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You should NEVER charge an hourly rate

You should NEVER charge an hourly rate

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!

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Last Updated on January 2, 2019

How Personal Finance Software Helps You Get More Out of Your Money

How Personal Finance Software Helps You Get More Out of Your Money

Do you know what mental health experts point to as the biggest cause of stress in the United States today? If you said “money,” then ding, ding, we have a winner!

Three out of four adults today report feeling stressed out about money at least part of the time. People are either worried about not having enough money or whether they’re putting the money they do have to use in the best possible way.

Your money is either in charge of you or you’re in charge of it, there’s no middle ground. Using some type of personal finance software can help alleviate some of that money stress and better allow you to manage your money effectively. Without it, you may just be setting yourself up for constant financial worry. Life is already tough enough and there’s no need to make it more difficult by simply hoping your money issues will all work out in your favor. Hint: they won’t.

This guide will help you to understand how personal finance software can better assist with both accomplishing long term financial goals and managing day-to-day aspects of life.

Whether it’s tracking the savings plan for your child’s college fund or making sure you won’t be in the red with the month’s grocery budget, personal finance software keeps all this information in one convenient place.

What Exactly is Personal Finance Software?

Think of it like the dashboard in your car. You have a speedometer to tell you how fast you’re going, an odometer to tell you how far you’ve traveled, and then other gauges to tell you things like how much gas is in the tank and your engine temperature. Personal finance software is essentially the same thing for your money.

When you install this software on your computer, tablet, or smartphone, it helps to track your money — how much is going in, how much is going out, and its growth. Most personal finance software programs will display your budget, spending, investments, bills, savings accounts, and even retirement plans, levels of debt, and credit score.

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How It Leads to Financial Improvement

It shouldn’t come as a surprise, but people who regularly monitor their finances end up wealthier than those who don’t. When you were a kid, keeping track of all of your money in a porcelain piggy bank was pretty easy. As we get older, though, our money becomes spread out across things like car payments, mortgages, retirement funds, taxes, and other investments and debts. All of these things make keeping track of our money a lot more complicated.

Some types of personal finance software can help make things a little less complicated, setting you up to meet financial goals and taking away some of the stress associated with money.

Even if you already have a Certified Financial Planner (CFP) some type of personal finance software can be of great benefit. Whereas CFPs focus on the big picture of your money, they don’t handle the day-to-day aspects that determine your overall financial health.

It’s also not nearly as complicated as you might think and can take out a lot of the tedium that comes with doing everything on an Excel spreadsheet or with a pad and pencil.

Types of Personal Finance Software

When it comes to personal finance software, it generally fits into two categories: tax preparation and money management.

Tax preparation software such as Turbo Tax and H&R Block’s software can help with everything from filing income taxes to IRS rules and regulations and even estate plans. Plus, there’s the benefit of filing online and getting your refund check a lot faster than if you were to mail off your forms after waiting in line at the post office.

For the purpose of this article, however, will be focusing more on the personal finance software that aids with money management.

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Money management personal finance software will help you to see the health of your cash flow, pay down debt, forecast for expenses and savings, track investments, pay bills, and do a host of other things that 30 years ago would have practically required a team of accountants.

When to Use Personal Finance Software

So far we’ve gone over what exactly personal finance software is and how it can be a benefit to your money. The next logical step in this whole equation is determining when it should be used and how is the best way to go about getting started using it.

Below are four of the most common and practical ways to use personal finance software. If all or any of these apply to you and your money, then downloading some type of personal finance software is going to be a smart move.

1. You Have Multiple Accounts

There’s a good chance that when it comes to your money, it’s in more than one place. Sure, you probably have a checking account, but you may also have a savings account, money market account, and retirement accounts such as an IRA or 401k.

If you’re like the average American, you probably have two to three credit cards as well. Fifty percent of Americans also don’t have loyalty to just one bank and spread their money across multiple banks.

Rather than spending hours typing in every detail of every account you have into a spreadsheet, many programs allow you to easily import your account information. This will help to eliminate any mistakes and give you a bird’s eye view of everything at once.

2. You Want to Automate Some or All of Your Payments

Please don’t say that you’re still writing out paper checks and dropping each bill in the mailbox. While it’s noble that you’re doing your part to keep postal workers employed, we’re 18 years into the 21st century and you can literally pay every bill online now.

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There’s no need to log into every account you have and type in your routing number either.

With personal finance software you can schedule automatic payments and transfers between all of your imported accounts. Automatic transfers will help to make sure you have the necessary funds in the right account to ensure all bills are paid on the appropriate date. Late fees are annoying and do nothing but cost you money. It’s time that you said goodbye to them once and for all.

3. You Need to Streamline Your Budget

Perhaps the best feature of personal finance software is that it allows you track everything going in and out of your virtual wallet.

Nearly every brand of personal finance software out there has easy-to-read graphs and charts that allow you track every cent you spend or earn, should you choose. You might be pretty amazed when you see just how much you spent on eating out last month or if you splurged a little more than you should have on Christmas gifts last year.

Every successful business on the planet has a budget and using personal finance software can help you trim the fat on your spending in ways that affect your everyday life.

4. You Have Specific Goals to Meet

Maybe it’s paying off debt or saving for up something like a European vacation. Whatever your financial goal is, whether it’s long-term or short-term, personal finance software programs are one of the savviest ways to go about reaching those goals.

You can do everything from set spending alerts to notify you when you’re over budget to automating what percentage of your paycheck goes to things like retirement investments. The personal finance software that you choose should show you exactly how close you are to hitting those goals at any given time.

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How to Get Started

From AceMoney to Mint and Quicken, there ’s no shortage of personal finance software apps out there. Many of these programs are free to download and will allow you to pay bills, invest, monitor your net worth and credit profile, and even get a loan with the swipe of a finger.

Other programs may only offer you limited services and will require a one-time fee or subscription to unlock all that they offer. These fees can often vary from as little as two dollars to 50 bucks a month.

It’s best to start off with the free version and then gauge whether you’re able to accomplish everything you’d like or if it’s worth exploring one of the paid options. Often times the subscription programs come with assistance from financial planning and investment experts — so that can be a real benefit.

When deciding which personal finance software program to use, it’s also important to look at how many accounts you wish to monitor. Certain programs limit the number of accounts you can add. Be sure that if you have checking, credit card, and investment accounts to monitor, that you choose a service that can monitor them all.

Finally, when looking around for the right personal finance software that meets your needs, make sure that you’re comfortable with the program’s interface. It shouldn’t be expected that you recognize every single feature instantly, but if the features don’t seem readable and manageable to you, then you’re not as likely to use it and get the full benefits.

Final Thoughts

Personal finance software can go a long way in helping you to take control of your money and meeting your financial goals. It’s important to note, however, that some focus more on budgeting and expense tracking while others prioritize investing portfolios and income taxes. Explore several different programs and read reviews to find the one that’s right for you.

In this day and age, managing one’s personal finances in a secure manner that allows the user to have a real-time visual representation of their money is easier than ever before. With the numerous applications that are out there — both free and subscription-based — there’s no reason that every person can’t take control of their money and ensure they’re making smart money moves.

Featured photo credit: rawpixel via unsplash.com

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