Ditching Hourly

Hello and welcome to Ditching Hourly. I'm Jonathan Stark. A fellow on Twitter named Matt Olpinski sent me a fabulous tweet, or he app messaged me. And here, I'm going to read it, and then I want to talk about it a little bit. So Matt says, Hey, Jonathan Stark, question. It seems that time is inherently valuable because it's finite. Everyone has a limited amount of it. Logistics of hourly billing aside, if consultants who charge for value believe their time is also valuable, why is it wrong to charge money for it? And he has a follow-up tweet that says, I see the arguments from a business perspective outlined in your book. Charging for value makes more sense in many cases, but I'm wondering if you still think charging hourly is wrong from a philosophical standpoint. Is it truly wrong or just not recommended? All right, this is a super thought-provoking question, and it actually helped me recognize or be able to articulate what I'm about to tell you next. And it might sound like a distinction without a difference or semantics, but I promise you it is much more sophisticated than that. And it's, in fact, perhaps the crux of the issue with charging for your time. So, okay, let's talk about this. You know, Matt's obviously right. Everyone's time is limited. Therefore, there's a certain scarcity to it, and therefore it's valuable. But let's say Matt and I are working together, and imagine that he does web design, and he's going to have a certain value on his time, his hours. Like an hour to him is worth some amount of money to rent out to someone else. So let's just say that Matt charges $100 an hour for web design, and that is the value of an hour to Matt. For whatever reason, whatever subjective calculus that executes in his brain, someone needs to give him $100 for Matt to devote an hour of his time to them. It could be washing cars. It doesn't matter. Like whatever he thinks an hour of his time is worth to give up to execute activities on someone else's behalf, he'll do it for $100 an hour. It could be web design, could be cleaning house, could be flying a plane. Matt believes that his hour is worth $100. So if you want an hour of Matt's time, you pay $100. Now, if I've got a business going and I value my time at $200 an hour, then for whatever reason, let's say I do bill by the hour, like Matt, let's say in my analogy here, let's say Matt bills by the hour. Let's say I also bill by the hour. I'm a solo consultant, and I bill myself out at $200 an hour to do something completely different. Like, I don't know, coaching people on pricing their services. If I believe that Matt can help me save an hour of my time, it's worth up to $200 to me. This is important. He has decided that he needs to receive $100 for an hour of his time. I've decided that my clients have to pay me $200 an hour for my time. So if Matt can save me an hour, I will pay anything up to and including $200. Because when he is... Here's where it gets super weird. This is where it gets to be, maybe feel like semantics, but it's the crux of everything. This is how wealth is created. This is the concept of mutual profit. The hour that Matt wants to price, if we're going to work together, and I value myself at $200 an hour, he values his... Sorry, I value my time at $200 an hour, he values his time at $100 an hour. The hour he's selling me is my hour, not his. I can't go to Matt and say, you know what, Matt? I need 25 hours in this day. Can I buy one of your hours? And he literally takes an hour of his time, gives it to me. Now I've got 25 hours in my day, and he only has 23. I've literally taken away an hour of his life, in a literal sense. That's impossible. No one can do that. So what we're talking about when we're talking about selling an hour of our time is that we're providing a service during that time. And if it saves me an hour, if Matt saves me an hour, the price that he could set for that time that he would spend to save me an hour would be based on how much I value my hour, not how much he values his. So check this out. This is how you can increase your profit.

Now, okay, let's just say we're sticking with hourly. And Matt comes to me and says, hey, I can do some web design for you to save you an hour a week. It'll cost you 100 bucks an hour. And in my mind, I'm spending an hour a week on web design. And for me, I've got other client work that I could be doing at $200 an hour in that same hour. I know I do. I have clients who are waiting for me to do that hour of work, but I can't do it because I have to do web design on my own site. So it is a no brainer for me to say to Matt, yeah, yeah, if you can get as much done as I do in this one hour of web design that I do, okay, this gets hard to talk about. I know I get X amount done in my hour of doing web design. So I do an hour of web design a week on my site to maintain certain things. It takes me an hour and it moves the ball forward for me a certain amount. If Matt using one hour of his time can move the ball forward the same amount as I could have, I'd pay him up to $200 for it because I know I'm going to take that hour and instead of doing something I probably don't even like that much, I'm going to be able to devote it to something that I really like, operating my genius zone for my clients to do the work that I really like that I get paid $200 an hour for. If he can accomplish the same amount of work in that same hour and I only have to pay him 100 bucks, I'm going to pay him every single week forever and ever, amen. Because why wouldn't I? I'm basically making 100 bucks every single time I give Matt $100. I'm doubling my investment in Matt every single time I pay him for an hour. But here's the thing. Matt could continue achieving the same amount that I would in a single hour faster and faster and faster and I'm not going to care. I probably won't even know. So if I've got a list of to-dos every week, I've got a list of to-dos that take me an hour and I have them, they're recurring, they're basically the same, roughly the same size every week and it essentially costs me 200 bucks to do them because I can't do an hour of client work in that same hour. And Matt can accomplish those same list of to-dos for $100, I don't care how long it takes him. Maybe when he starts, it does take him an hour to accomplish that list. Maybe one week, he spends an extra hour to build some tools that allow him to do it in half the time for all future engagements, for all future weeks. Maybe he just gets really good at it. Maybe, you know, turtles all the way down. Maybe he hires someone for five bucks an hour to do it. As long as those things get done in that hour, I'm not gonna care because the hour I'm paying for is my hour, the hour he's saving me. He's not giving me an hour and giving me 25 hours in a day instead of 24. We're not transferring time. It's a service that is executed that is going to save me time. So back to Matt's question, yes, time is scarce and it is valuable, but Matt's hour is not what I'm buying. I'm buying my hour back from Matt. Yes, time is scarce, but you can't give me your time. If you could, that would be amazing. Actually, that would probably be creepy. That would turn into some weird stuff. But it is not possible to give someone actual time, to give somebody 25 hours a day. So that's not actually what you're selling. We talk about it. Our language implies that that's what we're selling, that we're selling our time, but we're not. You're selling people's time back to them. You're selling them their own time back. And the price that you can set is based on how much they value their time, not how much you value your time and not even how much they value your time. So if Matt thinks he's worth 100 bucks an hour to do web design, that is only going to make sense to somebody who thinks they're gonna get more than $100 worth of benefit out of that hour. And if we're just talking about apples to apples, time for time, two people who bill by the hour, who both have that same hourly mentality, you're not selling the time back and forth. You're selling the person's time back to them. All right, hopefully that makes sense. I'll stop there. But I think this is super important. This is a great question and thanks so much to Matt Olpinski for sending it in. That's it for this week. I'm Jonathan Stark. Hope you join me again next time for Ditching Hourly. Bye. If you'd like to learn more about how to ditch hourly billing, please go to valuepricingbootcamp.com to sign up for my free email course. Again, that URL is valuepricingbootcamp.

jonathanstark.com. Thanks. Hey Jonathan again. Do you have questions about how to improve your business? Things like value pricing your work instead of billing for your time? Or positioning yourself as the go-to person in your space? Or maybe productizing your services so you never have to have another awkward sales call or spend hours writing another custom proposal? Book a one-on-one coaching call with me and get answers to these questions and others in the time it takes you to get ready for work in the morning. Best of all, you're covered by my 100% satisfaction guarantee. If at the end of the call you don't feel like it was worth it, just say the word and I'll refund your purchase in full. To book your one-on-one coaching call, go to jonathanstark.com slash call. C-A-L-L. That URL again is jonathanstark.com slash call. Hope to see you there.