February 26, 2019
Salary maximization vs building a business
Sent by Jonathan Stark on March 1st, 2019
Fellow list member Jeff Marino wrote in with an interesting perspective on first starting out as an hourly contractor (shared with permission):
Hey Jonathan, First off, I 100% agree with value pricing and have been striving for the last 2 years to change both my mindset and business model to follow it. But this is now, and when I first started billing hourly, around 1998 or so, it wasn’t about building a business or providing value to clients. My only motivation to bill hourly was to NOT be taken advantage of as a full time employee. During my first 2 jobs we would always have to work nights and weekends, there was always a crunch, and not having experience with anything else I thought this to be the norm. My naïve assumption was that if I’m going to be working the hours anyway I may as well maximize my pay as much as possible. Back then I never thought about feast or famine as I have never, knock on wood, experienced it in my 20+ years of contracting / consulting. I may be the exception but I always worked on long term projects where I would get a 6 month contract and spend years on multiple projects. So, in essence, I was an hourly contractor with no thoughts of building a business. I would actually be limited to hours in some cases because of budget, so forced to only work 40 hours which was less than FTEs were working, and probably at double their salary and more than what the managers / directors were making. Even with the added tax liabilities and risks the hourly billing model always worked for me and I always seemed to come out ahead. My point is that if someone is just trying not to be shackled by full time employment and just wants to maximize their salary maybe hourly billing isn’t terrible. But, if someone is actually trying to build a business, then hourly billing is truly nuts. Please feel free to share if appropriate, or just read and delete. Thanks. Jeff
Thanks for sharing, Jeff!
Can hourly billing work? Sure. It’s how almost every freelancer, contractor, coach, consultant, lawyer, accountant, trainer, therapist, etc gets paid for their work.
But in my experience, not feeling the pain of the feast/famine cycle after your first few years as an hourly contractor or freelancer is pretty rare.
Working by the hour doesn’t lend itself well to the sort of marketing activities that are usually required to bring in a steady stream of clients.
Yes, if you can line up long term gigs and have good organic lead generation (e.g., client referrals, word of mouth, wrote a book), then it can be an okay way to get by for a while.
The pain comes when demand evaporates.
Yours,
—J