July 1, 2018

Hourly rate calculators :eye_roll:

Warning: Rant alert!

Few things make me roll my eyes harder than someone suggesting that new freelancers should use a so-called “hourly rate calculator” to reverse engineer how much they should charge per hour.

Have you seen one of these? They basically ask you a bunch of questions about your annual expenses, how much you want to work, and then they magically poop out an hourly rate for you.

Hourly rate estimation worksheets might be useful for calculating a budget, but the notion that “I need to make $X per hour to get by, therefore my clients should pay me that amount” is asinine because my expenses are irrelevant to my clients.

Let’s do a thought experiment:

Imagine that I have been living in Kentucky and charging clients $100/hr for Rails work for ten years. I work remotely and I have clients all over the US and even a couple outside the US.

One day, I decide to move to NYC and my expenses double. Should I double my hourly rate? Should I expect my customers to pay $200/hr for the same work they were getting at $100/hr the day before? Of course not.

My expenses are irrelevant to my clients.

The inverse is equally silly:

If I moved to a less expensive place, should my customers expect me to lower my rate? No!

My expenses are irrelevant to my clients.

Hourly rate calculator worksheets highlight the fact that billing clients by the hour for knowledge work is utterly disconnected from the ROI clients can expect to receive. Not only is hourly billing bad for your clients, it’s bad for you.

You can increase your profits while delivering higher ROI to better clients by discarding hourly billing for an approach that focuses on the value delivered instead of the time spent.

Ready? Okay, say it with me:

“My expenses are irrelevant to my clients.”




P.S. Have you taken my free value pricing email course yet? If not, you might want to check it out -> valuepricingbootcamp.com

P.P.S. I recently updated my product ladder. If you haven’t looked at it in a while, you might be interested in this summary: jonathanstark.com/pricing