If you're charging by the hour, you're punishing yourself for being good at your job.
Think about it...
When you started out, a kitchen design might have taken you 20 hours because you were figuring things out as you went and were slow at documentation. Now, with experience, you can do the same job in 8 hours because you know what you're doing.
With more experience you should now be earning more, right?
Well if you're charging by the hour you'll likely now be earning less than half of what you used to (if you're being honest in your tracking, which is a whole other ethical topic!).
This is the fundamental problem with hourly rates. It punishes efficiency and expertise so the better you get at your job, the less you earn.
Making my case against hourly charging
When you charge by the hour, you're only billing for the time you spend actively working on a project. But that's not all the client should be paying for.
They also need to pay for:
- the years you've spent learning your craft
- the hundreds of projects you've done that taught you what works
- the mistakes you made on someone else's job that you won't make on theirs
- the intuition you've developed that tells you immediately when a layout won't work or a material choice is wrong
A client is paying for your ability to see problems before they happen and your ability to make decisions quickly and confidently. They want you to guide them through a complex process without them having to stress about every detail.
But none of this is captured in an hourly rate, which means you're giving away the most valuable part of what you offer (your expertise and experience) for free!
The ethical problem with hourly charging
Charging by the hour also creates a misalignment of incentives between designer and client.
The client wants the project done well and quickly. You want to do good work but also need to make enough money to cover your costs and actually profit from the job. So you're incentivised to work slower to ensure you're fairly compensated.
Meanwhile, the client is watching the clock. They're wondering if you're padding hours, they question whether that revision really needed to take three hours or if you're just milking the job. Even if you're not and you're working as efficiently as possible the hourly billing structure makes them suspicious.
This then creates a lack of trust, so instead of focusing on the quality and impact of your work, everyone is now focused on hours. Clients wonder how it takes so many hours to choose furniture or draw up a kitchen and wonder if they should question the invoice. But as we all know, clients have no idea about how time consuming the design process is!!
The argument for value based pricing (instead of hourly rate)
Value based pricing means you charge for the actual value delivered to the client and the outcomes you provide, not the time it took you to deliver them. Here are some examples of value:
- If you design a kitchen that increases the value of a client's home, that's valuable.
- If you solve a layout problem that gives them an extra living space or the ability to squeeze in an ensuite, that's valuable.
- If your client barely has to think about the small details of their project during construction, that's valuable too.
The value to the client is the same whether it took you 6 hours or 60 hours to deliver it. So why should your fee change based on how efficient you are?
Value based pricing aligns your interests with the client's interests. You both win when the project is successful, regardless of how many hours it took you.
With value based pricing there's no incentive for you to work slowly and no reason for them to question whether you're padding hours. The focus shifts entirely to the quality of your work and the results delivered.
How to implement value based pricing
Moving from hourly to value based pricing doesn't mean just pulling a number out of thin air and hoping the client says yes. You need to understand what the project is worth to the client.
This requires you to start thinking much more commercially about the projects you are pitching. For example:
- A kitchen or bathroom renovation will almost always increase the value of a home. Even if they don't intend to sell a new kitchen for a family who loves to cook and entertain means they now have a new space to show off to their friends, which has emotional value.
- A retail fit out that will directly impact how much product a business can sell will impact their revenue.
- A cafe design that is so "Instagrammable" that they constantly have a queue out the door means they make more money.
- A beautifully designed office space means a place employees love coming to, which has a direct impact on being able to attract high quality talent and retain them.
When you understand the real value of what you're delivering, you can price accordingly and have conversations with clients about that value, rather than defending an hourly rate or itemising every task you performed.
What all this means for your business
Switching to value based pricing doesn't just increase your revenue (although it will). It fundamentally changes the relationship you have with clients.
Your work stops being transactional and commodity based (and you stop being the person they are watching suspiciously to make sure you're not padding hours) to becoming a trusted professional partner that focuses on delivering the best possible outcomes.
You stop being penalised for efficiency and start being rewarded for expertise.
So stop punishing yourself for being good at what you do and charge for the value you deliver, not the hours you work.
