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Professional friends and clients often ask me to help them raise their fees.
Although we could spend a lot of time talking about all of the alternatives, at the end of the conversation, there are two obvious ways to increase your fees:
- Charge more for what you do; And/or,
- Stop doing things that are perceived as “lower value,” so you can focus (and charge) for things that are worth more.
But before we do that, it’s almost universally useful to eliminate the self-limiting beliefs and practices that force fees down in the first place.
Charging by the hour is one of those practices.
Here are five reasons I believe charging by the hour for professional services does not work:
- Experienced practitioners can do jobs faster than the average bear. That means that someone as talented as you can do a great job very quickly. By definition that means that you will charge for fewer hours which will then ironically add up to smaller fees. I don’t need to point out the problem with this, do I?
Of course, raising your hourly rate does not fix this because you can’t raise your fees to a large enough number that will properly compensate you simply because your clients won’t allow it. That means you have to either lie about your hours or not charge what your talent deserves.
Neither circumstance is acceptable.
What’s more, I think the solution you provide is even more valuable if it can be delivered quickly and acted on quickly as well. No client has ever come to me with a project and said, “Take as long as you like. We’re in no hurry.”
- Billing by the hour means your client can compare the metrics of what you produce with the amount that you charge for the work. If you’re a copywriter, for example, then you’ve just established a ratio between the number of hours you charge with the number of words (or pages, or ads, or whatever) you’re billing for. Sadly, that ratio will never demonstrate value because it presents a specious comparison.
How much was “Just Do It” worth? How about “There is no substitute?” How about “Tastes great. Less filling”?
Of course, it’s not just writers who suffer from this phenomenon. How much is an accurate medical diagnosis worth? How about legal advice that keeps you out of court or jail or debt?
How about a keynote speech that increases employee morale or raises shareholder value? Do you think you could ever bill enough hours to cover the value of those accomplishments?
- When people compliment my writing, I often say, “I’m not a good writer, I’m a good re-writer.” That’s because the best writers spend the most time editing and refining their work until it has only as many words as is required to make its point. That means that I actually spend more hours to use fewer words and therefore create shorter documents that appear, ironically, easier and quicker to create.
Regardless of the famous line about not having the time to write a shorter letter, we all know that plenty of people do not understand – or value – this concept.
- No matter how many times you hear the opposite, time is not money.
Time is much more valuable than money. Money is both a fungible and a renewable resource. Time is not. You can always go out and get more money. You can never ever ever go out and get more time. That suggests that billing by the hour by trading time for money is a bad strategy no matter how much you charge for those hours, doesn’t it?
- Finally, billing by the hour invites your client to consider every single assignment they want handled and determine what it’s worth before they offer it to you. And that can often lead people to be penny-wise and pound-foolish, choosing not to ask for professional help early and long before a problem escalates. Charging a flat fee, albeit a high one, means professionals can deliver what they believe their clients need, and not be limited to only giving them what their clients will pay for. Having that carte blanche to do a good job allows you to put the “pro” back into “professional.”
Of course, none of these very well thought out explanations compare with the most efficient way to charge more…
Was it you or was it your dad who told me the following story?
A man goes to a dentist in terrible pain. “I feel like my mouth in on fire,” he says. “I’m in excruciating agony. Please help me.”
The dentist does a quick evaluation and responds: “I’ve seen this condition many times before. I know just what to do.”
“Thank goodness,” says the patient. “Please go to work immediately.”
“My pleasure,” says the dentist. “The procedure will take 20 minutes and will cost $5000.”
“Five thousand dollars?” the patient screams. “That’s outrageous! I’m not going to pay you five thousand dollars for 20 minutes of work!”
The dentist nods. “I understand,” he says. “I won’t charge you five thousand dollars. I’ll charge you $400.”
“That’s great!” says the patient. “Four hundred dollars is much more reasonable than five thousand dollars!”
The dentist continues: “I’ll charge you $400. But the procedure will take three hours.”
Understanding that your expertise, not your time, is what is valuable–that’s where the success comes from. Believing in yourself, knowing that your information is hard won and valuable, is where businesses can get invaluable information from you and your father before you.
Thank you, Bruce, for the time and thought you put into the value you deliver to each of your postings. Our professional fees topic is a big one in our industry because often the consumer thinks that all we do is put a sign in the yard and get paid. Our solution to understanding the fees we charge for home buyers and sellers is to constantly communicate with them along each step of the process as to what we are doing, and what issues we are resolving all along the home buying journey. At the conclusion there is a communication log that is pretty overwhelming as to all we bring to the table as their trusted advisors. Again, Thank you…
This really hit home. Excellent. Thank you. Long ago, I was advised by a senior lawyer not to take any matters under $500. It was the best advice I ever got. I thought taking small matters would open the door to potential new clients with potential big fees, but small payers are usually more needy, less sophisticated and take much more effort and time than their small fee deserves. And, most importantly, it does not lead to big clients and big fees. They will go to the more expensive firm no matter how nice and helpful you are. They have already determined your value and for that special project, that means more than just incorporating a new entity, they will find someone more expensive because that, in their mind, means better quality.
Hourly rates reward sloth, penalize speed.