Why Charging By the Hour is Unethical

04 Nov 2020

In this week's video I discuss Why Charging By the Hour is Fundamentally Unethical in my Pricing Strategies Series for Fearless Business.

In this video I am specifically looking at pricing strategies for services including how coaches, consultants and freelancers choose to price their products. Pricing strategies in marketing are particularly tricky because many service businesses are charging by the hour and when you break this down it is fundamentally unethical.

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IN THIS VIDEO, I TALK ABOUT

0:00 - Pricing Strategies
0:15 - How to Price a Service
2:12 - Why Charging By the Hour is Fundamentally Unethical
3:15 - Value Based Pricing
5:09 - Results Based Pricing
5:30 - Moneyback Guarantees
7:48 - Additional Costs to Hourly Rate Charging
9:33 - Calculating Hourly Rate Work

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How to Price Your Services

In the examples I used in this video I compared two people charging the same hourly rate for the same service.

The first person hasn't been freelance long, they're slow to deliver and the quality is poor. It takes them 10 hours to do the task. The second person, charging the same hourly rate, had 20 years experience and so completes the task in half the time to a higher standard.

If their hourly rate is the same then the more experienced person, who gets better results ends up making half the amount of the inferior supplier.

This is Unethical

The more experienced supplier could charge more for their products; a better way to charge more would be to charge based on results and outcomes.

Imagine if the more experienced freelancers charged 5x or even 10x the price for the same product or service. However they could guarantee their results.

In the example I use in the video, I discussed two web designers. The first website designer is charging £50/hr and quotes 20 hours to build the website. They return to their customer 3 months later with a poorly designed website lacking in features. The freelancer then says to add the additional features will be an extra 10 hours and the client has to pay for it. So, £1,500 in total. The customer is not happy...obviously!

Now most people are ethical, upstanding human beings and they wouldn't charge for the extra work. However resentment starts to build.

So, How to Price Your Services?

The more experienced developer says they can get it done in three weeks, but within 3-6 months they anticipate it being picked up by Google and generating 5-10 solid leads each month worth £10k+ per month to the business owner. However the site is going to cost £5,000...so 5x the original price quoted by the other developer.

They also "guarantee" their services. If their website doesn't generate the promised leads by month six, then they'll refund every penny. Plus they also have payment plans as well to make it more affordable.

Which one would you buy?

A seemingly more expensive product however with substantially better results and outcomes, or the cheaper website.

A couple of extra resources for you

@Dan Lok also did a great video about How to Price a Product - https://www.youtube.com/watch?v=qutavZTkFeY

As did @The Futur here - https://www.youtube.com/watch?v=ivKnj9ffcmE&t=1296...

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