This blog has been re-posted with permission from Glen Carlson and the team at www.keypersonofinfluence.com.au.
Charging by the hour is Kryptonite for aspiring entrepreneurs. If your revenue is in any way linked to your time, you’re not only setting up a conflict of interest between you and your customer, it’s a completely unscalable business model. In fact, it not a business model. It’s a job model. But why do I suggest it’s unethical?
If you think “unethical” is too strong a word, read on and decide for yourself. I’d appreciate your thoughts. I believe when a business owner knowingly creates an agreement that’s win-lose, it’s unethical.
Therefore, charging by the hour is unethical.
Imagine this scenario: Bill’s an Accountant and charges by the hour. His client Ted runs a small business and needs his tax sorted. The reality is, Ted doesn’t value Bill’s time; what he values is the result Bill can offer.
Ted wants the result as fast as possible, however because Bill’s livelihood is linked to the hours he works; the longer it takes, the better off he is.
That’s a win-lose, in Bill’s favour.
Of course, Bill takes umbrage to being called unethical and to the mere suggestion he might wilfully extend a job to line his own pockets. In his mind (and possibly yours), that would be unethical. Bill’s invested thousands of hours mastering his craft and argues that he can get the job done much faster, and at a higher standard, than most in his industry.
However, Bill can’t charge a premium proportionate to the speed and quality he provides because people who tend to pay for time also tend to shop on price. He’s great at what he does, but he’s no PWC. Therefore, the faster Bill get’s the result for Ted, the worse off he is.
That’s win-lose, Ted’s favour.
Time based billing creates a conflict of interest between you and your client. (Think about how uneasy you feel when you’re the one paying someone by the hour) Time based billing also creates a conflict of interest between you and yourself. (The better and faster you get, the worse off you are)
If your revenue is in any way linked to your time, you’re creating a powerful conflict of interest between you and your customers while limiting your ability to scale.
The bottom line is, if your fees are linked to your time, someone’s getting a bad deal.
Glen Carlson is a successful entrepreneur and the co-founder of Key Person of Influence | Australia –www.keypersonofinfluence.com.au
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Have a great week,
The Time Retriever