Let’s say you’ve been consulting a while and you’ve left your fee at the same rate, instead of raising your rate. As you see it, the economy is soft and you’re doing your clients a favour. But are you?
If you were charging $100/hour and you’ve kept your rate stable for two years, then you’re effectively charging $94.72 an hour. That’s more than a five percent discount. However, it’s actually even a bigger discount. Have you not improved in your knowledge, abilities, speed, competency or insights in that time? If you had been increasing your rate to keep pace with inflation, you’d now be at $104.65 an hour – and that’s assuming you haven’t made any great leaps forward.
In all honesty, charging by the hour is a long run trap. When you encourage clients to look at your hourly rate, you’re directing them to a signal that is largely irrelevant. For example, if you can complete a project in three hours, whereas most of your competitors take four, does telling them you charge the same $100 an hour that they do show the value you create? And, more importantly, what if you can give them answers in mere minutes? Should you be charging $400 an hour to keep pace with the same solution that takes your competitors four hours? Is charging by the hour even relevant if you can almost instantly give them recommendations that save them hundreds, thousands or even larger amounts of money?
As I say in Consulting Fees, charging by the hour is a long-term trap. The more efficient you get, the less money you make. If you charge $100 an hour and you can now do in 30 minutes what used to take you two hours, all you’ll have to show for it is $50, instead of $200. So what do you do then? Pad your rate? Stretch out projects? Charge four times as much per hour?
Making the move to Solution-based Fee™ pricing makes the most sense. Figure out what solutions you create for your clients, how they value those solutions and what return on investment they get from your work. That’s the way to move ahead in 2013.