like Freecycle where people give away items they no longer need.
    • Cut back on the meat. Try eating a one or two meatless meals every week or cut back on the meat portions. Meat is usually the most expensive part of the meal.
    • Comparison shop: Get in the habit of checking prices before you buy. See if you can get a better price at another store or look online.

    Remember that saving money is not about being cheap or stingy; it’s about putting money into your bank account rather than giving it to someone else. There are many ways to save money, some you’ve never thought of, and some that won’t appeal or apply to you. Just pick a few of the ideas that sound doable and watch the savings add up. Save big, save small, but save wherever you can.

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    Featured photo credit: Damir Spanic via unsplash.com

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