I have never once met a single person in business who charges by the day or hour who isn’t 90-days from going out of business.

It’s a flawed concept which derives from the idea of a salary divided into days or hours.

You’re not on a salary, though. You are a business owner so you need to charge like a business.

3 reasons why charging by the hour sucks

Let’s look at the fundamentals here and afterwards we’ll look at the alternative.

1. You’re under-pricing yourself

Let’s say you run a social media agency and it takes 15-minutes a day to manage someone’s account. At £50 per hour, that’s £250 a month.

Why aren’t you charging more, though?

You’re managing someone’s entire social media campaign. Working with them on their messaging, their growth, their offers. It’s mental to do all that work for £250 a month. If you think about it, you could charge 3 or 4 times that. Yes, you will have fewer clients but who cares. Less work and more money.

Let’s look at a different example. 2 weeks at £50 an hour to design a new website. That’s £4,000 for 2 weeks solid work. In reality, that project is going to run on way longer, messing up your schedule.

For a job that requires that amount of work, you should be charging about 4x that.

2. You will win less work

Because the world operates on hourly rates, it’s easier for people to judge you.

If the person you are trying to sell to is on £30 an hour, they are going to resent paying anyone £50 an hour for anything, even if they can’t do it. It’s human nature.

Why put anyone in that position? It’s never going to end well for you.

3. Always living month-to-month

You’ll spend your entire life living month-to-month, or at best, a fraction better than. Your best case scenario is to build up cash reserves to prepare for a rainy day.

That plan is likely to fail because you’ll always want to go on that holiday you deserve or re-do the kitchen because you’ve had a few good months.

What’s the alternative?

The alternative is to charge in two different ways:

  1. Charge on value
  2. Charge a monthly fee

1. Charging on value

This is easy because you can do it tomorrow.

Charge the client in accordance with the value you are going to provide them. How much would you usually charge to implement a newsletter signup form on someone’s website?

An hour? So, £50. Maybe £150 if you include an email template and a PDF of some sort.

What about putting a proposal together to build a new marketing channel for them?

Explain that you’ll help them come up with the incentive, the newsletter, the download, a growth plan for the newsletter, a content plan.

These are all things you’d end up doing anyway and probably lumping in for free. But to charge £750 for that is nothing if you can explain the value of (in this case), building the list. £750 would be amazing value and you are getting what you deserve.

2. Charging a monthly fee

This will be a separate post because of just how important it is but whatever you can tack a monthly fee onto – do it. For example, accountants charge an “audit insurance” in case you get investigated by the Inland Revenue.

Web designers should be charging a monthly fee for hosting, backups and security, consulting, monthly newsletters, social media management (if you do it), events.

The list is endless.

Monthly fees will save you when you’re having a bad time. It’s also the only true way of building up cash reserves because at some point, you’ll be earning more than you spend on a regular basis.

I suggest using GoCardless to collect any monthly revenue in your service business. It’s a Direct Debit service (only works in the UK) which you can set the collection amount and it just comes in like clockwork every single month.

No chasing, no threatening to cut people’s websites off, no nasty letters.

Just regular money.

Takeaway actions

  • Stop charging by the hour
  • Charge instead on the value you provide
  • Create monthly paying services
  • Use GoCardless to collect the money