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

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.

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 April 3, 2019

How to Nix Your Credit Card Debt in Less Than 3 Years

How to Nix Your Credit Card Debt in Less Than 3 Years

Debt is never a fun thing to be in. But, there are many actions that you can take that will help you rid yourself of the burden of debt once and for all.

By coming up with a set plan, eliminating your debt can feel much easier than constantly thinking about it.

This post will provide some tips on how you can do this to help you nix your credit card debt in less than 3 years.

Hint: there are ways that are easier than you think.

1. Consider Consolidating Multiple Credit Cards If Possible

This may not be applicable to you, but if you have multiple cards – it is something to consider. Keeping up with multiple bills is time consuming.

It will depend on the balance you have on each. Consolidate ones you can but do not do it to the point that you get too close to the maximum limit. Also, it is ideal to pick the card with the lower interest rate.

Consider if there are any fees or alternatively, rewards, with transferring a balance to another card. Watch out for fees. Note that some cards offer rewards for transferring a balance to them. This is extra cash that can help go towards paying off your debt.

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Having one or two cards can make nixing your debt much simpler than keeping up with the balance of a bunch of cards. Keeping track of paying the minimum towards a bunch of cards is time consuming. Spend the time to consolidate instead to make the overall process simpler going forward.

My tip: Have one main credit card. Have a second one that you use for necessities – such as groceries or gas – that offers rewards for those purchases (a lot of cards do) and set the second one on auto-pay. You should be able to pay off a smaller amount on auto-pay if it is a necessity. If you think you cannot, then you may need to cut down a lot on expenses.

Why do I suggest doing this? Having one thing set to auto-pay is one less thing to think about. One less thing to waste time on. Same idea with consolidating to one main card. Tracking down too many is a hassle.

2. Try to Pay the Full Balance You Spent Each Month at the Very Least

You need to pay off the amount you are spending each month when that bill comes in. This is the amount you spent THAT month.

Do not let the debt keep accruing while you work on paying any unpaid debt that has accrued. It will become a never-ending battle. Try as best as you can to be current on paying for each month’s expenses when that month’s bill comes out.

If this is a strain, consider why. You may need to cut expenses. Or you may need to consider other cards. Or look at where this money is going.

3. Pay Extra When You Can – Every Small Amount Counts

This cannot be emphasized enough. If you are looking at a lot of credit card debt, it can look daunting, but each extra amount that you can put towards the debt will really add up – no matter how small it is.

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It does not just reduce the principal amount that you have left to pay off, but it reduces the amount that is collecting interest. You will always save money with that reduced interest.

4. Create a Plan on How to Pay Extra

Back to the main point, having this plan is giving you one less thing to think about.

This plan should be a plan that works for you. If it does not work for you, your spending habits, and your views on debt, then it will not be an effective plan.

For instance, if a set plan of an extra $50 (or another amount that you know you can afford) works for you, then do that. Set that aside every month and pay that extra amount. Treat it like a bill. Choose an amount that works for you and pay it like clockwork as though it was a bill you had to pay each month.

Little amounts will not nix it entirely, but they will help tackle it and having a set plan can make it less of a chore. Creating a new plan of how much to put towards it each month is an unnecessary added stress.

5. Cut out Costs for Services You Do Not Use

If you are signed up for subscriptions that you do not use because of some free trial or for some other reason, cut it out. Your overall financial position will look better.

In turn, that will make cutting your credit card debt easier. Look at your statements to find these expenses. If you do not use them, you may forget you are paying some unnecessary amount each month. Cutting it out can really add up in savings that you can put towards other needed expenses.

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6. Get Aggressive About It

Consider these points:

Depending on the interest and the level of debt, you may need to give up a few indulgences. For example, instead of ordering delivery or going out to eat, cook at home. Everything adds up.

Other things may be more of a sacrifice. It may be a trip you wanted to go on, or a daily latte habit you’ve picked up. In these instances, consider how important it is to you and if it’s worth the sacrifice. And if it is a costly expense, think whether you can wait to indulge.

Cutting an extravagant expense can really help make a dent in your overall debt. Try not to add to debt when you are trying to pay it off. It will be a never-ending battle. Make it less of a battle with these tips and it will feel easier.

Bottom line: Do what you can to make this process easier for you. Implement steps that do this. It takes time now, but will help overall. Also, keep track of your spending and paying down of your debts. Which is the next point.

7. Reevaluate Your Progress at Set Intervals

Doing a regular check-in can help you see your efforts pay off or maybe indicate that you need to give this a bit more effort. If you check every 3-6 months, it will not feel so much like a chore or feel so daunting.

By doing this, you will be able to better understand your progress and perhaps readjust your plan. Bonus: if you see it pay off, it will feel great to do this check-in. You will get there.

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Finally (and most importantly)…

8. Keep Trying

Do not get discouraged. Pushing it off will make it worse. Just keep trying.

Once your debt becomes lower, each monthly payment will reduce the balance more. Why? You are paying less towards interest. It will be a snowball effect eventually and it will become much easier to manage. Just get to that point. And know once you do, it will feel easier and motivating.

Start Knocking out Your Debt Today

The best way to eliminate debt is to get started right away. Begin by implementing the above steps and watch your debt just melt away. Try out some of the above strategies and see what works best for you. Soon you’ll be on your way to a debt free life.

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Featured photo credit: Pexels via pexels.com

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