A couple of months ago, I mentioned that I’d be featuring more cross posts so that I could concentrate on my book. I’ve lived up to that, mixing in the occasional answer to a reader question with posts I’ve written for other sites. I haven’t queued up a good old fashioned rant in a while, but I think it might be time.
I want to start talking about topics from the book, and this particular topic, the “journeyman idealist” has relevance to a number of different, random conversations I’ve heard of late. Don’t worry if you don’t know what “journeyman idealist” means — you shouldn’t because I made that up while writing my book. And I’ll get to that and to our self-defeating pay tendencies a bit later.
Recently, I have consumed a great deal of content related to freelancing, consulting, and billing models. This includes the following items, for those interested.
- Freelancers’ Show (podcast)
- A book called Million Dollar Consulting
- A brand new podcast called “Ditching Hourly”
As I fall further into this rabbit hole, I become increasingly convinced that billing by the hour for knowledge work is a pile of fail. Jonathan Stark of “Ditching Hourly” makes the case more eloquently in this episode, but I’ll offer a tl;dr.
Let’s say that a prospective client comes to you and says, “I want you to build me a website.” Great! Let’s do some business!
Hourly Billing as a Zero Sum Game
At this point, you begin to think in terms of cost and how high you can go above it. For the purpose of your business, this means “what is the minimum amount for which I will do this project?” The client begins to think in terms of value and how far they can go below it. For them, this means “what is the maximum amount I can pay and still profit?” Perhaps you won’t build the site in question for less than $10,000 and the client needs the figure to be less than $100,000 for the venture to bring a profit. Thus if you agree on a price between $10,000 and $100,000, you both benefit, though the amount of the benefit will slide one way or the other, depending on how close to each end point you settle.
If you were selling websites as commodities, you’d haggle, then settle on price, as with a used car. But building custom websites by the hour differs substantially. In that world, you strike a deal without agreeing to price. You just both hope that when the dust settles, the price tag falls in the range of mutual profit, and no lawsuits commence. But within that range, each party hopes for a different end of the spectrum. And what’s more is that neither party knows the other’s figure. You know only that you need more than $10K and client knows only that it needs less than $100K.
As the website provider, you want the project to take as long as possible. It needs to go sailing past $10K, and hopefully as close to client’s upper bound as possible. The less efficiently you work — the more hours it takes to build the site — the better your financial outlook.