Why I Stopped Charging By the Hour
How Netflix inspired me to sell outcomes instead of effort
When I first began consulting on strategic messaging, I billed at an hourly rate. Why? Because that’s what I thought consultants do.
To be sure, charging by the hour had great advantages:
- When a client asked for extra work, there was no need for another negotiation. Just do the work, bill for the hours.
- Since so many consultants bill hourly, there are industry-standard hourly rates. It wasn’t too difficult to arrive at mine.
- Clients could hire me without having to be super-clear about what they wanted. They could say, “I think we need a strategic messaging and positioning framework, and maybe some help telling our story in the investor deck, but let’s start at 5 hours a week and see how it goes.”
The downsides of charging by the hour
However, after running a few projects this way, I soon discovered the dark side of hourly billing:
- Sometimes, to make a deliverable really work, I wanted to spend more hours than planned, which meant the client had to pay extra. I would wonder, Is my client going to think I’m just padding my invoice?
- Based on competitive intelligence, I knew that branding agencies take 3 months or longer to deliver strategic messaging frameworks of similar quality to (or lower quality than, in my obviously biased opinion) what I deliver in around 5 weeks. My clients loved that I worked fast, but hourly billing was an incentive not to.
- One big reason I got into consulting was to do work I love, and avoid work I don’t. But clients would sometimes ask me to perform tangential or unrelated tasks, and because we lacked clear, up-front agreement about outcomes, I had little basis for saying no.
- Last, but definitely not least: Keeping track of the hours I worked was a pain in the ass.
The Netflix Way: “We don’t measure people by how many hours they work…”
One day, as I was pondering all of this, I came across Netflix’s now-famous slide deck, created by Reed Hastings in 2009, about the company’s organizational culture. This slide, in particular, caught my eye:
Wow. After reading this, I decided never to charge by the hour again.
Of course, making that decision meant getting rigorous about the outcomes I offer. That took time and effort, but it was one of the most valuable things I’ve ever done.
The perks of selling outcomes
In truth, there are still some projects where I compromise and bill hourly. For example, once I just really wanted to work with a team whose CFO insisted on an hourly rate.
But for 95% of the work I’ve done over the last year, I’ve committed to a fixed project price that’s based on outcomes (deliverables). I now love this way of working, for so many reasons:
- I do better work. When the relationship is about outcomes, I have my marching orders, and everyone on the client side knows what they are. That lets us work together to achieve great things.
- Deals close faster. When I send a proposal to a prospect, I say, “Here’s what you’re going to get, and this is what I’m going to charge you.” If the client values that outcome, we jump in. If not, we avoid a big waste of everyone’s time.
- We’re aligned on speed and great work. If we achieve the outcome we want quickly, my client is happy and I’m happy. If we need to spend more time together until we both feel we’re “there,” I can do that without worrying about looking greedy.
- It’s fun. Turns out I just really enjoy the process of helping prospects get clear on what they need and exactly how I can help.
- We establish clear boundaries. Because outcomes are clearly defined, if clients ask me to do unrelated work, I have solid grounds for saying no. Or, if I want to do the work, I can propose a follow-on engagement.
- I feel greater self-respect and clients perceive greater value. Because the relationship is framed by outcomes, both sides think about the work in terms of value delivered. Ultimately, that’s so much more fulfilling — and, I believe, more lucrative— than selling hours.
- It’s way simpler. No need to keep track of hours!
Should all consultants stop charging by the hour?
Of course not. Where a retainer-type engagement makes sense, hours might be the best way to frame it. Or, if the amount of effort you’ll have to put in is wildly unpredictable, setting a fixed fee can be risky. I made the leap only after I had a bunch of completed projects under my belt and a good Spidey sense for what each new one would entail.
But if you’re experiencing some of the negative consequences of hourly billing as I did — and you have the option to switch to outcomes — give it a try. It takes more work up front, but can ultimately create more value — for you and for your clients.
