Less than $75/hour

I do not believe that it is in my best interest to "eyeball" a project and get into the middle of it, only to then tell a client that it appears bigger than originally thought. In my line of work, clients are often already in disarray and feel vulnerable in their surroundings. To be presented with what they would view as a "bait and switch" is not something I am comfortable with.

You always gots more to say...that is why I hang around you.

I have to agree with Elizabeth on this one, Joe. Some services will not operate on a flat fee. If you flat fee a project, then discover it's more complicated, more time consuming, higher costing than your flat fee. I actually know people who got burned by a flat fee.

Auto repair shops do an oil change or tire rotation for a flat fee, but if you have a car accident, the body shop takes damage thaey can see as an estimate, then as they take things apart, note any further damage that was not visible.

I am not saying we are body shops here, but there are exceptions and some things that will not be in the business' best interest to offer a flat fee. In Video Depos, it can be anywhere from 4 - 12 hours. And they can't tell you really how long.

So This is how I see it:

1. Hourly Rates are part of the business structure. It should not be dismissed in all cases nor should you see it as the one and true option.

2. Flat Fees are also part of the business structure. If you sell a product and it's always the same cost same amount of time to perform, then a flat fee makes perfect sense.

Any business service has to be evaluated to determine which structure, flat fee or hourly, best fits the service. The best thing to do is look around the business you are in, see what they charge, how they charge and what clients are paying for that service. If it's hourly, you may need to charge hourly, at least at the beginning.

If clients are looking for a Flat fee, you need to build in buffer costs, a fee that covers the unknown. You could even write a contract that explains what the flat fee services are and include a clause that protects you if the project changes or elevates into a larger project than they represented to you or you find out as you dig into it.

I totally understand where everyone is coming from, and I think everyone has a point. But as I said before, there are exceptions and rules that set the fees of many businesses. You can change them or rewrite them or use the flat fee to really market yourself, but be aware that clients under the best situations, also undervalue what it cost to get this done. In a Flat fee, that leaves your open to longer hours and no more money to cover it.

Joe,

With all due respect, let me say that you sound like a person on a payroll with benefits lecturing to those of us who don't share that level of financial security.

It sounds like ... and I could be wrong.

Elizabeth, I understand and agree with your perspective. Not every Bizniker is in a position to charge other than hourly rates, and some rates will be less than $75/hour.

There is no valid reason for anyone to feel "less than" because of their fee structure, or for anyone else to assume a priori that there are inherent "esteem" issues. Perhaps there is simply a recognition of what their industry and target market will bear now.

Judith

Joe,

I offer the EQ assessment that you mentioned. I am a very expereinced EQ consultant and highly recommend the assessment. I am happy to do the assessment for whomever might be interested.

At the same time, I want to reassert that marketing is only part of the game just as EQ is only part of the game.

There is so much to be considered in the current economy. To name a number ($75) and promote marketing might provoke thoughts as you hoped. I think it would be more educational to talk about pricing for various professional services from a marketing point of view.

Just to present a slightly different perspective: I have two different types of clients, the ones who call me to book a day or two of work to "just do a few things" and the big projects.

For the first client, I just go on-site -- or do it remotely -- and work with them. They present a list of items to be completed, and I charge for however long it takes. The hourly rate -- higher than $75 -- is important for this kind of ad hoc work.

For the second type of client, I meet with them to gather requirements, then write up an estimate with specifications about what the project entails. I break each module down into how many hours it will take. Then if the client decides they can't afford to get all the work done at this time, I can say, "What modules would you like to save for Phase 2, so that you can afford this."

That gives us a really good way of discussing what needs to be done, and how much they will need to pay. People understand hours.

Also, once you have shown clients how many hours are involved, it's easier to introduce the concept of scope creep -- something that happens early and often in most projects. Whenever someone asks for something outside of the specification, I can say that it will take X hours times the rate, so it will cost them Y dollars.

I think that makes clients feel comfortable; they know that I'm not just pulling a number from thin air.

When I started using the term "Phase 2" with clients, I was very pleased with myself. It introduces the idea of a long-term relationship, and lets them know that they may want to do more work after the initial build.

I think there are naturally some business owners depending on the nature of the work and region which they serve that clearly shouldn't charge $75/hr or more.

Simple question - how many people here would pay $80 per man-hour for housecleaners?

Certainly some housecleaners with high end clientele could do so, but you have to deliver the right service to the right demographic and be in the right city.

I think many new solopreneurs base rates of market but also their past employment. If your last job paid $15/hr, starting your own business and getting $40/hr is a pretty sweet upgrade.

Here's two solid reasons why not all businesses should charge an hourly rate. Creative services (copywriting, Web design, graphic design, etc.) don't always fit into an hourly theme.

A) I do some of my best thinking when I'm doing something else. Mowing the lawn, doing the dishes, even taking a shower. How do I determine how much time was spent on the project this way? Not very effective.

B) Sticker shock. Let's say someone is slower than the average bear while creating the finished product. This product may be the same if not better than what a faster person produces. Should they charge less per hour than the faster person? Or should the faster person charge more per hour to make up for the fact they are fast at what they do?

If the slower person charges less per hour they will be seen as not providing the right value. If the faster person charges more per hour the client may feel the faster creative is over-priced. And believe me, trying to explain your reasons to the client won't help.

Wow. This is one AMAZING conversation. I'm so glad to be a part of a community who can offer positive constructive feedback!

I do have to say that I appreciate Ira's addition to the conversation.

I could be wrong here, but I don't know very many service industry professionals (especially "indies") who routinely work on one client's project exclusively from beginning to completion without interruptions.

Interruptions can take the form of going to the bank, answering telephone inquiries, picking up the mail, answer any number of other client questions, working on multiple projects, etc. How do you bill accurately for the time?

I know there are certain professions or circumstances (I love Paul's example, for example) where hourly fees may be more appropriate, but it seems less messy in most cases to operate on a project-basis.

I think with experience, accurately offering a proposal that doesn't shoot you in the foot becomes second nature.

If we're talking about value rather than price, hourly fees seem to (on the whole) attract price-shoppers who don't really see (or care about) the difference in quality. For example, Wal-Mart's motto is "Low Prices. . . Always." So, their choice between quality and price is clear.

And I think that's OK. As solopreneurs we just need to be clear on what our objectives are and who are target market is.

I don't think that whether or not a solopreneur is new in the business is relevant to the value they provide. Therefore, trying to place themselves where they think the market will bear (or because they feel they don't have the experience their competitor has) doesn't make a whole lot of sense.

It only devalues their product or service.

This Biztalk brought up a lot of "stuff" for people. Thank you, Joe!

I also appreciate that Joe honored all of the points made here, while also clarifying his position and specific point of reference for bringing this up in the first place.

All these posts have been very thought-provoking. For myself, I would have thought after being in business for this long, I'd have the pricing thing down. So when I attended Karrie Kohlhaas's packaging workshop yesterday (Judith the Money Lady was also there), I was a bit shocked to find that the group thought I was seriously undercharging for my design work. I am based in a small town on the Olympic Peninsula and am pretty isolated professionally. My prices are considered very high-end here, and when I don't get a project, 99% of the time it's due to price. Apparently my fees would be considered beyond bargain basement elsewhere.

I would like to expand my client base into the Seattle area, but I'm not sure what to do about the pricing issue. I think packaging will be part of the solution. It has been helpful to read through these posts. As Judith told me, "It's so important that more people realize that pricing is an art, and unless we talk about it, most of us will continue to underprice our services simply because we don't know."

Hey Tshombe,

As a custom database developer, I have a very simple way of dealing with interruptions when keeping track of my time: I created a database with the functionality to do it!

When I start working on a project for the day, I create a timesheet record, and hit the Start button. When I'm interrupted, I hit the Stop button. I've set up my system to allow unlimited starts and stops, and it just totals them to give me the time.

It's just a matter of disciplining myself to always remember to hit those buttons. If anyone ever has a question about the hours I've billed them, I can send them a report at the click of a button.

If you have the right system, there should be few objections to how you will keep track of things.

Having to stop a timing system everytime something distracts you and remember to restart it when you come back can be, well, distracting.

I've tried this with a couple of timing systems I've found on the Internet. Look on ZDNet's downloadable programs and you'll find dozens if you want to try it yourself. Some are free, others a few bucks.

The most logical option, if you have no choice but to go the hourly route, is to guess-timate how much time you've spent. And depending on your conscience be conservative.

Hey Ira,

I do agree with your earlier point about it being hard to charge hourly for design, since there isn't necessarily a set process -- or timeframe -- for coming up with a winning concept or idea.

However, if you have decided to try to quantify your hours, I think the idea of hitting start and stop buttons for distractions is just a matter of learning a new behaviour. As I'm picking up the ringing phone, my other hand is moving the mouse to the stop button. It was a pain in the beginning, but is now second nature.

Guesstimating your hours on invoice day is one sure way to short yourself billable time. Most of us are usually a little embarrassed to ask people for money for hard work. All the literature tells us not to apologize for our rates -- and I'm still learning the complement of that, which is to not apologize for my hours -- however, we still tend to think we may be billing too much, and low-ball our invoicing.

Your conscience shouldn't be telling you to be conservative -- unless you know you were wasting some time when you were doing the work. You should be able to look at the actual time you spent, and bill it with your head held high.

Wow - such a wide variety of perspectives here!

I agree with Joe and I think that as business owners, we are always, always trying to defend what we're charging. We defend it against those who think it's too high and we defend it against those who think it's too low, and we defend it against ourselves - our tendency to second-guess.

In the past two weeks I was told by three clients of mine that my rates were too low. I already knew this, I suppose, but all it takes is one new client who really wants your service and negotiates you down to something you didn't think you'd accept, and all of a sudden, that new low rate makes sense to you.

My epiphany last week was that the only way to break out of breaking even was to charge more. And when I realized that people are willing to pay more, I felt good about it.

Maybe hiking your rates up to $75/hr seems ludicrous given your current rate or service, but definitely consider your pricing and perhaps you just need to re-structure and package your services so that, in the end, you're still bringing in at least that much.

One huge benefit of business ownership is financial freedom (or supposed to be). After business expenses, health insurance, life insurance, and miscellaneous costs, I have to ask myself, is what I'm making really cutting it?

The discussion above about tracking one's time on a project got my attention. I have done this for years with old-fashioned pen and paper. In the architecture profession you are expected to track how much time you spend on projects no matter how the client is billed. This is further broken down into the type of work that is being done. How else do you know how much time it takes to do different tasks, which ultimately determines your rates?

I just keep a sheet of scrap paper or a little notepad handy. Every time I shift from one project to another I note the time (to the nearest 5 minutes) and the project I've moved to. This quickly becomes habit. At the beginning of the next day I tally the times up and plug the numbers into an Excel timesheet.

Architects typically charge lump sum fees, sometimes with hourly rates for additional services, and sometimes just hourly rates for small projects. But no matter how you bill, you always keep track of time!

The notion that charging a flat rate is a bad idea seems like complete hooey to me! As a coworker with Elizabeth on many projects, the hourly rate has ALWAYS proven to our benefit. When dealing with a client who is unaware of just how bad their situation/need for organization is, they often feel they can do it on their own. They feel the piles will take moments to clear out, therefore they will spend less money paying hourly. The reality of that is, like any good remodeling project, it always takes longer when the can of worms is opened. If Elizabeth were to charge a flat rate, she most likely would not get the job. Most people with organization issues don't understand their dire and time consuming situations. An hourly rate makes them feel secure with the value they will be getting. They don't think they are being overcharged for what appears to be a simple task. In addition, each client S.O.W. has ever had has come away feeling like their hourly investment was well within their control and well worth their time and money.

"Strike that, reverse it" - Sir Willy Wonka

What I mean to say is that the notion of charging HOURLY as a bad idea is hooey. Hee hee hee hee

I think there is plenty of room for both sides of this argument in a variety of professions.

When working with smaller businesses I always charge a flat fee - with hourly rates for over and above the work defined in my original estimate/project agreement.

In dealing with large corporate client I estimate by, and charge, hourly rates. It makes the most sense with multiple levels of approval, unnecessary meetings and numerous project changes. The hourly rates make sure I am getting paid what I'm worth.

To state outright that hourly rates are "DUMB" is simply offensive as far as I'm concerned.

As I understand it, Joe was originally encouraging everyone charging less than $75 per hour to 'wake up' and charge what they're worth.

As to the question of whether solopreneurs should think in terms of charging hourly or in terms of value promised (project-based or fee-based), has anyone read the amazing discussion initiated by Chris Haddad's (slightly controversial) article?

And All I was saying in simple words is that the Market will tell you what you can charge and the way they will accept it. It doesn't surprise me that a lot of people have opinions either way. The personal experience always counts - but sometimes when someone says you are undervaluing your service, the person saying this doesn't factor where the Market really is nor where The Market is setting as the go price.

Everyone's point here has value, but I think it's really important to ask about the Market the prospective business is in and how their pricing compares to the Market.

One should never undersell their services. But I am reminded of David Niven's comment when he won an Oscar. His agent was ready to charge the highest price. Niven said no, charge this amount more and no more. The Agent asked him why. "I want to keep busy working, not waiting for work."