It is easy to translate hours into money using hourly rates. Is it also fair? I would say no way. If you are a newcomer on the freelance market you will get lousy hourly rates, if you come from the “Big 4” or similar consultancy firms with high reputation you can charge whatsoever. If you scan the market yourself you will see big variation, if you ask an agency they will press the prices down. So whatever approach you chose you will get something accordingly – however you still can get the great consultant or the underperfomer. The price tag on the hour will not improve or guarantee the value you are looking for.
How to circumvent this dilemma? Well, the approach that has always been around, long before consultancy brokers and digitalisation were common, is still the most applied: listen to references, hire in your network! However it is about time to find new business models more value based. I know there are many like me trying it, but difficult to get a client’s buy-in – or if you get it their processes and tools don’t support it.
Let us do an experiment and stipulate a fair hourly rate for a longer assignment and my seniority would be 120 EUR. The “Big 4” and alike would charge at least 160 EUR for me. Many consultancy brokers tell me I should be satisfied with 80 EUR unless I am a real top match on an assignment with ticking all boxes. Usual payment terms are 30-120 days, i.e. you get paid up to 150 days after you have delivered your hour! This is how the situation looks like.
Now my proposal, who would hire me with the following approach?
1. 40 EUR for planned hours invoiced in the beginning of the month, so 40 EUR per hour you get paid at the same time you deliver the last one.
2. Another 40 EUR per hour (and correcting the diff between planned and actual hours) at the end of the month – max. 30 days payment term
3. A third 40 EUR per hour at a reached milestone that was committed to be reached, this could be also at the end of the assignment. If the milestone is not reached or not reached in time, then this third 40 EUR would not be due.
4. A fourth 40 EUR only due if the project/assignment goals have been over achieved, if they are not achieved no further payment.
So in summary a variable payment between 80 and 160 EUR per hour dependent on the value delivered. Hm, I already hear all the explanations that many ERP systems and financial flows would not allow for this… This is bullshit, we can make it as simple as this: I use 40 EUR per hour and the same payment terms, just that I would charge the hour 2-4 times, dependent on the result. Would be half of the price for the hour for statistics and I am sure compared to total hours on the project when I deliver full value and charge my hours 4 times, it would still be less project hours than the underperforming consultant for the high hourly price.
A clear WIN-WIN! Why does nobody follow me on this model? What is wrong?
Have a great week!
Yours
Herwig