Why Hourly Rates?

Many veteran consultants aim to secure retainers with their clients—and that is a valid goal. Or they’ve heard that “project fees” (charging a flat rate for projects) are the way to go. Retainers provide consistent income over time, whereas hourly rates clearly depend upon the number of hours you work. Similarly, charging project fees is another way of moving beyond time-for-dollars limitations, but this requires some pretty savvy budgeting and understanding of project contingencies, which can only be developed through experience.

While it might seem tempting to jump to that “steady stream” income, novices who begin with retainers tend to stumble unless they have a solid understanding of the marketplace. It’s often best to experiment with hourly or daily rates first. For our purposes, daily rates are an extension of hourly rates, often used when the work will be constant and longer-term. In essence, the two are interchangeable, e.g., a project that takes four hours is a half day.

There are definite downsides to charging hourly. Primary among them is that, eventually, you will create a cap on your income. You can bill only so many hours per day, per week, per month, especially if you are working solo. When you factor in time for your marketing, business administration, and professional development, that leaves limited time to bill for client work.

Yet as a newer consultant, one of the most valuable business-sustaining habits you can undertake is tracking your hours, and likely, billing accordingly. I began by charging hourly (though I called it “daily”) when I launched my practice. I remain exceedingly grateful that, as a retainer-based practice today, I built a foundation of knowledge and practice grounded in measuring those units of work. What follows are the most valuable lessons I learned along the way.

  1. Track your hours. As a consultant, your time is your most important resource. Track your time and calculate the amount of time you spend on each type of project. I used a simple spreadsheet. The columns were labeled with project elements such as contracting, planning, discovery, and a specific description of where I spent the remainder of the project time. (Of course, your columns and labels might be different, reflecting the specific aspects of your services.)track your time
  2. Identify the trends and contingencies. After you have gathered some “data,” analyze the factors that affect your ability to complete a project within various time frames. As the projects began to accumulate, my data showed some great trend lines, including the average amount of time spent on similar projects. I could also clearly see the contingencies—where more complex, more organized, or more responsive clients affected the numbers. Patterns emerged quickly, creating signs that led me to estimate better how many hours a given project will take under various situations.
  3. Learn while you earn. Use hourly rates while you’re learning those extremely valuable early lessons. As a new consultant, you are not only learning the ropes on fee-setting and client relations but, importantly, how to set parameters. In one case, a university dean hired me to write a report for the president. She liked my first draft—and then changed her mind about the contents about a hundred times (or so it seemed). I was too new to understand that my contract should have included some parameters that limited the number of revisions. But since I wasn’t yet terribly busy—and since I was charging hourly—I was compensated for learning those valuable lessons.level up your fees as you learn
  4. Level up as you learn. Create the discipline to determine pricing for future projects. Many people move from hourly or daily pricing to project fees. As you begin to deliver similar projects and start building up your toolkit and processes, you stand to reduce your hourly income as you create efficiencies. Say an early project cost you $10,000 in time spent. But because of the knowledge, tools, and templates you’ve developed, you might be 25% more efficient on similar future projects. You wouldn’t want a nearly identical client to pay 25 percent less. That’s not fair to you or to your first client. Assuming the two projects are similar, consider that this might be the time to level up your hourly rates, or you might then begin to charge the $10,000 as a project fee. That’s what I did, and here’s how my handy spreadsheet helped me make the leap: Once you know how long projects take you to complete, you’ll start to identify projects and services that are replicable, thus lending themselves to a project-based approach to pricing your services.
  5. Keep your tracking tools simple and handy. In most cases, the best tool for the job is the one that you’ll actually Keep your tracking tool simple and keep it close at hand so you’ll in fact use it—whether that’s a tool where you jot down your hours throughout the day or spend 5 to 10 minutes as you wrap up at the end of each day.

So yes, project fees and retainers are admirable goals. But consider starting with hourly rates and decide whether you prefer the certainty that comes along with them. Plenty of successful consultants I know still charge hourly after decades in the business. As with all things when you’re a business owner, the ultimate choice is yours.


Are you wondering what to charge for your services?

If you’re a consultant with a new practice, or you’re thinking about starting one, and you’re wondering what to charge, check out the Launching Your Consulting Practice course. We’ll guide you through a step-by-step process for setting fees that work. You’ll confidently (and forever) have the answer to the “what should I charge?” question, plus other real-world strategies, tools and tips to help you start and grow a thriving consulting business.

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