Preston (00:01.508)
Hello and welcome back to a different episode of Freelance to Founder. This can be a special Q&A episode. We do these Q&A episodes every Tuesday. And on Thursday, after all, we do our long form coaching episodes where we’ve got people identical to you, freelancers, agency builders, call in and we coach them through whatever hurdles they’re facing of their business. But on today’s episode, we’ve got a Q&A. We’ve people right in from everywhere in the world ask questions.
and we do our greatest to reply them in a little bit of a shorter format. And after all, we’ve got a matter today as well. This query clay actually comes from Jim, I don’t know the way to say his last name, Jim Crizon? Anyway, we’re going to call you Jim, Jim. But Jim was on the show in March, so it’s October right away. So he was on about six months ago and we talked about his business. So Jim, thanks a lot for writing back in.
Clay (00:41.454)
I’ll just call him Jim.
Preston (00:54.896)
Here’s his query, he says, a recent theme you guys have been talking through shouldn’t be to charge an hourly rate, to not charge on an hourly basis. Which he’s right, we’ve been harping on that rather a lot these days. And he says, I 100% agree with that value-based fees are the technique to go, but, how would you approach paying your subcontractors? I’ve run into subcontractors preferring to go hourly rate, as I believe they’re afraid they’ll’t accurately estimate project costs or efforts for them.
Clay (01:03.103)
Mm-hmm.
Preston (01:23.1)
And he says, it’s more economical for me to pay for the hourly rate, which is why I push my clients for value-based billing. So I’d wish to hear your thoughts on the way to best structure payment for retainer or subcontractors, particularly in the event you’re attempting to construct a team. So I’m gonna sum this up for me. The query is, yes, hourly is, sorry, value-based or project-based is best once I’m charging another person, but once I’m paying someone, shouldn’t I need to pay them by the hour? What do you think that, Clay?
Clay (01:49.422)
Hmm. I can see where this could be somewhat, what’s the word I’m looking for? Lower than simplistic. Less congruent, right? Since you’re charging, possibly you’re charging a flat fee to your clients, but you then’re having to show around and pay hourly to subcontractors. Like, so it makes, I mean, logically on paper, I assume it is sensible to
Preston (02:12.206)
Yeah, yeah.
Clay (02:18.934)
Be congruent, here’s my, I assume what I’d do is, it really comes out to the identical, to be honest, for my part, but in the event you desired to be congruent, I’d just try to barter with my subcontractors and pay them a flat fee.
Preston (02:37.658)
Yeah.
Clay (02:39.03)
per project or something. If you happen to don’t, and you have got to pay them hourly, which I assume is okay, and also you’re still charging a flat fee to your clients, I’d enterprise to say you understand the typical amount of hours it takes to do a certain project, right? Which implies you understand the typical amount of dollars it costs you to pay a subcontractor, on average.
Is that, like, am I, I’m kinda considering there.
Preston (03:10.736)
Yeah, yeah, I believe so, particularly if you have got followed our advice about really systematizing your online business and constructing processes so that you simply don’t sell 100 different items, you sell one or two things and also you do them very well, then yeah, you have to be very clear on what number of hours it takes to do certain things.
Clay (03:17.961)
Mm-hmm.
Clay (03:31.338)
Yeah, so I believe you possibly can easily guesstimate how much it’s gonna cost you. So let’s just take a web site project. Did he mention what form of projects?
Preston (03:42.362)
No, he didn’t
Clay (03:43.582)
Okay, let’s just say it’s a web site project and also you charge, I don’t know, $5,000 for a web site. But you then turn around and pay a subcontractor, possibly you’re the one who deals with the client, right? But you pay a subcontractor, an online designer to design it. And possibly this web designer charges hourly to do it. I believe with web sites, you…
You understand, if you have got enough experience, you understand about how long a web site takes to construct for a specific, if you have got like a brochure type website that’s identical to, yeah, lower than 10 pages, you understand, like brochure website, it probably like, I don’t know, lower than 20 hours, lower than 10 hours, you understand, it takes me lower than 10 hours to construct something like that. You times that by regardless of the hourly rate is, you understand?
Preston (04:19.472)
Yeah.
Right, then it takes a specific amount of time.
Preston (04:36.589)
Yeah.
Preston (04:42.undefined)
Yeah.
Clay (04:43.055)
After which consider that your average cost. Now, I’d pad it.
Preston (04:48.044)
Yeah, give yourself somewhat little bit of wiggle room.
Clay (04:49.99)
Yeah, because some projects might take more. But based off that, that’s just what I’d base that number.
to make use of in what you charge your client. And you simply gotta know that you simply’re gonna be over somewhat bit on some projects, you’re gonna be under somewhat bit on some projects, however the goal is to average around that.
Preston (05:15.06)
Yeah, you have got a median profit margin that you simply’re aiming for. I believe that’s one technique to do it. I believe one other way you may do it’s you understand what you’re planning on charging your client for a project. And as a reminder, I just re-looked it as much as remind me since it has been somewhat while. We love you, Jim. Sorry that we forgot. So Jim does Salesforce work. So he’ll are available in and help an organization get all arrange on Salesforce and does customized…
like customized Salesforce stuff for his clients. So stuff, Clay and I frankly don’t know rather a lot about, but I do remember having this conversation with you, Jim. And I believe for me, you may take a look at it that way, or you may also say like, I do know I’m gonna charge my clients $5,000, right? So now I want to search out a freelancer who can do it for $2,000, or whatever it’s gonna be, right? And so then while you’re looking for freelancers, as a substitute of claiming like, how much do you think that this’ll?
Clay (05:48.887)
Mm-hmm.
Clay (06:05.023)
Yep.
Preston (06:11.824)
how much do you think that you may do that for? After which they’re attempting to determine their hourly rate and it’s identical to in every single place. As a substitute, you simply say, could you do that for $2,000 or less? It’s an easy yes or no, right? And in order that’s what I do with the freelancers I hire. I do know what my budget is for the duty that should be done because I understand how much money we’re gonna make from it. After which I even have to maintain it under that specific amount or we’re not profitable.
Clay (06:23.132)
Mm-hmm.
Clay (06:37.865)
Mm-hmm.
Preston (06:38.104)
And so I actually prefer to go the opposite direction where as an agency owner, because that’s essentially what you’re becoming, in the event you’re beginning to hire subcontractors and freelancers, you’re beginning to change into an agency more. As an agency owner, I even have to say, listed below are my expenses, and I even have to maintain my expenses under a specific amount. As a substitute of claiming, listed below are my expenses, after which I’m gonna work in profit on top. And it could work either way, right? But I believe there’s two ways you may take a look at it for sure. You understand, if a freelancer involves me and says, I only do hourly,
Clay (07:00.024)
Mm-hmm.
Preston (07:08.016)
Initially, unless they’re identical to essentially the most incredible person on the planet, I just know I can discover a freelancer who will do it on a hard and fast rate. And I just prefer fixed since it’s more predictable. Because what happens in the event you bill your client three grand for a project and your freelancer works hourly and he goes over the three grand because he can’t figure something out. He’s actually rewarded for being less efficient and being less talented and fewer capable.
Clay (07:18.313)
Mm-hmm.
Clay (07:30.135)
Right.
Preston (07:37.752)
It doesn’t, the hourly just has never made sense in my mind. The more severe you might be at your job, it takes you longer to do it, the more you receives a commission. What’s that about?
Clay (07:46.146)
Mm-hmm. It’s the identical thing like lawyers man. I never understood why lawyers charged by the hour, but like
Preston (07:50.368)
Yeah, after all, yeah. Because, no, because they sit in a room with you and talk for two hours. That’s why they charge by the hour.
Clay (07:55.31)
Mm-hmm. Yeah, in the event you hire a divorce lawyer, they’re incentivized to make that, to stretch that divorce, like, hearings longer. And never made any sense to me.
Preston (08:07.452)
Mm-hmm, yep, yep. And that’s why a number of the most effective lawyers are those who’re working on a contingency because they know they receives a commission from regardless of the result’s, not from just sitting in a room and consulting. And after all, it could be awesome if we could all just sit in a room and seek the advice of and make an hourly rate and never even have to supply any real value necessarily, right? And I’m not saying all lawyers are that way, but.
Clay (08:16.994)
Mm-hmm.
Clay (08:35.49)
Mm-hmm.
Preston (08:36.356)
but in most client relationships with an agency or a freelancer, you have to be getting paid by the worth. And I never pay for something that’s indirectly related to the worth they’re gonna bring. I never pay anyone just for like showing up. You understand what I mean? So I don’t know. What else do we want so as to add here for Jim?
Clay (08:54.838)
Hmm, I believe that just about sums it up. I mean, I believe it’s just all about Getting enough of an information set to know what your what your average cost numbers are Pat pat it somewhat bit and just let that be it
Preston (09:06.896)
Hmm, yeah.
Preston (09:12.94)
Yeah, you gotta know your numbers. You gotta have enough of a system worked out to where you understand like I even have, I want to have six clients on average in any given month. They should each be paying $2,000 for the month. That offers me $12,000 in top line revenue, which implies I even have $5,000 to spend on subcontractors. So I want to search out possibly three subcontractors who can each do, well now that’s hard math, like 1,200 a bit or whatever. Such as you gotta know those numbers.
Clay (09:15.102)
Or, yeah.
Clay (09:20.318)
Mm-hmm.
Clay (09:42.398)
Yeah, now here’s somewhat tidbit for everyone, because I do know we’ve got a variety of freelancers here. I believe while you’re pricing your services, even in the event you do the services yourself, I believe you should price your services as in the event you are going to subcontract it out.
Preston (10:03.248)
Hmm. Say more about that.
Clay (10:03.81)
So, well that is the way you grow, right? So, in the event you’re charging based off just, you already know you’re gonna be doing it. So, let’s just take a web site for example. So, within the case of hiring a subcontractor, we give the instance of like, hey, if it’s gonna cost you 5,000, otherwise you’re charging $5,000, it’s gonna cost you 2,000 to subcontract it out, you make 3,000, right?
We all know there’s more to it than that, but we’ll keep the instance easy. Plenty of freelancers here might be like, well, you understand, it’s only going to take me, you understand, 10, 20 hours or whatever. So I’ll just charge you $3,000 for the web site. That’s what most I believe most freelancers do, especially in the beginning, is that they know that they themselves are going to get $3,000. But for my part, you can not grow that way.
Preston (10:35.94)
Right? Yeah.
Preston (10:55.301)
Hmm.
Clay (11:03.902)
because eventually if you must hire people and also you don’t need to be a solopreneur, solo freelancer perpetually, you’re going to must raise your fees in some unspecified time in the future anyway. So I’d pretend like whether you’re going to do it or not, pretend you’re going to subcontract this out, determine what it’s going to cost, charge your client accordingly to that model, after which at that time,
you select whether you wanna do the work otherwise you hire it out.
Preston (11:36.812)
Yeah, I like that really. I like that.
Clay (11:39.582)
Mm-hmm. And you possibly can do it, right? You possibly can do it in the event you want. But this provides you the liberty of, okay, I do know I priced it high enough to give you the chance to subcontract it out. If my demand’s high, I got a workload or whatever. So like that. I believe that’s the best way pricing must be done.
Preston (11:56.696)
Yeah, that’s really smart because there are going to be moments where possibly you wish the money personally, right? Especially as you’re growing. Or there is likely to be moments where you wish the time beyond regulation to grow your online business. And so giving yourself that flexibility, I like that. I like that. Very smart. Well, Jim, initially, thanks for continuing to listen. Thanks for coming on the show six months ago. Possibly we’ll reach out to Jim and see if we will have him back on the show. Learn more about your online business, answer some questions.
Clay (12:01.038)
Mm-hmm.
Clay (12:10.219)
Mm-hmm.
Preston (12:22.34)
But Jim, thanks for listening, man, and thanks for submitting a matter as well. Again, if you must submit a matter like Jim did today, you possibly can go to freelance2founder.com slash ask. Clay and I’ll do our greatest to provide you our greatest advice based on our experience in growing a pair of companies. And yeah, I’ve been Preston with millow.co. After all, Clay Mosley from getdrippify.com. That’s been us today. Thanks a lot and have an amazing day.
Clay (12:43.952)
See ya!