Why I don’t have an Hourly Rate

nervous-an-hourly-rateI once was up for an award…

When I was in high school I was up for an award. For the life of me I can't remember what it was for. But it's clear I didn't get it – because I can't even remember it. What I remember isn't what the award or privilege was. What I remember is the interview process.

A group of four students were brought into a room with a large conference room table. We were each seated at the end of the table, taking up almost a third of the seats at the table. I remember wondering if people could tell how much I was sweating. There I was, sitting with three other students. And these weren't ordinary students. These were super smart students. I remember feeling like it was going to be a long shot.

And then in came the teachers. They were all tall (or larger than life). The administrators, vice principals, and everyone else came in and sat at the table. And they began the interview process. They asked one question after another – sometimes to one of us, sometimes to all of us.

I tried to be smart…

And then they asked a question – one that was just beyond my comprehension level. I mean, I think I understood the word, but I think I understood it in the wrong context. So after a few people tried to mumble a few answers, I stepped into the discussion and said something like, “the real thing that I wonder is…” and I asked a different question.

I thought I was adding to the conversation by finding the nuance and asking about it. But I was wrong. My question was the wrong one.

Except I didn't find out right away, because I had said it with enough confidence that the three other students followed my bunny trail and took off talking about whatever it was that I had asked about. I may not have won the award, but I had demonstrated some early leadership. 🙂

I didn't win it.

Turns out I didn't win whatever prize I was going for. Couldn't have been too amazing, because I wasn't crushed and I can't remember what it was for. But I didn't know why I hadn't won.

It wasn't until months later that some adult clued me in. “You misunderstood the question. And your question was the wrong question to ask.”

I can tell you with 100% assurance that the fear of asking the wrong question has stayed with me ever since. And yet, now that I know there are right and wrong questions, I often discover that I start a lot of conversations the same way.

“You're asking the wrong question.”

You've heard the question a hundred, if not a thousand, times. “What's your hourly rate?” I understand it. People feel like it's a good opening line to talk about money. But it's bad. Because it's a rate.

How fast were you going? 50 miles an hour. That doesn't tell you anything. Rates mean nothing without context. If you're going 50 on the freeway, it's different than 50 in your driveway. Know what I mean?

Like I said, I understand it. But it's the wrong question.

What we all really want to know

Whenever I have to pay for something, I don't ask about an hourly rate. Be it the mechanic, the dentist, or the guy who's going to remodel my bathroom. I ask about the price (presumably the total price) and I ask what factors impact that price to make it go up or down.

Because what I know is that I have a number in my head. Call it what I value the effort at, call it my budget, call it whatever you like.

But what I want to know is if my number is anywhere near your number. And if it's not, I want to know if a) there's any way I can get it down to my number, or b) if you know anyone that could do it closer to my number.

My wife needed dental work

Late last year, my wife needed an tooth implant. She has great teeth but something had gone wrong with her root canal and the dentist had determined that they needed to either drill a titanium screw into her skull (with a tooth on the top), or put in a bridge. We received multiple options. But all of them were two to three times the number I had in my head.

So I said no. I just waited. And a month later, miraculously, the dentist had some sort of special deal where the bridge would be half off. So then I said yes.

Why? Because their number and my number got close enough for me to pull the trigger. And we never once talked about an hourly rate. Or the technology used. 

Why didn't we talk about an hourly rate?

I never once asked the dentist about their hourly rate or technology. Know why?

  • Because I knew I was paying for a professional's experience, not just their effort.
  • Because I didn't want to incent the wrong behavior (and have them work quickly).
  • Because I didn't want to be lied to. That's the result of putting our interests at odds.
  • Because I don't care enough, or know enough, to debate his/her approach.

Sound right to you? Have you ever talked about your dentist's hourly rate with them? What about your mechanic? Plumber? Interior Decorator? Hair stylist?

Let's talk Incentives

When you get into a conversation about an hourly rate, guess what? You're misaligning incentives on both sides of the equation – between you and your client.

You are motivated to move as fast as you can, because the only way you can make money in a cost-plus-overhead approach is to sell your time. But you also want to maximize profit, so you have the incentive to lie about how long something takes you.

Your client keeps using words like “just” “quick” and “simple” even though they know it's anything but. But they need to do that to convince you to squeeze in this quick job.

Price on Value

When someone asks me my hourly rate, I tell them I don't have one. I tell them it's the wrong question. Likely, they have a budget, a set amount they'd like to spend. I ask them to share that with me. At that point, I can determine that their number and mine are close together. Or I can help them find someone that might fit within their budget.

Either way, we find a nice and fine solution. But it's never going to be tied to an hourly rate.

Mind you, I don't ever say, “what's it worth to you?” because that can sound like I'm just playing a game with them. Instead, I'm honest.

“I'm pretty busy. I have a full time job and only a few spare hours on the side to help out. If you can tell me more about your situation, and the budget or amount you have allocated for it, either I can tackle it, or in the case where it's not within my budget expectations, I can help you find someone else more appropriate for your budget.”

It's a rare case when that isn't considered a helpful response. Consider the opposite.

“Like $200-500 / hour depending on what you want me to do. And I can't even tell you how many hours it will take me. When do we start?”

Can you see how the rate doesn't really get to the question they have anyway?

That's why I don't have an hourly rate.

PS. If you want more info on how I think about pricing, check out my latest eBook on it.