Never Reveal Your Hourly Rate
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Marketing firms do this all the time. Most of them don’t put it front and center, instead describing what they’ll do for a client and then giving them a price (e.g., $140,000). But then the hourly rate will sneak into the small print when they talk about what will happen during scope creep: “After seeking your prior approval, we will bill additional work beyond the scope of this estimate at $xxx per hour.”
Here’s why you don’t want to talk about your hourly rate:
- It’s too easy to compare with other firms, and those comparisons are not helpful. Your hourly rate has nothing to do with how long it takes and so they don’t really know what the final cost will be if they just know the hourly rate. Firms talk about hourly rates far more often than they publish project prices, so this is a real concern, and it makes comparison easy and misleading.
- Publishing your hourly rate is a tacit acknowledgment that you’re going to faithfully work for 60 minutes every time you charge them for an hour, and that’s a nonsense pledge made by rookies.
- Sticking to hourly rates locks you out of value pricing. Here’s an example from your own pay practices. You pay your lower value employees on an hourly basis because they don’t bring as much value to the enterprise. You expect activity out of them and it’s measured with a second hand. Your more valued employees earn a salary and you pay them to get a certain job done, and you don’t (or shouldn’t) care how long it takes to do it. If they are really good, how do they react to that greater efficiency? Do they work less or do they provide more value? You get the idea.
Hourly rates are like the tether on a hot air balloon. It keeps the ship where you want it and helps you work on it and find it in the morning. But you’re never going to soar until you cast off that bond and leave them behind. Here’s what I mean:
- Use hourly rates to get your basic pricing figured out. By that I mean start with a basic framework for hourly rates and then make the assumption that it takes you about as long as everyone else to get work done. An undifferentiated firm usually starts at $120–160/hour, and a differentiated one uses $160–200/hour.
- Track every hour spent on sample jobs and make sure you’re getting paid for your time. The definition of billable time is very simple: “would I stop doing this if the client went away.”
- You cannot talk about value pricing until you are getting paid for all of your time. Value pricing is what happens beyond getting paid for your time, and talking about it before that is just insecurity and resentment. It comes from not understanding your business and blaming your clients for your positioning.
- Package your services around a deep or wide expertise that is not easily replaceable in the marketplace. To begin, add 20% to the normal calculation, and keep adding in 20% increments until you’re charging double what you would charge if you were just tracking your time. Take note that only 15% of firms can do this because only 15% of firms have a deep, irreplaceable expertise. How will you know if you’re prices are too high? Folks will quit hiring you.
But the typical reason why you don’t get hired is because your positioning isn’t differentiating and because you aren’t disciplined enough to articulate a point of view that attracts the right opportunity. Don’t think the problem is your pricing, because it almost never is.
So instead of saying that you’ll go hourly when scope is breached, just say that you’ll get them a fresh quote that accounts for the additional work. And if you’re charging enough at the outset, scope is seldom an issue.
Here are some additional treatments of this topic:
