Per hour kills businesses
Even if you’ve been charging by the hour for your entire career, or your entire business, I’m here to tell you that it’s killing your funnel business.
Have you felt stuck at the same stage in your business for a while? A few years maybe? Are you charging by the hour? That’s usually a pretty good indicator that your business has stopped growing.
Charging for your funnel services is killing your funnel business. I reckon I could make the argument that almost every business needs to stop charging by the hour. But funnel builders like you, are where I want to focus.
If you’ve ever struggled to increase your prices, or had trouble convincing your customers to pay a bill, it might be because your pricing is set per hour.
25 million smokers can’t be wrong
Most funnel builders who charge by the hour, do so because that seems like an industry norm.
Lot’s of design agencies, consultants and freelancers charge by the hour right? So why wouldn’t your business be any different?
The problem is that charging by the hour limits so much of your business.
- It physically prevents you working on multiple customer projects
- You’re limiting the amount of value you can deliver a client
- You’re severely restricting the level of income you can attract
Charging per hour is NOT a sustainable, scalable model. Hell I wrote an entire book about scaling called From Single To Scale. Charging per hour is one of the biggest chains holding funnel businesses back.
I’ll hear from consultants and freelancers about how valuable they are.
“My day rate is $3000. Can you believe I charge that much!”
I absolutely can. I doubt you’re ever hired more than 1 day a month though. And I will bank dollars to doughnuts that you’ll also do more than the allotted hours.
Let’s also be clear. Charging per hour is NOT a retainer. A retainer is something that a customer pays to be able to access your advice and mentorship, when they require it.
“Something your clients pay in advance for access to your smarts.”
They’re not charged per hour, they’re charged for the privilege of accessing your time. Yes, there might be a limit to the number of hours they can use. There might be times and dates that they can/can’t use.
But a retainer is something that is paid in advance, for access to your knowledge. I know guys with $22500 retainer fees per quarter, just so CEO’s can call them up 1 hour before a meeting.
Charging per hour for your work, will kill your funnel business.
You must stop charging by the hour
A customer calls you up, or you’re introduced to a new potential client.
You walk through their needs and wants, drawing up a proposal that fits their requirements. You know it’ll take you 30 hours to deliver the work. What do you charge?
Most funnel builders who know their rate, will say something like “$100 per hour means this job will be $3000.”
If your job delivers over $500 000 in sales, does paying $3000 sound fair, as compensation to you?
What if you help increase retention in their customers, and you increase lifetime value of every customer to over $3000? Does that seem right?
You must stop charging by the hour for your funnel business.
Customers aren’t buying your time
If you believe that customers only want to pay by the hour, call them up and ask them for a game of chess. Or call them up and tell them you’re charging them for the call. They won’t be happy.
Customers are NEVER buying your time. They’re buying RESULTS. In fact, even if you work out it’ll take # hours to build or do something, they’ll actually pay MORE to get it done is less time.
So are they paying for your time?
That’s right. Charging per hour, is immoral.
I know that a lot of funnel businesses charge per hour, because they believe it’s more convenient for the customer. It’s easier for the customer to understand that something will take 40 hours to complete, especially if the funnel business has done a bad job demonstrating the value of the project.
However, if you decide to charge $100 per hour, are you more likely to take 40 hours or 30 hours?
I can hear you screaming at the screen now. “I’d never do something so unethical Mike! I would only ever do what I think is absolutely necessary.”
I have no doubt that your moral compass wouldn’t allow you to willingly take advantage. But the argument is that the option exists. The option to increase how long it takes to do something, exists. Therefor, the natural temptation would be to take a little longer on all projects.
You’ll always undercharge
Conversely, charging per hour means you’ll ALWAYS undercharge. How is that possible?
“Mike, first of all you’re telling me that I’ll naturally take longer to complete projects. Next you’re telling me that I’ll always undercharge. How can it be both?”
You may well charge per our and ALWAYS say you’ll take the shortest possible time. Let’s say a project will take 30 hours and you absolutely, positively take 30 hours.
If the project takes 30 hours, but isn’t finished, you’re screwed. Either you work for free, or finish the project incomplete. So now you’re undercharging.
If the project does get completed, the fact that you could have charged more will always be hanging over you. Could you have stretched it out to 40 hours? Asides from the moral argument, could you have charged more? Almost certainly.
Finally, pricing per hour puts you into a commodity market. There’s absolutely no escaping the fact that customers WILL compare your prices to other funnel builders or consultants.
What’s the difference between a $95 ph and a $100 ph consultant?
Nah, me neither.
It’s impossible to negotiate
“Negotiate terms, never price”
First rule of price negotiations
The invoice is for $10 000. The terms are payable withing 30 days, 50% deposit or 10% discount when paid in full.
If the customer doesn’t like the PRICE, what can you negotiate on? You have terms, deliverables and expected results.
I could change the project to a $8000 deliverable (although a $2000 is a crazy margin to negotiate on, if they have $8k they have $10k), I could only do 80% of the $10k project.
But if I charge per hour, or day, I literally cannot negotiate.
The project will take 40 hours and we charge $100 per hour. The customer doesn’t see a $4000 investment. They see a cost per hour for something (they suspect) that could take 30 hours.
Even if you are 100% positive that it will take 40 hours, they’ll wonder if it can be done for less. And they’ll ask.
“Can we do it in 30? Or 25?”
Or they’ll ask you about the price per hour. “Any chance we could get a discount for the bulk time?”
“Funnel Business B says they can do it for $95 per hour.”
It’s clear that you believe the deliverables and work, need to be done in X time. So they’ll never accept that you can reduce the amount of work you’ll do. They’ll still ask you to do it in less time. But they won’t want less work done.
Don’t use expenses/time= price
One of the WORST pricing examples I’ve ever seen, is to divide your expenses by time and that = your price.
So your costs are $5000 on the project, it’ll take you 50 hours. That’s 5000/50 = $100 per hour.
Or if you’re working on margin, let’s say the travel, expenses and costs for the project are $1500. 1500/50 = $30 per hour. If you SAY you’re $100 per hour, that’s a 70% margin – which is absolutely fine.
But what happens when prices go up? Gas, plane tickets, accommodation, hosting, software, rent etc. It all does. So your per hour goes up. But then customers see an increase in PER HOUR cost and they’re not happy. They can’t break away from the idea that this is eating into their wallet per HOUR.
Having said all this. Dividing your desired income goal by the number of clients you want, that’s a very smart way to price. Or total income divided by average project size, that’s smart too.
I have a goal of a $200 000 a year through my business. My average project size is $25 000 so that’s 8 clients a year. I’d rather find 8 clients a year, than try to increase my prices every year.
It’s impossible to scale
One of the main reasons not to charge per hour, is because it’s impossible to scale.
If you want your income to grow, or your business size, then charging per hour puts an immediate limit on your possible growth.
There are 2 resources in your day. 1 is infinitely renewable and 1 is decreasing every day.
Money and time.
If you want to grow your business and you charge per hour, you have 2 choices. Increase the number of hours you work, or increase your price per hour.
There is a literal, physical limit to the number of hours you can work per day. Even if you’re working 12 hours a day, totally productively and focused, you’ll run out eventually.
Don’t tell me you won’t – you will.
So the only other option is to increase your prices.
“Mike you’re always telling us to increase our prices!” Yes I am and yes you should. You should increase your prices for your funnel projects per project and per result.
Per hour though, you will reach a limit. Your market, no matter how big and liquid (lots of cash), will have a cap on what they’re willing to spend per hour.
The richest, biggest-swinging-dick lawyers talk about how much they cost per hour.
- I guarantee I can find an escort who charges more than any lawyer per hour
- I guarantee that the lawyer’s partners and owners make more
Even the richest “per hour people” have a cap to what they can charge. You WILL struggle to grow and scale your business if you continue to charge per hour.
If you value your contribution to the world, and your self worth by what you CHARGE per hour, the market will decide how far you can go.
So how do I transition from per hour to another model?
That’s a blog post for another day. Lol.
I’m joking – I’ve got the first 3 points below.
Understand more about the customer
First, you need to understand everything you can about the customer. The more you know about them, what they want, who they are, what their problems are and what their goals are – the better you can price your projects.
I’ve got a blog post on charging per customer results here for things like consultation.
At it’s core, you need to understand what it’s going to cost you to deliver a project. Similar to the above, where we worked out our costs. But rather than divide it by time, we charge based on what it costs us to deliver the project.
Standardise your delivery
This is KEY. The more standardised your product and service, the easier it is to price.
I’ve got some free training here on how much to charge for a marketing funnel.
At it’s core, the more standardised your delivery, the easier it is to charge. If you specialise in optin funnels for authors, its’ easier to deliver that project over and over.
By standardising your delivery, you’ll reduce margins and get a more accurate price for each project.
Charge for value delivered
This is critical. You should be charging for value delivered.
Even if something does ONLY take 2 hours per week to deliver, if it creates $100 000 per week in revenue for a customer, is it worth $50 000 per hour? Goddamn right it is.
If you standardise your delivery, you’ll understand that value you’re delivering to the customer better. If you understand your customers better, you’ll deliver more value.
At $100 per hour, a 40 hour project would yield me $4000.
If in that 40 hours I create a campaign for a customer that generates them $100 000 a month for a YEAR (true story), then $4000 doesn’t seem a lot. $1.2 million is a massive value delivery for a $4000 project.
Clearly, you know SOMETHING worth $1.2 million. Charging 30% – 50% of that number is absolutely reasonable. Anyone who argues with you on this – send them my email address, I’ll set the right.
But my current customers love to pay by the hour!
“I couldn’t possibly switch to a value based charge now!”
Are you saying you can’t change your pricing structure, because your customers will leave you? Have you asked them?
I totally understand the fear. But you’re reading this post for a reason. You’ve reached the end of this post for a GOOD reason. There’s absolutely a need somewhere, in your life, to change your pricing model.
For all customers who currently pay by the hour, call them up and talk through their needs. Explain you’re moving to a standardised delivery model. Those who don’t like it are going to hold you back.
I joke with customers who want to pay me by the hour, that my rate is $1 per hour and doubles every hour. My minimum term is a days hire for 24 hours.
That’s $16 million for the day. $25 000 a month for a project seems pretty reasonable now.
Let me know in the comments if you’re moving away from charging per hour. Or if you used to charge per hour, let me know what made you move away!