It's time to blow up the hourly bill.

Here's the deal — it's time to blow up the hourly bill.

If you, like many of my clients, are entering into consulting contracts after years or decades of professional employment in finance, law, engineering, or industries of any kinds, you're either setting your fees or trying to. And guess what? The one thing all of these clients have in common is the struggle to set consulting fees. 

It's a struggle arising mainly from the effort to set hourly rates based on past compensation for full-time jobs that appeared to be compensating them for their time.These newly-minted entrepreneurs often take the 2,000 working hours of a 50-week year and find that measuring their consulting fees by the hour ($250 to $375/hour) would provide them with an income substantially below what clients are willing to pay for their services ($750 to $1,000/hour).

Their pay, of course, did not equal the market value of their services because their employer had overhead and the general rule of thumb for professionals is to pay no more than a third of the income they generated for the firm. One-third of client fees for the working attorneys, for instance, and two-thirds for overhead and profit to the shareholders.

A value billing expert told me years ago that measuring a lawyer’s value by the amount of time she spends to produce the desired result is like putting a ruler in the oven to learn its temperature.

Your client wants to use your intellectual property and industry knowledge to achieve a certain goal that has a value to the business retaining your services. You might be able to provide that value off the top of your head. For example: “California is not a common law state; there is no common law marriage here; it’s always been a community property state because its marital property laws are based on Spanish civil law, not on British common law. Because, you know, Mexico.”

If someone needed that advice from a family law attorney, the family law specialist could provide it in a couple of minutes. But the client doesn’t need the attorney’s time. The client needs the attorney’s knowledge. The client also needs the malpractice policy the attorney buys to protect the client (and herself) against mistakes.

The attorney’s value consists of mostly uncompensated time. Law school, for instance, that now costs a cool $150K, not to mention the Bar Exam prep course and the number of years that the attorney is out of the job market while pursuing legal studies. The product, if you will, is primarily the attorney’s intellectual property and there’s a market value to that. A value measured more accurately by the benefit of the knowledge to the client.Your fees are determined by the value you bring to the table. Your value here isn't just your time. Your value is the years studying, practicing, and working your knowledge. Keep that thought in mind as you set your fees and start your entrepreneurial journey.

And now, here's a reminder of the wonderful offer from a client who gifted 12 Hundred Buck Hours. Well, thank you to everyone who nominated a recent graduate for the month of February. We entered all those names in a random drawing and emailed the grantee!

This means it's time to give our third Hundred Buck Hour. In March, we'll be giving the hour to a woman making $50k or less annually. If this is you (or someone you know) reply to this email and let us know. If you nominated yourself or someone else for February and they also fall into this category, let us know so we can add in that name once again!

This offering (and others like it) would not be possible without the generosity of our clients. We have a gifting page if you can and would like to gift one of our consulting package.

Until next week, and happy negotiating!