Mar 13, 2021

Podcast 19: The Problem Of Hourly Billing

Podcast 01 on what you can learn from the design startup show

Episode Transcript:

Hey design starters today, I would like to talk about the problem with billing by the hour. I would say the idea of billing by the hour may have came about when, you know, you have to prorate your monthly salary down to a set of shorter time spent, you know, you see when you are calculating or coming up with a pro-rated.

Rate a prorated fee for, for someone, or you need to find out what’s your best fee that you want to earn per month. This is the kind of calculation you do, right? So the process of calculating is to break it down to the per hour. And then that’s when you come up with that rate that you want. So because you are calculating for yourself.

It becomes very convenient for you to tell people what to put our rate, but you know, that shouldn’t be how you should charge or bill your clients. In my opinion, I feel that this is meant for, to be your, for your reference only to coupling your fees. So, so you know how to respond to a client or what a project will potentially cost.

So from here it becomes, maybe it’s just more of a convenience, right? To tell someone you’re all leaving. And naturally people begin to, to use that to judge what it costs per project, if it takes a certain amount of time to complete. So I see these as a problem because it doesn’t make sense. It doesn’t make sense.

For you to produce or design an artwork as quickly as you can with great quality if you’re charging by the hour. So it may depend on what you value, but it doesn’t make sense to value work that lasts forever, right. That work that goes on in progress forever. And you would, as a, you know, as a provider, you would want something to last on forever.

So that you can just keep charging per hour, right? Because the more time you take, the more you earn in that sense. Right. So it doesn’t make sense anymore because if I would a client, I would prefer you to complete the project sooner than later. And would you want to keep dragging it even though you were?

Yes, you are earning more in dollar total, but in, but by the time you reached a total number of. Amount of fees. A lot of time has gone to us, right? It, as a designer, I would want to earn more in a shorter time. Right. So for both ways, it really doesn’t work at all. So you should be charging more for the speed of completion and with quality rather than having by going by per hour.

So for example, okay. Let’s, let’s have an example. Maybe it will illustrate better. If your client wants a logo from you in 10 hours time, how would you build him or her? So if you charge $10 per hour, you will effectively receive a hundred dollars for the logo. But if you deliver the logo longer than 10 hours, let’s say you deliver 800 hours eventually.

You get to take back $1,000, right? Because it’s $10 per hour and that’s so much more time than delivering it in a quicker turnaround time. So if you were to charge $10 per hour for a logo, you would want to give your, your client the logo back in 12 hours because that’s $20 only. You want to give your client bank, the logo or deliver a logo, you know, taking the longer, the better.

So within that hour, just doesn’t make sense. If I want to receive a logo in a shorter time, your, you know, you should be charging higher, right. And to have it quicker to be delivered quicker. So you might say that, okay. So I can build a client such that if he wants, or if he or she wants a logo in a shorter time, then your per hour rate.

Will be increased and it will be higher. Yes. And I think that is what many people do. However, that even though that works by the numbers and the amount you’re receiving is probably more per hour now, it’s I find that it’s not sustainable in the long run. And I have done it as well before as a freelancer.

And what happens is I will have to recalculate a new rate of billing for every customer. Because every customer has different requirements. So customer comes to me and say, Hey, I want a logo like this, like this, like this, I need it tomorrow. How much would it be per hour? And I give that rate. It can be a hundred dollars per hour to give you tomorrow.

And then another customer comes along and say, Hey, I want a logo and I need it. Three days later. I don’t need it tomorrow. These charge me cheaper. And I have to kind of figure out based on the requirements of the logo and the per hour rate, I will have to charge, which is not a hundred anymore because it’s three days later.

And I, it, it may go down to $40 an hour or $20 an hour, but that’s not sustainable. Right. I need to always be there to kind of calculate such fees. And there will be a lot of negotiation between us, between the designer and the customer and the client. So. So this recalculation does not work all the time.

If you only have one customer, then that’s fine, but, but you’re not going to survive with just one customer. Isn’t it. So recalculation of this billing has been eating up my time so much, and it became costly for me as well. So ideally you should be setting a fixed cost for a fixed set of deliverables for all clients who need them on repeat more, rather than just letting them know about your hourly rate, because they would try to work around your hourly rate.

If you say $10 per hour, they will probably say, Oh, then just give me today. You know, like two hours later, I would just pay $20 for it. So it doesn’t make sense anymore, even for you, you, yourself as a designer, right? So you set a fixed cost for a fixed set of deliver, fixed set of deliverables. Then it there’s nothing else to negotiate about.

You know, there’s no more quote, you don’t have to recalculate. Everything can be self-serve on your website. And if this is something that the clients need it on, repeat more, even better, right. You get it recurring. So, if you want to scale their business to cater to more clients and for them to return to you over and over again, I’ll say you should not use all the billing, but you start with recurring problems that your clients are facing stuff.

Figuring out the recurring problems your clients already are experiencing. All right, with debt, those problems, you start to provide a solution that will be a value to them. And then you’ll fix that price for all clients.