Charging Hourly Rates Are Bad For Clients Too
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Because for them, hourly rates mean…
· Surprise larger-than-expected bills. Even if you give them an estimated range for the project at the outset, clients will often focus on the smaller amount-not the larger one. Then there’s the issue of “scope creep,” where they keep changing or adding “little” things to the project that you didn’t initially expect.
While it’s good to give them an immediate heads up that these items will add to the cost, in my experience, they often suffer a bout of amnesia about those warnings when invoice time comes.
But it’s also easy to fall into the trap of not wanting to seem petty-so you don’t mention it. Then one change becomes two and soon you have a whole series of little creeps, which can quickly add up.
· Fuzzy budgeting. Similarly, if you merely quote an hourly rate or give estimates with broad ranges, it’s a lot harder for the client to plan their spending-which may annoy them. But it can also be hazardous to your health if they tend to have cash flow issues and don’t have the money when invoice time comes.
· The eternal running meter. I’ll never forget when my nosy accountant sent an invoice listing a 10- minute call she made to lecture me about something that wasn’t even her business. Not only did it seem ultra petty (can’t you just tack it onto something else?), it was a call she shouldn’t have made to start with! She wasn’t my accountant much longer after that.
But the real downside to the running meter is they’re less likely to reach out to you with a question or additional comments. While your first reaction may be “Good!” I usually find that answering their questions can prevent big problems or provide helpful insight for the project.
Besides, the more they think of you as an adviser who cares about their business, the more likely they are to work with you again. And in my experience, very few clients go hog wild pestering you non-stop anyway.
· Conflicting interests. The blunt truth is paying by the hour means the more hours you put in, the more you make. That means you have an incentive to drag projects out or add on more than necessary-neither of which is in the best interest of their project or wallet. (Not that YOU would ever do this. But that doesn’t mean they won’t be paranoid about it.)
Finally, all of the above are good points to make when a prospect asks why you don’t charge hourly rates. In fact, here’s some wording I use on my website:
For one, hourly rates lead to unhappy surprises at invoice time when the bill turns out to be much higher than the client expected. I prefer to give a project price so you know from the start how much it’s going to be.
Also, charging by the hour inherently means the longer a writer, designer or whoever can drag a project out, the more they’ll make. Which, with the wrong person, can mean your project is both expensive and late. With a project rate, if I spend more time than expected, I eat the cost. So it doesn’t pay to miss the deadline.
Other wording in my proposals and estimates:
My fees are always based upon the scope of the project, never upon units of time. This way, you’re free to contact me with a question worrying about a meter running.
Of course, you’d want to put these thoughts into your own words, but hopefully they’ll give you some place to start.
Are there any other downsides you think I missed?
· Surprise larger-than-expected bills. Even if you give them an estimated range for the project at the outset, clients will often focus on the smaller amount-not the larger one. Then there’s the issue of “scope creep,” where they keep changing or adding “little” things to the project that you didn’t initially expect.
While it’s good to give them an immediate heads up that these items will add to the cost, in my experience, they often suffer a bout of amnesia about those warnings when invoice time comes.
But it’s also easy to fall into the trap of not wanting to seem petty-so you don’t mention it. Then one change becomes two and soon you have a whole series of little creeps, which can quickly add up.
· Fuzzy budgeting. Similarly, if you merely quote an hourly rate or give estimates with broad ranges, it’s a lot harder for the client to plan their spending-which may annoy them. But it can also be hazardous to your health if they tend to have cash flow issues and don’t have the money when invoice time comes.
· The eternal running meter. I’ll never forget when my nosy accountant sent an invoice listing a 10- minute call she made to lecture me about something that wasn’t even her business. Not only did it seem ultra petty (can’t you just tack it onto something else?), it was a call she shouldn’t have made to start with! She wasn’t my accountant much longer after that.
But the real downside to the running meter is they’re less likely to reach out to you with a question or additional comments. While your first reaction may be “Good!” I usually find that answering their questions can prevent big problems or provide helpful insight for the project.
Besides, the more they think of you as an adviser who cares about their business, the more likely they are to work with you again. And in my experience, very few clients go hog wild pestering you non-stop anyway.
· Conflicting interests. The blunt truth is paying by the hour means the more hours you put in, the more you make. That means you have an incentive to drag projects out or add on more than necessary-neither of which is in the best interest of their project or wallet. (Not that YOU would ever do this. But that doesn’t mean they won’t be paranoid about it.)
Finally, all of the above are good points to make when a prospect asks why you don’t charge hourly rates. In fact, here’s some wording I use on my website:
For one, hourly rates lead to unhappy surprises at invoice time when the bill turns out to be much higher than the client expected. I prefer to give a project price so you know from the start how much it’s going to be.
Also, charging by the hour inherently means the longer a writer, designer or whoever can drag a project out, the more they’ll make. Which, with the wrong person, can mean your project is both expensive and late. With a project rate, if I spend more time than expected, I eat the cost. So it doesn’t pay to miss the deadline.
Other wording in my proposals and estimates:
My fees are always based upon the scope of the project, never upon units of time. This way, you’re free to contact me with a question worrying about a meter running.
Of course, you’d want to put these thoughts into your own words, but hopefully they’ll give you some place to start.
Are there any other downsides you think I missed?
Read More Great Business Planning Articles
Hourly Rates Are Bad For Clients Too
Last time, we talked about the 9 Reasons to Stop Charging Hourly Rates. But those only focused on why hourly rates are bad for YOU. Before I get into the alternatives, it’s important to consider how hourly rates are bad for your clients as well.
By: Tracy Needham
Last time, we talked about the 9 Reasons to Stop Charging Hourly Rates. But those only focused on why hourly rates are bad for YOU. Before I get into the alternatives, it’s important to consider how hourly rates are bad for your clients as well.
By: Tracy Needham
Tracy Needham, founder of Compelling Communications, LLC, helps small business owners boost their business through compelling copy and marketing strategies that make the most of their time and money. Sign up for her FREE Special Report: The One Press Release You Can Write to Get Thousands of Dollars Worth of Free Publicity at www.compellingezine.com.
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Strategy vs. Tactics: Which Drives Your Organization?
