Tom, a follower of our weekly show, Coach’s Corner, asks: “What do you think of charging an hourly fee for consulting or coaching work?”

Here’s my answer to Tom:

If you’ve been following me or if you’ve seen some of my videos on YouTube or on my blog, you’ll know that I absolutely hate charging on an hourly basis. I think it’s very amateurish.  I’m sorry if I’m offending some service providers out there, but the truth is, I personally feel that charging by the hour is a very bad business decision.

I think it just sucks and that’s the bottom line for several reasons. When you’re charging an hourly rate, you basically create a monster for yourself.

Hourly rates ALWAYS depend on YOU

If you’re charging a $100, $300 or $500/hour and you have 30 clients a week, you’re working 30-40 hours a week. It’s a good income, but in this way you are just creating a job for yourself. Your income is always dependent on the amount of hours you do, not on the amount of the service you provide and that’s the big difference.

Here are a few questions for you: if you’re charging an hourly rate, what happens when you want to go on a vacation? What happens when you want to take a week off? What happens when you’re sick? What happens when you’re completely burned out and you really want to stop for a few weeks or a few months? You can’t take a break because you’ve created a job for yourself.

I call it a golden treadmill. You’re making good money if you’re charging $100, $200 or even $500, but what happens when you want to take some time off? I don’t think it’s sustainable. In a way, it’s a sustainable business for a solopreneur, but if you want to do it just by yourself you are always dependent on you.

I personally don’t like and don’t recommend this. I don’t like building businesses that are dependent on only one person.  The worst number in any business is 1.

Creating an alternative

In my opinion, the hourly rate is the worst format of charging for consulting or coaching businesses. I really would not recommend doing that, but I would recommend an alternative: creating packages and charging based on value. The idea is, if you’re a health expert and you help people lose weight and get in shape, there is a benefit for you in charging people for months and years, but it’s a very big misconception. I personally think that I would rather charge someone much more money than do an hourly rate for months and years.

The clients can get a faster result. It’s your responsibility to get them the results as fast as possible.  Charging on an hourly rate doesn’t push you to give faster results or to really solve the client’s problem. I won’t go as far as saying that it’s an ethical issue, but in my opinion, if you can create a scenario where you can help your clients get from A to B faster, it’s your responsibility to do it. In that case, you have much more value as a service provider in charging more.

It’s the same thing if you go to the dentist or if you have pain. Take me for example. Last year I had two major issues with my left hip. I would have paid a lot of money just to get it solved in the blink of an eye rather than going for hours and hours to chiropractors.

I think that if you’re charging on an hourly basis, you’re actually shooting yourself in the foot. I don’t recommend it because I know there’s a much better way of pricing your services. The alternative is putting packages based around the value you deliver.

Let’s take the example of helping someone get in shape. If you know it’s going to take that person 3, 6 or 12 months to get them to where they want to be, don’t work on an hourly basis. You should charge an overall package fee that takes care of everything.

You can do nutritional advice, workouts, coaching through phone and SMS coaching. You have to create a bundle that can help that person get faster to where they want to go.

In conclusion, that’s what I think about charging hourly fees. I think it’s amateurish and I think it’s creating a treadmill for yourself that you always need to keep going because otherwise, you have no income. I actually think that it is detrimental to your client’s success.