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Hourly? Are you kidding?
The “extra services” thread got me thinking. I think that the general consensus there — charge the same as you do for other stuff — is generally right, but as always, there are exceptions.
First bit of advice for setting an hourly rate: calculate your expenses, multiply by four, divide by the number of hours you want to consider a “day.” Why four? You need to double the first estimate because you’re nuts if you think you actually took everything into account. Double it again because you’re not going to work every hour of every day.
Then adjust according to market rates and reality. If you figure out that your expenses require you to make $200/hr or lose money…and the big dogs in your market are getting $175, then adjust your expenses to get to the right rate.
If you can’t make money at the top rate that you can realistically charge, well, then, you’ve got trouble. But you won’t know what you’re getting into unless you have a realistic idea of what the right hourly rate is.
(And to paraphrase Ron Lindeboom: the right hourly rate is as much as you can possibly charged, raised as quickly and as high as you can.)
Broad strokes, because here’s where I’m going next.
Once you set up a day rate, then a weekly rate, you’re no longer charging by the hour. You’ve taken that root calculation as a basis to NOT charge by the hour for somebody who books you for a longer period.
The calculation shifts even further with long-term clients. If they’re working in your shop all day, YOU pay for lunch, and you don’t invoice the client…even though the client has no illusions where the money comes from. They know that your rate includes lunch, and M&Ms, and drinks, and wi-fi for them to play online poker during renders, etc. etc.
The client pays. You’ve built those extras into whatever you charge.
For loooong term clients, I made trades. For me, the extra creative control I got over time meant less churn and a shorter distance between MY idea of finished and the clients, and a shorter time to get paid. That’s about when I stopped billing for travel time. There was just no need.
The end result is that, I was making more and more money without raising my rates, clients were grateful that I wasn’t “nickel and diming them,” and when it came time to raise my rates – in one case, by 300% – they didn’t blink.
Why? Because I had at that point become a partner, not a tradesman. You don’t pay your partners hourly.
So start by doing your homework. Do the hard work to come up with an hourly rate that will make you a living.
Then, whether by day rates, weekly rates, or long-term relationships, get out of that hourly rate as quickly as you can.
Discuss. 🙂
Tim Wilson
Creative Cow Magazine!My Blog: “Is this thing on? Oh it’s on!”
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11 Replies
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I remember in the early video toaster/ Newtek Lightwave 3d days, going to a show and this guy who was a hotshot toaster jock at the time was hosting a session on how to run a business centered around what the Toaster could do. Rates came up, and he said:
*****“I don’t even turn the machine ON for less than a grand”.*****
At the time, much of the room was scandalized or otherwise amazed at his statement. I took it for what it was: he’d worked out his costs and his margins and what he needed to charge and GET to be productive. And he knew that if he was getting less than that, he should be off doing something else for the business like scaring up new accounts, chasing down unpaid accounts, or perfecting some creative skill to increase his value to clients or make him otherwise competitive.
Each person’s circumstances vary as to how their business operates, so you’re always going to get those who rather bill by the project and those who believe in the hourly. I think they are two sides of the same thing, but we pick our favored approach because it works best for us and our unique situation. And you can derive one from the other: if you really know your costs and set the hourly right, it is easy to extrapolate the day rate and weekly rate.
And if you are really well-informed on the particular job, to the poitn you KNOW what the hours are going to be within a percent or two… then sure, translate it into a flat rate if they like that. However, none of that means the very NEXT job will be anything LIKE the one you just flat-rated. Wouldn’t the clients then get suspicious or at least curious as to why what looks like a very similar job doesn’t cost the same as the last one? The hourly is a convenient out at that point, don’t you think?
For me, I work the shallow end of the pool, and my biggest problem is grinders of one sort or another. For me, the hourly rate is great protection because it prevents getting over-committed and getting “upside-down” financially on a job.
But I can see Tim’s view can work fine when the budgets and clients are the sort to accomodate it. It just rarely would work for me in my set of circumstances.
I also like to look at what craftsmen and tradesmen do. Yeah, some work to a flat rate, but others work hourly. A brake job is hourly. Building a hotrod might be a flat rate. Maybe part of the difference involves the level of autonomy the worker gets on the job, as well as the scale.
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Here’s the central conundrum for hourly billing…
If you’re good – you’re also likely fast and efficient since your experience keeps you from messing around trying a whole bunch of things that you already know don’t work well.
So in an hourly pay scheme – the better you are, the LESS you make???
How does that make any sense?
It’s EXPERIENCE that generates results.
Experienced craftsmen and artists may generate outstanding results in a fraction of the time that it takes a newbie.
So linking the time it takes someone to do something to their compensation is as silly as trying to argue that the monetary value of a Picasso or a Renoir should be based on the number of hours spent by the artist standing before the easel painting.
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I’ve got a Sistine Chapel Ceiling I’d like you to bid on;-)
My way of saying I don’t think the painter analogy necessarily works for this argument.
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Give unto Caesar what is Caesar’s…
I, like Mark, have many clients that only know and understand hourly rates.
So for those I quote hourly. I haven’t lost any business quoting them thusly.For the bigger fish I quote on project by adding up what I know it will cost me to do hourly.
There really is no right or wrong in this equation IMHO.
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[Christopher Wright] “There really is no right or wrong in this equation IMHO.”
There is a way to do it wrong, and I know that you would agree with it, Christopher.
The sure way to do it wrong is to NOT collect all that you can possibly get for the job.
I always have to grin when I see the next round of “What should I be charging and where should I set my rates?” questions.
The only real answer is: Set ’em as high as you can possibly get away with, and then RAISE THEM as quickly as you can get away with.
;o)
Best regards,
Ron Lindeboom
Creativity is a type of learning process where the teacher and pupil are located in the same individual.
Perfection is achieved, not when there is nothing more to add, but when there is nothing left to take away.
– Antoine de Saint Exupéry -
[Christopher Wright] “There really is no right or wrong in this equation”
Actually, I think you gave EXACTLY the right equation. I started this thread with a sly wink to the hostility to project pricing I’ve seen in this forum.
My specific variation on your observation, Christopher, is to move clients out of hourly pricing as quickly as I can.
I NEED to have an accurate sense of my incremental cost/profit ratio, then add in expenses to cover myself that I’ve learned that clients don’t want to be bothered with. For example, the government jobs I bid on were typically in the six figures, and were 100% project-based, period. I found the same in the six-figure range of corporate video. The budget is the budget. Deal with it however you have to, but don’t talk to me about your HOURS.
Not that I didn’t have plenty of hourly customers. Your mileage will vary, but to my way-too-much mileage mind, the only right formula includes both…and offers more opportunities for bigger money with project pricing.
Think bigger than the clock.
Tim Wilson
Creative Cow Magazine!My Blog: “Is this thing on? Oh it’s on!”
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“The only real answer is: Set ’em as high as you can possibly get away with, and then RAISE THEM as quickly as you can get away with.”
I think this should definitely be the stock answer for this question any time it comes up in the future Ron!
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“and offers more opportunities for bigger money with project pricing.”
This method is also a great one to find out who your real grinders are;
just quote them a “six figure” budget and watch them quickly insist on knowing your hourly rate, to see how much of their project they can truly “afford” to pay you to do!Dual 2.5 G5, IO, Kona LH, IO, Medea Raid, UL4D, NVidia 6800, 4Gig RAM
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My calculation was easy. I looked at what my competition was doing it for and added ten bucks an hour because I’m better than them.
It has nothing to do with overhead. Heck, I really don’t have any of that now.
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LOL love it. I especially appreciate all the “we don’t do crap work, so we need to get a rate/price that reflects our mastery” here at the Cow. So many creative types undercharge.
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http://www.patrickortman.com
Web and Video Design
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