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Why Charging Per Hour is Terrible for Your Mindset

plugin and train your brain

This year I’m focused on increasing my income — and the focus is paying off. 

One thing that has been a significant help in increasing income is no longer seeing myself as an hourly worker. I stopped charging clients a long time ago based on an hourly rate, but for some reason I still thought of myself as a typical hourly worker. It’s a mistake because I always seemed to undercharge clients for my work.

Why Thinking as an Hourly Worker Is a Bad Idea

When you think in terms of hourly pay it can do bad things for your mindset. For me, I would use the hourly wages I earned in the past and other employee wage benchmarks to decide how much to charge. This is a huge no, no.

Comparing an employee’s hourly rate to your own freelancer rate is unequal. You have to account for self-employment taxes, health insurance, business expenses, and the time spent doing administrative tasks just to keep the business running. Plus the value you’re bringing could be worth much more.

A client doesn’t have to pay employee expenses for contractors. This is a major savings they’re gaining from working with a freelancer. An hourly rate given to an employee takes into account the benefits that employee gains. Freelancers aren’t getting those benefits and should be paid more.

Despite this sound logic, some clients get sticker shock when you name an hourly rate that compensates you properly. Then the nickel and diming starts and you’re left frustrated. If you do come to an hourly rate agreement, it can also be a pain to track and report hours for invoices.

There’s a better way to do this.

What should you do instead?

Set a per project price and don’t name how much you work per hour. There’s no need for a client to know what your hourly rate is. They may have a preconceived notion about how much someone should be earning. 

For example, saying you charge $100 per hour could make someone pretty uneasy. They may even look at their paycheck and get uncomfortable wondering why they’re not getting paid $100 per hour as well.

Instead of saying the hourly rate, what if you charge a flat $100 for writing a blog post without naming how much you charge per hour?

You could easily be making $100 per hour, and they would be none the wiser.  No one knows how many minutes or hours go into your work, and frankly it’s none of their business if you’re producing what they need.

Final Word

The key for increasing my income (and ditching the hourly model) has been thinking of myself as an expert instead of a workhorse. An hourly worker is doing a task.

An expert is offering expertise along with a product. This is worth more, and my clients seem to be more willing to pay for it if it’s expressed in a flat rate as opposed to an hourly fee. 

To get started setting a flat fee, think (privately) of what you want to charge per hour for certain jobs. Then add money beyond this starting point so it offers you an income you can live comfortably on. Add in taxes, expenses, effort costs, and whatever you believe is necessary. Add on an expert fee if you believe it’s required. Then toss out the hourly rate.

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Personal Finance Writer
Taylor K. Gordon is a personal finance writer and founder of Tay Talks Money, a personal finance and productivity blog on hacking your way to a happier savings account. Taylor has contributed to MagnifyMoney, The Huffington Post, GoGirl Finance, Madame Noire, and The Write Life.

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