Browse All Articles > Why I Switched from Hourly to Flat-Rate Billing
Yes, my time is valuable. The more skillful I become, the more valuable my time becomes. However, sometimes the value of a service is more than just the time I spent on that service. A couple of years ago, I switched my company from an hourly rate to an almost entirely flat rate billing system and I could not be happier with the results.
First, let's define what I mean by "flat rate". When I say I use a "flat rate", I have a rate card that I refer to in order to give estimates for a client. It is very similar to an auto mechanic who refers to a "book rate" for repairs. Most mechanics look up a certain repair in a book that tells them roughly how long they expect this job to take and thus how much to charge for it. I take this same idea and apply it to computer services. I expect x task to take y amount of time and use that to calculate the rate that service will cost. The services are modular so that a typical service call is a combination of one or more of these "tasks". For example, replacing a hard drive usually includes "basic hardware install" and "data migration". If I come across a task I have not considered on my rate card, using my experience I estimate the time it will take to complete the task and quote accordingly and then add that rate to my card for later reference, adjusting as needed to account for any errors in my estimate.
I rarely have any squabbles over price with my clients since going to a flat rate service. With hourly billing, if a client called with a project or a problem that needed addressed I would try to quote as accurately as possible how much time, and thus how much it would cost, for my work on that project. Some clients, especially ones who are inexperienced dealing with business professionals, will balk at what they deem an overpriced hourly rate. However, that same client usually expresses little concern over a flat rate price that is the same amount as the hourly rate times the estimated time quoted.
I'm a "jack of all trades" kind of a guy. I develop web solutions and applications, administer networks and databases, I still do the occasional break/fix work, along with many other technology related fields. In each one of these areas, I've learned to use my past work to help me with my current work. Programming is the most obvious example of this. Most programmers worth their salt will tuck away modules of code for use in later projects. But this is also true for many other areas of expertise. The first time you encounter a particular piece of malware, for example, you may have been pulling your hair out trying to figure out how to clean that system that won't let you get into Task Manager, won't let you boot into Safe Mode, and stops all executable files from running. That first time it may take you 2-3 hours to get that system clean and running smoothly again. The next time, though, you've tucked away what you did to remove it and now it takes you about 15 minutes. Is the value to the client any different the first time you removed it than the second time?
As you become more skilled in your profession, no matter what the profession is, you are going to take less time to do the same type of work. An hourly fee punishes you for becoming more efficient at your job. Of course, as you get better your hourly fee can rise but at some point you will hit a wall where your hourly fee will sound astronomical to the average client. The less skilled guy down the street with an hourly rate that is half of yours but takes 3 times longer to do the job is going to get the business and it will wind up costing the client more and the quality will suffer.
I'm a BIG advocate of customer service. I treat all my clients as I want to be treated. The image of the rude geek who is the technology prima donna who treats users as if they are all below him and are not worth the time of day is offensive to me. I NEVER want to be perceived as that guy. I like to take my time and not feel rushed to do a job. It's worth it to me to take the extra time to make sure my client is happy with my work and not feel like the client is watching the clock the entire time I'm working is a huge weight off of my, and my clients, shoulders. It just makes the relationship better, in my opinion, which leads to more work in the future and satisfied clients who will recommend you to others.
These are just a few of the reasons why I'm glad I switched to flat-rate billing. Do you have any reasons to add to my list? Or do you have thoughts on why an hourly rate is better? I'd love to hear from you!
First, let's define what I mean by "flat rate". When I say I use a "flat rate", I have a rate card that I refer to in order to give estimates for a client. It is very similar to an auto mechanic who refers to a "book rate" for repairs. Most mechanics look up a certain repair in a book that tells them roughly how long they expect this job to take and thus how much to charge for it. I take this same idea and apply it to computer services. I expect x task to take y amount of time and use that to calculate the rate that service will cost. The services are modular so that a typical service call is a combination of one or more of these "tasks". For example, replacing a hard drive usually includes "basic hardware install" and "data migration". If I come across a task I have not considered on my rate card, using my experience I estimate the time it will take to complete the task and quote accordingly and then add that rate to my card for later reference, adjusting as needed to account for any errors in my estimate.
My Clients Love It!
I rarely have any squabbles over price with my clients since going to a flat rate service. With hourly billing, if a client called with a project or a problem that needed addressed I would try to quote as accurately as possible how much time, and thus how much it would cost, for my work on that project. Some clients, especially ones who are inexperienced dealing with business professionals, will balk at what they deem an overpriced hourly rate. However, that same client usually expresses little concern over a flat rate price that is the same amount as the hourly rate times the estimated time quoted.
Let Past Work Work For You!
I'm a "jack of all trades" kind of a guy. I develop web solutions and applications, administer networks and databases, I still do the occasional break/fix work, along with many other technology related fields. In each one of these areas, I've learned to use my past work to help me with my current work. Programming is the most obvious example of this. Most programmers worth their salt will tuck away modules of code for use in later projects. But this is also true for many other areas of expertise. The first time you encounter a particular piece of malware, for example, you may have been pulling your hair out trying to figure out how to clean that system that won't let you get into Task Manager, won't let you boot into Safe Mode, and stops all executable files from running. That first time it may take you 2-3 hours to get that system clean and running smoothly again. The next time, though, you've tucked away what you did to remove it and now it takes you about 15 minutes. Is the value to the client any different the first time you removed it than the second time?
As My Skill Increases, My Time Decreases
As you become more skilled in your profession, no matter what the profession is, you are going to take less time to do the same type of work. An hourly fee punishes you for becoming more efficient at your job. Of course, as you get better your hourly fee can rise but at some point you will hit a wall where your hourly fee will sound astronomical to the average client. The less skilled guy down the street with an hourly rate that is half of yours but takes 3 times longer to do the job is going to get the business and it will wind up costing the client more and the quality will suffer.
Customer Service Improves
I'm a BIG advocate of customer service. I treat all my clients as I want to be treated. The image of the rude geek who is the technology prima donna who treats users as if they are all below him and are not worth the time of day is offensive to me. I NEVER want to be perceived as that guy. I like to take my time and not feel rushed to do a job. It's worth it to me to take the extra time to make sure my client is happy with my work and not feel like the client is watching the clock the entire time I'm working is a huge weight off of my, and my clients, shoulders. It just makes the relationship better, in my opinion, which leads to more work in the future and satisfied clients who will recommend you to others.
These are just a few of the reasons why I'm glad I switched to flat-rate billing. Do you have any reasons to add to my list? Or do you have thoughts on why an hourly rate is better? I'd love to hear from you!
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Comments (1)
Commented:
You've already set the expectation that it would cost $XX and it ended up costing you $YY. I wouldn't expect you to be happy about the mismatch between your prediction and the actual effort.