3 Ways Hourly Billing Screws Everyone

3 Ways Hourly Billing Screws Everyone

“What is your hourly rate?”  How many times have you asked or been asked this question?  I’m sure it’s well into the 100s.  The problem is hourly billing truly does screw everyone involved, and here are 3 reasons why:

1) Hourly Billing Encourages Inefficiency–When you call an attorney, web developer, or graphic designer, what are you really buying?  Are you purchasing hours of their time or are you looking for a solution to a problem?  When you hire a web developer to build a website for you, what’s more important the number of hours they spend on your site, or the accuracy by which they nail your wants and needs?  So, what it comes down to, if a company charges by the hour, they are penalized by becoming more efficient and getting your project completed faster.  Take a second to let that sink in…the company’s revenue actually goes down the better and faster they complete your project, even if the end product is EXACTLY the same.  The end game:

1) The company will not push for ways to improve their processes or offerings.

2) The customer pays more to wait longer for the same thing.

2) Hourly Billing Creates a Conflict of Interest for the Company–Not only does hourly billing discourage companies from becoming more efficient in their activities, it creates a real conflict of interest, since the buyer really has no idea how long the company actually spent on the project.  If you’ve ever gotten an bill from an attorney, it will often times have a couple hours of “Research”, itemized 45 minute phone calls, etc, etc.  I don’t want to call people’s ethics into question, but when you’ve got a quota of billable hours to hit, it’s just a bit too easy to round that 20 minute phone call up to 45 and there really was 2 hours of research done, although it was split among 3 different clients, we can just bill the 2 hours per client.

3) Life Doesn’t Happen in 15 Minute Increments or 1 Hour Minimums–True fact: the roots of goBRANDgo!’s website developing trace back to this phenomenon.  Don’t get me wrong, I completely understand the fact that on the back end, it’s really difficult to track actual time spent on projects done to the minute, and there is something to be said for the time it takes to creatively ramp back up into a project after an interruption, but paying $125 to add a link to a website?  Ridiculous.  The problem is when you have Hourly Support Rates, you have to draw the line somewhere and those lines are always going to be placed in favor of the business not the customer.

Because of these 3 reasons, and a handful more, goBRANDgo! has made it our policy not to bill anything on an hourly rate, but instead on solely a project basis.  This did require MANY hours of additional work up front for us to ensure we could assign fair and equitable rates to all of our different creative projects.  It’s not easy to create standardized pricing for graphic design or websites, but with enough creativity and logic, it can be done and done very effectively as we’ve shown with our Price Calculators we built in Excel.

By using the Price Calculators we’ve created for our different lines of business, you can ensure that the price you receive is one that has been well thought out, has had every ounce of efficiency squeezed out of it, and is a firm price that we can agree to, even if we run into a few unforeseen challenges.

Although goBRANDgo! may not be the right fit for everyone, I would encourage all of you to push your vendors to bid on a project basis, and if you currently charge hourly, I challenge you to put the time, energy, and effort to create standard price metrics and work to make your business more effective, efficient, and fair.  We’d be more than happy to give you a few pointers on how to structure standardized pricing for your business if you need some help getting started.  Just send over an email to us with the subject line “Please Help Me End Hourly Billing” and we’ll get back to you within 24 hours.

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