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You should NEVER charge an hourly rate

You should NEVER charge an hourly rate
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If you’ve been freelancing or consulting, chances are, you charge an hourly freelance rate. But what if you want to earn more?

You’ve got financial and life goals, and earning more offers one of the best ways to reach your goals. Maybe you want to:

  • earn enough to quit your lousy day job and freelance/consult full-time, or
  • pay off those nagging student loans and credit cards, or
  • buy that sporty red Ferrari (or Honda) you’ve had your eye on, or
  • afford a trip to Europe.

But at your current hourly freelance rate, you’d have to work 80 hours a week for the next year(s) to afford any of those things. That is, if you could even find that much billable work.

But do you really want to work that much? Me neither.

And what if you want more freedom, flexibility, or free time?

Your day job is probably enough of a treadmill rat race already. Working more would be moving in the opposite direction.

The alternative to your treadmill of an hourly freelance rate

So, do you really want to work all the time? Not me. I’d rather work less and earn more.

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What if I told you there was a way you could actually earn more and work less? Yes, I know, it sounds too good to be true. You’ve heard that pitch before on late-night infomercials about flipping real-estate. No money down, get-rich-quick, sipping mai tais poolside. Well, that’s not what I’m talking about.

What I’m talking about requires hard work, but maybe more important, it requires a mindset shift.

I’ve been consulting since 2007, and for much of that time, charged hourly. But over the past 2 years, I’ve experimented with ways to earn more–without having to work more–and what I’ve found has been both surprising and exciting.

For example, I’ve been able to boost my effective rate by 70%, 100%, sometimes even 600% (yes, that’s no typo). By effective freelance rate, I mean the amount I earn divided by how many hours I work. So, if you currently charge $100/hour, wouldn’t you rather earn $170/hour, or $200/hour, or $600/hour?

Sticking with that example, if you charge $100/hour and bill 20 hours a week (earning $2,000/week), boosting your effective freelance rate by 50% would mean you’d earn $3,000 for working the same amount of time.

Think about how earning an extra $1,000 a week would change your life.

For 99% of us, an extra $1,000 a week would be a huge change. You could actually quit that day job, pay off those debts, afford to take time off, or maybe even achieve some of the other dreams you’ve been putting off until “someday.”

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What’s wrong with charging hourly?

Before I get into the details of how to boost your freelance rate like this, I want to highlight a couple other big problems with charging an hourly rate that you may not have considered. You already know that charging hourly puts a ceiling on how much you can earn, but there’s something else you probably haven’t considered.

Billing hourly actually gives you incentive to work LESS efficiently. Since you’re being paid not for the outcome but for your time, you’ll end up taking more time to do the work. And that’s a disservice to your clients–the same clients for whom you’re supposed to be safeguarding their best interests.

Sure, you THINK you work efficiently. But I guarantee you’ll be far more productive if you get paid the same amount no matter if it takes you 2 hours or 10 hours to achieve an outcome.

The other problem with charging a hourly freelance rate is that you get into a nickle-and-dime mindset, where you want to bill for every minute you work on something for a client. And charging for every single thing can get annoying to clients. Besides, building a profitable freelance business is built on giving your clients results–not billing in .1 or .25 hour increments.

First, think differently to charge differently

OK, let’s get down to brass tacks, and talk about how this is possible.

I mentioned that this requires a big shift in your mindset. And, yes, billing hourly is how almost everyone does it.

But if you’re doing what everyone else is doing, you’re never going to be able to create the kinds of breakthroughs that make huge changes in your life. After all, if you do what everyone else is doing, you’ll end up with what everyone else is getting–which is just another day, week, month, year, decade on the treadmill. It’s time to step off.

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The first step off the treadmill is to realize there are alternative ways to price your services. The most common are:

  • flat fee, also known as per-project fee
  • daily, weekly, and monthly rate
  • performance-based compensation

I tend to favor per-project pricing which is based on the value the client receives for my services. (Performance-based compensation–such as revenue sharing–can be very lucrative, but it requires high trust with your client, and intimate knowledge of and access to their financial data).

So, with per-project pricing, when I scope out a project, I also determine the full extent of the value the client gets, and then quantify that value. Here’s a simple example: if you can help the client make a small change–maybe by increasing website traffic, or increasing their conversion rate, or increasing their pricing–which increases their average revenue per client by, say, $50/month, you can quantify the annual value like this:

  • $50/customer * 100 customers * 12 months = $60,000 revenue

Now that you have a rough calculation of the value, you can peg your pricing to that value. Generally, you’ll want to use a 1:10+ ratio of price to value. So in this example, a price of $6,000 will make it a pretty easy decision for the client: if they pay you $6,000, they’ll receive $60,000. If you gave me $10, and I gave you $100 back, would you take that deal? Of course!

Daily, weekly, and monthly rates–sometimes called retainers–also work well, especially, again, if you can tie the value received to your price.

Easy in theory, harder in practice

The trick to succeeding with non-hourly pricing is to identify and quantify the value your client will get.

This isn’t always easy. Often, it can be difficult to know how to identify all the potential value your client will get from your services–especially if you don’t directly increase revenue. Do your services make clients more efficient? Do you give them easier access to data? Can you make it more likely that your clients will meet deadlines?

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And after you’ve identified all the potential areas of value, how do you quantify them? For example, how do you put a dollar value on reducing anxiety for a business owner?

What’s the upside?

Yes, charging an hourly freelance rate is easy. You don’t have to think about what value the client will get–and which is often tricky to determine. So why would you want to stop charging hourly?

For starters, here are a couple advantages:

  • Non-hourly pricing incentivizes you to work very efficiently to maximize your effective hourly rate (your revenue / your time). You’ll be amazed at how much more you can get done in the same amount of time.
  • Non-hourly pricing highlights the complete value the client will receive–which makes them conscious of how much they’re getting. As a result, it becomes easier to charge more, and the client still feels like they’ve gotten a great deal. This isn’t about pulling a fast one just to charge more–it’s about providing amazing value to your clients.

What’s more, non-hourly pricing allows you to significantly increase your revenue–not just increase incrementally. I’m not talking about incremental 5% annual rate increases. I’m talking about increasing your effective rate by 50%, 80%, 100%, or more. Yes, I know that sounds outrageous, but I’ve created those kinds of increases in my own consulting practice and for the students who’ve taken my courses.

So yes, it may sound outrageous. The alternative is to stick with what you’ve always done, what everyone else is doing, and what you’ve always gotten. If you’re ready to step off the treadmill, make the switch and stop charging hourly rates!

More by this author

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Last Updated on July 20, 2021

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

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