Let’s say you are a consultant and have just received a call to do some urgent work. Feel free to replace the term consultant with freelancer, programmer, designer, advisor, or anything else. This post is for people who work for themselves and sell some type of intangible good, whether it be code, advice, reports, strategy, etc. Anyway, you got THE call. Now go ahead and do a little dance to celebrate.
Shortly after you say that you are available, you are asked about your hourly rate. If you say it’s $25, you’re wrong. If you say it’s $250, you are still wrong. Agreeing to work an hour for a given rate plays into the industrial trap, promoted by Catbert’s in HR departments everywhere. Many of today’s HR policies are still based on the Principles of Scientific Management developed in 1911, the dawn of the modern industrial age. These principles were built on F.W. Taylor’s flawed assumptions on how men shoveled iron and coal. And so began some of the modern myths of the management of ‘labour’.
Time and motion studies, such as those done by Taylor and others, were based on the assumption that certain types of work were of equal value. Labour, as defined by Taylorists, is replaceable. It’s all about standardized work and standardized recompense. But talent is unique. Talented people who set hourly rates give up their uniqueness.
A few years ago I was offered some research work that the client had calculated would take one week at $40 per hour. The total amount was not that attractive to me but I looked at the scope of work anyway. Much of the research was work that I had already done, with my ongoing PKM practices and other projects. I realized that I could complete the report in a few hours, by curating my own blog posts, social bookmarks, and other resources I had. Someone relatively new to the field of workplace learning, the subject of research, would have taken much longer and possibly more than one week to produce something similar. I accepted the work, under the condition that I not be paid by the hour. Why should I have been paid $120 for high quality work that would earn a less experienced person $1,600? Time at work is an antiquated concept.
You are not a ‘Human Resource’ and you do not have an ‘hourly rate’
(repeat as necessary).
I know that it is often the easiest route to just agree to an hourly rate when it comes to securing contracts. But can you really equate an hour of my time with yours? Does it matter? What matters is what is produced.
Instead of agreeing to an hourly, or daily, rate, start by asking a few questions:
- What does the client want to achieve?
- How will the client know it has been achieved? What are the indicators?
- What is the smallest thing that needs to be settled first?
- Is this something I can do for the client?
- How much is that worth?
- Does the client care how long it takes? Then set a deadline.
- If I take longer, will the client pay me more? [probably not] Then why would the client want to pay by the hour?
Hourly rates only help to put you into a pigeon hole so that HR and Purchasing can easily classify you. You are not a pigeon.
You’re right on the mark: Experts should not allow themselves to be penalized for doing a job well and quickly. Great post! Thank you.
Nicely put. I’ve worked in two companies now where this is a huge issue. The total time to produce the output is very hard to calculate, yet everybody insists upon an hourly breakdown, and therefore a cost. But it never matches. It would be far easier to put a value on the output, set a deadline, and pay accordingly. The client gets the result, and the employee is allowed to work out the best route to take to produce the value, without tracking their hours, and worrying about how to make a 15 hour job fit into a 7 hour limit.
I have hourly rates for training, consulting and keynotes, but you are right, there are better ways to make a budget. 🙂
Hourly rates are a way of shifting scope risk from the worker to the employer. Do hourly work if you have no idea how long it will take, the project variability, or your risks of being unable to complete it. Otherwise, as you said, do the project for a fixed price.