What’s the difference between a food-service employee and a high-price attorney? When it comes to their compensation structure, not all that much. Both offer to perform specific tasks for an hourly rate. Granted, an attorney can charge a much higher hourly rate for their services than a fast food employee can, but both the attorney and the fast food employee severely limit their income potential because they can only work so many hours in a week.
If you’re in business and are providing your services on an hourly rate, you need to stop. Even if you could bill out your entire week for fifty weeks a year and could command an hourly rate of $100 an hour, the most you would ever possible make is $200,000 per year. That might seem like a lot of money to some, but the second you stop working, you stop making money. The freedom to spend more time with your family that you were hoping for becomes much less possible because you’ve become a slave to the billable hour. Your business is not sellable because it’s entirely dependent upon you doing the work and, let’s be honest, $200,000 per year is not all that great of an upside potential for a person that takes on the risk of becoming a business owner. Ideally, you’d make quite a bit more than that after several years of hard work.
Instead of trading your time for money (billing hourly), trade a specific set of results for a pre-agreed upon amount of money. By billing on a per-project basis, your client knows exactly what they’re going to be paying for your service and you have the flexibility to deliver the result using the most efficient means possible. Your incentive is no longer to use the most billable hours you can without getting in trouble with your client. Rather, your incentive becomes to complete your client’s project in the most efficient, leveraged manner.
By moving to a payment-per-specific-result model, you also have the ability to build a system of people, business processes and technology that deliver the end result the customer desires. If you build a solid enough system, you can work yourself out of a job or at least have the ability to take as much time off as you’d like. By having a delivery system in place that does not rely on you, your business becomes increasingly scalable to larger volumes and becomes much more sellable to a potential buyer.
Here’s an example from my website development consulting business:
I’m sold. Now what?
There are really only two action steps to take once you’ve decided to give up on the hourly grind of a consulting business. The first is obvious, quit billing hourly and start billing customers based on a pre-agreed upon price for a specific set of results. If they end up about what they would have been paying otherwise, it will be a wash and no one will likely complain about it.
The second step is to start finding people, processes and technology that can you can leverage to start building a system to deliver your products or services. What aspects of your service do you hate doing, aren’t any good at, or otherwise don’t want to do? Start with those and find other ways to get that work done. This might mean hiring a freelancer or virtual assistant to help you with some aspects of projects. It might mean farming it out to another company or leveraging software or other equipment in a new way. Your long term goal should be to have a product delivery system that does not rely on you personally. If you build your system well, you’ll end up with more time freedom and (hopefully) a much better bottom line.