One of my biggest lessons during college happened outside of college. I need to make money and make it faster. And it’s this: how an hourly rate is bad for consultants.
I remember my friends from college and I that weren’t trust fund babies had a panic attack when we realized just how much we were going to pay for our college materials, room and board. The obvious choice was to get a job and sacrifice our social life as we embarked on arguably the most important time of our lives. And while the DC market paid substantially more per hour than the rest of the nation, the cost of living also measured to that parallel.
There was no way I was going to be able to keep my head above water through even my first semester. I had to figure out a way to make more money in less time or at least more money for the same amount of time my friends were thinking of doing. This wasn’t going to happen at the local art supplies store where we, art students, flocked with applications to get those employee discounts. A convenience store was also out of the question. This dilemma introduced my 5 year career as a DC fine dining server.
Servers as Salesmen
We servers, at the time, were making $2.15 an hour. I’m embarrassed to admit it didn’t even cover our taxes. However, we also learned to become social sales people. Our section was our market, food & drink were our product, and diners were our audience. What I learned was that whether my shift was four hours or six hours, I had a bit more control over my income potential. Unlike my art retail friends, they had a shallower income scope of their earning potential. Tips were our bread and butter, after we served bread and butter.
After training, steps of service, restaurant marketing, product quality, etc…all those decisions that were outside of our control, were DC standard. However, my section, my tables, my food & drink knowledge, my hospitality, my wit…all those accounted to how much I was able to earn that night. And how is it that even in the fanciest of restaurants there can be such a disparity of tip gaps between the servers? By our own personal level of service.
These tip bundles came from table sections, specific “contracts of service” from the moment they sat down to the moment they left. It was a combination of quick, but competent, table turnaround and ability to up-sell. Luck had a factor, but it wasn’t nearly as reliable as being a bonafide server. Ok, maybe I wasn’t that great and didn’t get rich. However, as a punk 18 year old, I was pulling in way more than my college friends were and my hours were indeed shorter.
It wasn’t easy, but the concept was.
Hourly Rate, a Bad Long-Term Strategy
When I decided to take the leap and offer my services as a consultant, I began to do my homework about the goals and milestones I wanted to achieve. There have been several publications on estimating your desired salary and working backwards. All of those retraced steps should take you to your hourly rate. I went to work and landed a few projects. There was quite a learning gap, but I improved. And that was the first red flag. The workload hadn’t increased from that client and I had gotten better. That translated to doing the work faster and in turn billing less.
That sounds a bit greedy, doesn’t it? Your response would be to acquire more clients to keep busy or increase my rate. And yes, those are viable solution; but my grief with an hourly rate goes beyond that.
There are better client/consultant relationships that could last longer with project-based services. One such issue is that the client wants to know how much they’re going to pay for the project. There are less unexpected final sticker prices once a fixed value is assigned.
Even if you, as a consultant, have done this project before and can estimate a figure from an hourly rate, the client is the variable. He might call you more often, need more technical assistance, ask for additional features or delay the project due to unusable content information and that will add to the final invoice. When that happens, your client might not only be surprised, but emotional because it’s substantially more than what you quoted him and feel as if you nickel-and-dimed him for several “quick minute tasks.” You in turn, will become irritated that your estimate was originally accurate, but the client’s clingy nature and scope creep added to those costs.
Response to the Hourly Rate Question
While this isn’t a cookie-cut response. The way to avoid doing an hourly rate is to address clients that have a common ground. You’ve hopefully found your corner in a market where your client base has a common set of problems you help them resolve. Through these recurring issues, you become accustomed to seeing patterns. Here is the tricky part of figuring out a set of services where you can offer value and have a clearer solution of a per-project-pricing. When a client lead asks you directly “what is your hourly rate?” your job is to respond with a series of questions that will qualify them as a the type of client you want to work with; that is the clients like him that you know you can help. From this interview to offer them the opportunity to work with you, you’re able to more confidently respond that you don’t work an hourly rate.
Addressing Scope Creep
What happens when you proposed a fixed price and later down the road, there’s scope creep. Should you allow it? Of course, but be sure to make it profitable. The way to make this possible is to convey to your client “listen, this sounds like a great project and we can knock it out. I also understand that you don’t have all the answers and that’s ok. Some obstacles and possible solutions might come up after, but I need you to understand that those will be considered add-ons and will be subject to additional pricing.” Practice saying that. It doesn’t make you a bad person or unprofessional. In fact, it’s quite the opposite, because as fellow professionals serious about their business, this is clear communication of anticipated challenges that you will both face. If you don’t do this upfront and instead do it when it happens, emotional reactions will take over.
Every project is a learning experience, you’ll both learn more about the nature of the project as it progresses and about each other. You need to account for this and inform your client upfront of that probability. This is a much smoother process of setting expectations based on the reality of circumstance and both parties can expect proper deliverables from each other.
I don’t believe an hourly rate is inherently bad for business, but it shouldn’t be norm. If you strongly disagree with my position, please please please state your case in the comments and let me know! Now go out there, provide amazing value, and grow your business!