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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 July 20, 2021

Financial Freedom is Not a Fantasy: 9 Secrets to Get You There

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Financial Freedom is Not a Fantasy: 9 Secrets to Get You There

Have you ever considered your life now, and how it would be if you had more time to spend with your family and less worries about money?

Nowadays, financial stress is one of the most troublesome weights in life. If you’ve ever encountered financial stress, you know the difficulty of not having enough income to pay your obligations or bills.

Many people say that money is not the ultimate goal of life. While that’s true, money certainly plays a very significant role. The meaning of financial freedom changes with the different phases of our life, but ultimately, it is something that many people strive for.

In this article, we’ll explain how to capture that financial freedom you’ve been looking for. Read on to learn the secrets to financial freedom.

Break Free of Your Finances

Financial freedom is about having a constant flow of cash from your assets to cover all your regular needs.

When you are not worried about your income, or living paycheck to paycheck, you gain a great sense of freedom. It’s the freedom to be obtain and do what you truly need to make your way through everyday life.

Gaining financial freedom, though, is a process of growth, making small improvements and gaining emotional strength.

Though it seems hard to believe, it is really very simple to get financial freedom.

To do so, you simply need to make sure that your assets exceed your liabilities. In other words, you’ll need to find the sweet-spot where your residuals meet or surpass your expenses. This is something that you can achieve with the proper plan.

While not every person will accomplish financial freedom, the potential for anyone to do so is certainly there. Anyone can achieve this success, regardless of their income level.

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Outlined below are 9 secrets that will help you in your goals of achieving financial freedom.

1. Stop Unnecessary Spending

We often spend money inwardly, instead of objectively.

For example, you may spend when you’re anxious, depressed, restless, exhausted, from fear of missing out, or to please others. This is a very unhealthy way to handle your finances.

To stop this habitual spending, log down all your spending over the course of a month.

Just as some people keep a food diary, keep an expense diary. Remember not to just write down how much and what you spent the money on, also include the circumstances of why you spent the money. Was it an impulse buy at the checkout line or was it something you planned to purchase?

This increased self-awareness could enable you to avoid triggering situations in the future when you are considering an impulse buy.

2. Plan a Monthly Budget

This is a great opportunity to get serious.

Take a seat with your spouse or partner and make a monthly budget based on your income, not your expenses. You are never again going to spend more cash then you have on hand.

Overspending is the thing that led you to more financial obligations. Make sure you decide every month what is coming in and what will be going out and stick to that budget… no matter what.

3. Cut-up Credit Cards

Perhaps you are the type of person who always pays your credit card balance in full before the end of your billing cycle, and enjoys the reward points you gain. If this is the case, then you’re already way ahead of the game.

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If not, you may want to consider ridding your life of the burden that credit cards bring.

Many cards have strategies set up so that if you make a certain number of late payments, they will raise your interest rate much higher. This can really add up in the long run and you won’t be doing your financial situation any favors. If you’re prone to late payments or have a large balance due on your cards, cut them up!

Without proper self control on credit card spending and payments, you are basically throwing your money away. To ensure that you have better control over your spending, use only cash or debit for all future purchases (and don’t forget to pay at least your minimum payment on your cut-up cards each month!).

4. Increase Savings

There is no doubt that for a comfortable retirement you must accumulate satisfactory savings throughout your working life.

It’s good practice to save up to 15% of your income.

Start with your workplace 401(k), if you have one. If not, a Roth IRA (if you are eligible) or a traditional IRA (if you are not eligible for the Roth) are the next logical steps.

Increase in longevity means you might be able to look forward to 25 to 30 years in retirement, or possibly even significantly more. Investing now in good retirement plans will ensure that you have a guaranteed a stable monthly income when the time comes to stop working. [1]

5. Invest Wisely

Consider investing in funds.

Specifically, you will gain higher returns if you invest in different types of mutual funds such as Debt funds, Equity funds and Hybrid funds with a proper balance, although it absolutely relies on your personal preferences and sense of risk taking.

To get the most of these benefits, make sure you are investing in a variety of assets. Another resource of investing in mutual funds is SIP (Systematic Investment Plan) where you invest some money every month in funds. SIP works by averaging the per unit price of the stock.

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Mutual fund investors are aware of the benefits of an SIP (Systematic Investment Plan). For one, it is the most secure way to invest in equity mutual plans so that wealth is created over a long period of time. This plan also helps you to gain a better sense of financial discipline, which will come in handy in all your financial endeavors.

6. Invest in Gold

There isn’t really a better way to invest in gold than to have the physical gold itself in your possession.

You can purchase gold coins and bars from mints as well as from coin dealers and other private sellers.

Another way to invest in gold is through ETFs (Exchange Traded Funds).

These are is similar to mutual funds but they are exclusively investments of gold. ETFs are great because they offer more liquidity; the ETF owns the actual physical gold, stores it, and retains the value of the shares. These shares can then be bought and sold in the stock market, and one big benefit is that the transaction costs of gold ETFs are much lower than the that of physical gold.

With its consistently-increasing demand, investment in gold can be very wise long-term investment to make.

7. Stash Emergency Funds

Whether it’s a cash gift or a work bonus, always try to save any extra money that comes your way rather than making unneeded purchases.

If you get paid every other week, you’ll get an “extra” paycheck (three rather than the usual two) twice a year. Either save those paychecks towards your emergency funds or utilize the money to pay down other obligations, such as loans, credit cards or other debts.

Make it hard to get your cash.

Put your savings in an alternate bank, maybe an online bank that forces you to delay for several business days before transferred money hits your regular bank account.

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8. Find Fabulous Mentors

Find a mentor, such as a friend or family member, who has exceptional control over their finances and pay attention to everything they do.

If you do not have any friends or family that are enjoying financial freedom, then find a mentor online! There are numerous blogs and guru websites featuring the advice of many people who have reached financial freedom, and they exist primarily to let you in on how to achieve it for yourself.

There are also plentiful forums available that share tips and tricks on how to best achieve financial freedom. Read as much as you can and start changing your habits for the better.

9. Be Extra Patient

Patience is the key of financial success.

Being patient can be quite tough, especially when you’re struggling with your finances, but having faith is worth it. You’ll continuously be on the right track if you are taking the proper steps above.

So don’t be discouraged, even if you are only saving a few dollars a month; it all adds up. Within just a few years you’ll look back proudly at your accomplishments and be glad that you had the patience to get there.

Financial Freedom for All

Anyone can achieve financial freedom, regardless of their financial circumstance.

Use the tips provided above to get yourself on the track to financial freedom and toss your monetary concerns out the window. If you wish to achieve a life with financial freedom for yourself and your family then you must adopt a disciplined approach towards your finances.

Following the simple secrets above is a great start to making your money work for you, so you can work less and live more!

Featured photo credit: rawpixel via unsplash.com

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Reference

[1] Hartford Gold Group: IRA Retirement Accounts

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