The Australian Small Business Blog

Tuesday, January 07, 2014

Why Charging By The Hour Is Unethical


by Glen Carlson


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?

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.



Want to learn more?

Join Glen Carlson at his accredited 8-hour Brand Accelerator event in February 2014 with some of Australia’s most well respected entrepreneurs and industry leaders.

Melbourne | 7th February
Sydney | 13th February
Brisbane | 28th February

As one of their event partners, KPI has offered our readers a 40% discount on the retail ticket price, with sale ticket prices starting from $39 for general admission.

Book your ticket for the KPI 8 hour Brand Accelerator | Business Strategy Day

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1 comment :

Katherine Ross said...

I totally agree. I have been running a cleaning business for only 6mths and the look on peoples faces when I quote by the hour is a uncomfortable expression and so far the beginning of the end and you havent even really started a relationship with the client. Flip side when charging by the hour and manage to obtain a ongoing client, you do get quicker and quicker then the time drops and so does the pay rate. So you either la-di-da around, (no client wants to see u doing that on a time paying basis)=benefiting business and potentially eventually losing the client or keep your word on hourly rates, dropping the rate you did make and upping the quality you give. Double loss. So learning to quote by jobs instead, which is new to me so selling my service that way is lacking confidence and yet to gain sales,little bit of time and gaining experience. It will surely take down a barrier in building a good relationship with clients. Good article.

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