Ditch The Billable Hour: Breaking The Time Barrier

"So – what’s your hourly rate?" For many contractors in the service industry, that’s an all too familiar question – one that typically happens within the first few minutes of a conversation.

It’s the question that will seemingly make or break the deal for you: if your hourly rate is too high, you’ll lose the job, if it’s too low, you’ll lose some significant dollars.

Though perhaps that’s simply not a question you should be answering. In fact, you shouldn’t have an hourly rate at all.

If that statement seems at all counter-intuitive, read “Breaking the Time Barrier” by Freshbooks co-founder Mike McDerment and Donald Cowper.

In their short e-book (available for free download), McDerment and Cowper point out the major flaws in the billable hour system. With an hourly rate, the incentives are simply mixed up – you want to take as long as possible to get paid more and your customer wants you to get it done fast to pay less.

Ironically however, if you’re skilled at what you do, you’ll take less time to do the job which ultimately means less money. Is your service then less valuable?On the other hand - as the customer – do you really care about time? If you want your fence painted, do you care if it took 10 hours or 20 hours to finish or is it more important the fence is painted properly and on time?

If you’re paying your lawyer, do you care how long he took to prepare that employment contract is it more important that the contract prevents you from getting sued by a disgruntled employee? As the authors point out, clients don’t care about your business costs – they care about the value you create for them and that’s what they’re paying for.

So how do you move off the hourly rate and what’s the alternative?

It all starts with getting to know your customer. The book offers 7 mutual benefits of fixed or value pricing – essentially establishing a trusted relationship with a client before signing a proposal.

By asking the right questions and exploring a client’s expectations and goals, you can understand the value of the service you’re offering, from a newly painted fence to a complicated e-commerce website.

Not only will the process help you set a fixed price based on the value you provide, rather than time, but also gives the client a better idea of what they want as well. This typically translates into happier clients and a better product or deliverable. Suddenly, you’re no longer just a commodity competing on price. You’ll be differentiating yourself by offering a service tailored directly to your client.

Not convinced you can ditch your hourly rate? Read the book. Worst case scenario, you’ll lose one billable hour.