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The Abyss Behind the Billable Hours and Hourly Rates

The Abyss Behind the Billable Hours and Hourly Rates

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This article will show you why your hourly rates make other people rich while you suffer. In 10 minutes, you’ll probably call all of your clients and ask to get paid for everything you bring to the table, not just time.

Reading this will be the first step out of the abyss toward working less for more money.

It won’t hurt to recap if you’ve already heard everything but can’t make a shift. And Filip shared a fact that will make you realize that most of your business hours are wasted (in a way).

Watch Gio and Filip passionately discuss the topic on the Maoio YouTube Channel. Their energy is contagious.

But if you prefer to read, stay here and get ready to absorb information that will give you leverage during negotiations.

It’s a Mindset Shift – Get In Business Mode

Agencies, expertise-based businesses, IT companies, coaches, and other service-based businesses still charge hourly rates. That alone wouldn’t be a big deal (but it’s still a mistake). But the surprising part is that most business owners and solopreneurs know how toxic hourly rates are.

Why don’t they do anything about it?

It’s simple…

The answer is usually hidden far back in the past. If a person grows up in an environment where everyone trades time for money and never gets rich, they grow up thinking that’s the only way.

Gio used himself as an example. He understands how hard it is to achieve that mindset shift because of his corporate background. In the corporate world, everything is billable. Everything is tracked, and most people hate their jobs.

Why?

Because they sacrifice too much to get a little back. And we aren’t talking only about money. Selling time limits your earning potential. If you want to earn more, you need to get another job. That leads to the scene from Hollywood movies where a mom of a rebelled teenager cries because she had to work 3 jobs to feed her family, so she neglected them.

So as Gio said, you need to get into business mode and recognize your value on the market. And if more freedom to do what you want (while making more money) doesn’t motivate you – numbers will.

If You’re Extremely Efficient, You’re Wasting 50% of Your Time!

Filip owns a growth marketing agency, and he helped numerous businesses scale. Most agencies live in an imaginary world where every working hour is billable.

A strategic mistake is when agencies make calculations based on 100% of billable hours. That’s impossible to reach.

Let’s look at an example. For the sake of simplicity, let’s say you’re a business coach, you’re the only person in your company, and you struggle to grow your business. You decide to work 8 hours a day, 5 days per week. That makes 40 hours a week. Your hourly fee is $100, so that’s $4000 a week. That’s $16,000/month. Not bad, right?

Now wake up from daydreaming.

No one can bill 100% of their working hours. To achieve that, you’d need to bill 8 hours 5 days a week, which is impossible if you take care of other aspects of your business. Implementing insider secrets for increasing visibility pays off over time, but you can’t bill anyone for that. Writing pitches and doing outreach takes time and energy, but you can’t bill anyone.

In the end, most businesses have roughly 30% of billable hours. Those extremely efficient are still around only 50% of billable hours. So if you’re an average consultant, who works 40 hours a week, you won’t earn $16,000 at the end of a month, but the third of that. And there’s a huge difference between $16K and $5K. Even if you’re one of the most efficient coaches, you’d still be limited to roughly 50% of billable hours.

And that always leads to the same destination…

Time-Money Exchange is The Shortcut to Bitterness

What happens when a slave sees the wealth he’s built for his master? He becomes bitter and resentful. He starts despising those who exploited him. But are his masters really responsible for his situation?

If we’re talking about ancient civilizations, then probably yes. Slaves there were imprisoned and had no freedom. But if we’re talking about slavery in the business world – a person is responsible for their situation.

However, many people accept their current situations as the only reality. They see selling time for money as the only option. They give up on all of their dreams to build someone else’s dreams. And even the strongest stoics suffer after years of living in such an environment.

But remember, those who pay you have power over you just because you gave it to them. And you can take it. Here is what to do first to get it back.

How Valuable Is The Solution?

Let’s say you’re a content strategist, and a company asks you to create the 2023 strategy for their blog. You do your magic. It takes you, let’s say, 10 hours. If you charge $100/hour, you will get $1000 for the project. Seemingly, not bad. But in reality, it’s terrible.

If your client knows how to implement the strategy they bought for $1000, they can get 10x ROI. Probably a lot more (depending on the quality of their service/products and employees).

Your $1000 doesn’t look so good anymore?

You just realized that your work makes other people rich?

Good.

Realization is the first step toward change.

But we understand it can be tricky to look at your situation from a different angle, so we have another example for you.

When agencies offer to build someone a website, they don’t do more than that. Clients get websites, and that’s it. In that case, it’s easy to fall into the trap of charging by the hour. An agency can calculate the resources it takes to build a site (based on previous projects) and charge accordingly. And that’s what most agencies do.

Yet there’s something clients usually learn after they get burned.

If you pay for nothing more than the agency’s time, they’ll forget you as soon as you pay them. Why? Because they’re struggling to get more work, they can’t waste time taking care of old clients.

But if you pick an agency that charges for the solution, you can expect a much better experience and results. Check out the Maoio web development website to see an example of solution-based pricing. Instead of just giving our clients websites that float around the Internet, we build them highly automated conversion funnels. In other words, the solution we provide to our clients saves them time and money.

And you’re mistaken if you think that clients don’t appreciate that. We know from experience that serious clients pay more to get solutions that make a difference to their business. It’s a no-brainer to them. Why would they pay someone who can partially solve their problem (and create more problems) if there’s someone who solves everything?

Place yourself in that position, and clients will throw money at you.

The Better You Become, the Less Sense It Makes to Sell Time

If you’re a solopreneur, you should know that as your skills grow, your prices shouldn’t grow. Your whole pricing model should change (if you’re charging for time). It’s cool to charge by the hour when you know it takes you the same amount of time as everyone else to solve a problem. You aren’t losing anything in that situation.

But what if you become better than your competition and solve more complex problems in less time? Would you still charge by the hour?

If your answer was to raise hourly prices, that’s a logical move, and it would give you an illusion of success. But you’d still be underpaid. If the thing you can do solves a serious problem, and you know your client struggled with it for a while, you have all the power. You can name the price. And if they’re smart, they’ll pay it because they feel the difference you bring.

It’s the same if you’re not alone. If you have a team with 3 juniors and 1 senior, the senior will do more work in one hour than the rest of the team combined. Should they get paid equally? No. So stop charging your clients the same price for projects with senior staff.

Seniors do their magic in less time. That means they’re solving more problems for your clients, so you bring more value to the table and can charge a lot more for your services. It’s best to go one step further and productize your services. That gives you even better chances because prospects know what to expect, how, and when.

It’s Impossible to Scale If You Sell Your Time

Even if you take the proven time management consulting and implement all the gems Filip shares with you, you won’t be able to scale if you stick to time-based pricing. Don’t get us wrong. The consultations with Filip will teach you how to become more efficient and get more billable hours.

But what if you could learn how to use your time better, say NO, and shift to value-based pricing?

That would open more room for growth because you’d instantly start earning more money. First, if you learn how and when to say no to prospects, you won’t imprison yourself within projects below your level.

Secondly, people will look at you differently. You and your business won’t be just another commodity (that usually brings problems). You’ll be a problem solver.

How To Make a Shift From Time-based Pricing to Selling Your Value?

Everything above should help you realize how to make that scary leap of faith and stop selling your time. Yet we understand how difficult that is. We’ve seen it many times. But we’ve also seen the difference in people after they finally get paid what they’re worth.

If you want to master selling your expertise, not your time, check out personalized private pricing consultations by Maoio Consulting.