Billing Clients: Why You Shouldn’t Bill By The Hour
One of the most common debates in the agency world is should whether to charge by the hour or by the project. That’s right. If you’re billing clients by the hour, you’re losing money. The more efficient and productive you get with your experience in producing the deliverables to the client, the less you make than if you’re charging by the hour. You will also hit a ceiling on your earning potential for each employee. I will explain.
For about half of my agency life I charged by the hour because it was easy and I did not know how to sell the value of the project to the client. Then I started to learn how to better scope projects and get more efficient on the work we were delivering.
Let’s look at the NUMBERS!
For example, I was able to increase my effective rate by 100% to sometimes 500%. This meant that if you calculated the new hourly rate for some projects, I was making $200 – $500 / hour rather than the traditional $100/ hour.
Effective rate = amount earned in a set time frame / how many hours worked in a set time frame
Let’s think about this on a bigger scale. If you’re charging $100/hour for 40 hours a week, you would earn you $4,000/ week per employee. By increasing your effective rate by 100%, you could earn an extra $4,000 per week per employee. Then factor in you have 5 employees. That’s $20,000 extra per week and $80,000 / month.
Here Is What I Did on Every Project We Were Scoping:
- Figure out the client’s budget.
- Look back at similar projects and gauge the average time spent. You also need to know your fully burdened rate as well.
- Pad the hours by at least 25% for risk and profit.
- Determine if the total project cost align with the client’s budget.
- Sell the value of the result to the client.
- Look for ways to deliver quicker and more efficient, so I could make even more profit.
Here Are 4 Other Reasons Why Billing Clients by the Hour Is a Mistake:
- It penalizes you for your experience.
- It cripples billing potential.
- It makes clients nervous not knowing the final cost.
- It encourages lower productivity.
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Growing Your Agency
Now you know why billing clients by the hour isn’t the smart option for your agency, what other mistakes have you made within your agency that are holding you back?
Through my own career and professional life, I have more than likely experienced all if not most of the different struggles you have and can help you with what I have learned. From bad agency clients, developing agency products as well as how you can build authority for your agency.
If you want to grow your agency even further, I have agency growth hacks, the best ways to improve management of your business as well as why building a remote team can be beneficial in the long run.
As well as this, you can learn more about my career as well as tips, tricks and insights by checking out my blogs that cover a wide variety of topics.
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