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Why I Disagree With Hourly Based Fees

Simply put, when you charge by the hour you immediately create a win/lose relationship with the prospective client. Clients want issues resolved quickly, but if you’re a service provider then the last thing you want is a quick win because that means you take home less revenue and probably eat like garbage because you don’t have enough money to eat the good stuff.

Hourly based fees also negatively impact the relationship between vendor and customer—and all business is about relationships. If you’re a lawyer, for example, then every time the client wants to talk with you, he or she needs to make a financial decision. That’s no way to build a relationship. Nor is it a great way to build a fortune. I increased my revenue four-fold for a certain project by avoiding the hourly based fees approach and instead engaging in a conversation that established value for them (it’s also more difficult to justify increasing hourly based fees, but a project based on value has unlimited income potential).

The fact is, people like to bill by the hour (or by time in general) so they can feel better about themselves. Assigning a high dollar amount to your time makes you feel good, but it does nothing for the customer. It’s common to hear people gloating about charging $500/hour, for instance, but what’s the difference between a $400/hour and $600/hour service of the same type?

When you bill by the hour you make yourself a commodity rather than a value-add. Commodities come and go. Value doesn’t. Plus, prospects don’t remember you or what’s unique about you, they remember the price and how deep they’re gonna have to dig into their pockets just to pay you. At that point, they begin shopping around for the lowest-priced competitor.

Hourly based fees also limits your understanding of the client’s needs because spewing off an hourly fee is faster than having a conversation to establish value—a conversation that educates you on the client’s pinpoints, needs, and wants that he may not have even realized (which opens the door for even greater work potential).

Here’s why shifting from hourly fees to value is a must if you want to not only grow your business but grow your income:

Value is what you provide.

The value you provide is unique to you. Nobody else. And if it’s unique then you’re in a market all by yourself which means you can negotiate higher prices. 

Income potential is limited by time.

If you work 10 hours a week for a project at an hourly rate of $200, you’ll never earn more than $2,000/week. Not exactly terrible, but certainly limiting—for you and your business.

Want a free download? Ask These 11 Questions To Establish Value With The Client

Ask These 11 Questions To Establish Value With The Client (Free Download)

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