The Hourly Rate Myth
The beauty of a simple revenue model
For many freelancers, coaches and consultants, fees are usually based on an hourly, half day or day rate – essentially a time-based revenue model. Whether you charge by the day or the hour you are basically swapping dollars or pounds for hours.
Even if you are charging on a project basis (fixed price for fixed hours) there is an equivalent hourly rate.
No problem with that, I hear you say. And I agree to an extent. Clarity is everything. A known number of hours worked at a fixed rate is a simple model.
Whilst this provides clarity for the client, it
can give you as the freelancer a problem. You’ve agreed to a per-project fee so sticking to the number of hours you estimated is key to ensuring your hourly rate isn’t diminished by underestimated how long the work is going to take. If you are a perfectionist then it can be tricky.
But this isn’t the only problem with the money for hours model.
Winning versus doing the work
How much time in the average week do you spend on non-revenue generating tasks? Namely the Winning the Business and admin time.
- Accounts and bookkeeping
- Proposal writing
- Sending out invoices
- General emails
- Answering the phone
- Sorting out problems with IT
- Booking conference rooms
- Travel arrangements,
The list goes on.
When did you last do a time audit?
Knowing the split between the Doing the Work versus Winning the Work and admin tasks is the starting point for becoming more productive and increasing your profitability.
It’s a relatively straightforward task to carry out but requires a bit of discipline. Here are the steps:
- Download a calendar for the week from Google sheets divided into half hour slots.
- Note down the time you start work.
- Write in each task and the time it takes throughout the day.
9.00 – 9.30 Email reading and answering
9.30 – 10.00 Telephone call to client
10.00 – 11.00 client work
And so on.
- Repeat this for the whole day daily for at least a week.
- Highlight the tasks which are Winning the Work, Doing the Work and Admin
- At the end of the week, add up the total number of working hours
- Also work out the total number of Doing the Work hours
Let’s do the Maths – why £45 becomes £25.65 ph
With these figures to hand, you will now be able to work out the percentage of the week you spend on Doing the Work activities.
Total hours worked in the week = 35
Total Doing the Work Hours = 20
Percentage 20/35*100 = 57%
If your quoted hourly rate charged to clients is $45 or £45 then your Effective Hourly Rate is actually just $25.65 or £25.65 – $/£19.35 less than the rate you probably hold in your head.
Productivity is the Solution
There are two ways of improving the situation:
- Raise your hourly rate, which may not be possible in a highly competitive field, or
- Switch some of the Getting the Work and Admin time to Doing the Work. This means being more efficient and effective particularly when it comes to marketing.
If you are interested in saving 10 hours a week, register now for the Homepreneur Productivity Course VIP launch in October 2018.
After all, if you take the figures in the above example, this would increase your weekly revenue by £450 from £900 to £1,350. Not bad for a bit of time shifting.