Why Would ANYONE Judge VALUE Based on Hourly Pricing Alone?

About a week ago an overseas outsourcing company contacted me through a venue that I frequent. Since I was looking for a coder for a specific database conversion project, I asked them for a quote – they had told me that it could be done for $10 per hour. I send them the two databases, along with instructions about what needed to be done. I knew it would take me about 5-6 hours to do it. It was not work I liked doing, so I was interested in outsourcing it.

Their quote came back for 24 hours of work, at $360. Hmmm. That isn’t $10 per hour…. And it is more than triple the maximum amount of time that I’d allote to the project.

I then contacted a regional coder – she charges $85 per hour. Ouch! That is a LOT compared to $10 per hour! Or even $15!

But, she could do the work in 2-3 hours. Hmmm…. $170 to $255, instead of $360! Which one is the real bargain? Especially when you consider language, cultural, time zone, and legal recourse limitations.

Even when you are comparing local with local, hourly rates are just NOT a reasonable basis of comparison. The best way to judge, is to ask for a list of included services, and a flat rate, or at least a firm estimate. Any experienced professional can give that, and a newbie can still offer reasonable guarantees that it won’t go over a certain amount.

Often, higher hourly rates pay for the following:

1. Reduced legal recourse risk. It is easier to recover from people who are within the same country as you, or who are in a country that has reciprocal agreements with your country.

2. Easier communication – time zones, language and cultural differences, or inexperience on the part of the technician in communicating with clients can all cause communication barriers, which equate to lost time or poorly done work.

3. Better tools – Better tools mean better quality output, and faster work speeds. The right tools can shave hours off many kinds of tasks, so hourly rates become meaningless when you are trying to compare the cost of one service that is done manually, and one that is done with better tools to do it more efficiently.

4. More experience – this means both faster output speeds, AND better quality. But it also means that an experienced professional has knowledge of “gotchas” that might bite you if you work with someone who is less experienced. For example, in our industry, there are certain things that municipalities or non-profits of certain types have to do with their sites, or which they cannot do on their sites, which are different than the standards required by small businesses. Experience protects those entities from potential lawsuits.

5. More Accurate Applicable Charges – One company may charge for research time, if they lack experience in a certain area, another may not. One company may charge for negotiation time, another may not.

6. Less Lost Time – Higher quality and accuracy can be worth paying a higher hourly rate for, because it saves you in the long run. If a lower hourly rate means work has to be redone, it costs you even if you don’t have to pay for it directly.

7. Attention to Different Kinds of Details – Often higher hourly rates are charged for higher risk projects because there are more details to attend to. Simple projects do not require this, but complex ones may. Often, as a business grows, so do their risks, so a service level that was appropriate for a startup may not be appropriate for a larger faster growing business. Higher risks almost always mean higher hourly rates, but they also result in more protection for the client.

There are MANY good companies who charge low rates. There are MANY new businseses and service providers who can do a very good job at a fair price. This is not in any way a condemnation of lower priced companies.

Rather, it is an encouragement to actually compare the REAL price, and the REAL VALUE rather than making a knee-jerk reaction based on the appearance of price, by using a number which is actually meaningless.

It would be like saying “A car that gets 35 MPG is better than a car that gets 12 MPG” without comparing anything else, like the reliability of the car, the size, the intended purpose, or even the side the steering wheel was located on!

Judge price and value based on factors that really matter, and you’ll find that what appears to be the lower price, often isn’t!

One Response to Why Would ANYONE Judge VALUE Based on Hourly Pricing Alone?

  • Ben Parker says:

    Hello! My name is Jeremy Parker and I am a 23 year old entrepreneur. I am
    the CEO of Tees and Tats, a high-end, limited edition t-shirt line
    designed by world renown tattoo artist Marco Serio. We launched the
    line last July, with much success, selling to many high-end boutiques
    all over the US and Canada. But starting last November, are sales
    starting to slow dramatically as with the rest of the economy. A
    large percentage of the stores we were selling to – closed, and the
    stores that have survived are not placing re-orders.

    I did not want to concede to failure- because if the entrepreneurial
    spirit dies, America will be in a much worse place. I knew the store
    issue would still be a problem, because high-end retailers are not
    buying goods anymore, but I came up with an idea that I thought might
    help our online sales.

    I first lowered our prices from $110 to $55. This helped a little
    bit, but people where still not buying like we saw earlier. So I came
    up with a concept that at the time seemed bizarre, but now has proven
    to be a savior for us.

    Now when a customer buys a shirt on our website (www.teesandtats.com),
    they are told the price of the DOW. For every 100 points that the DOW
    drops within two months after the time of purchase they receive $5
    dollars off of their purchase. For example if a customer buys a shirt
    for $55 dollars and the DOW is 8200 and two months later the DOW is
    8000 – the customer gets a check in the mail for $10 dollars. The
    reason why people aren’t buying high-end fashion- is that they are
    nervous about affording food, rent and other necessary living
    expenses. Obviously very understandable. So by assuring them that if
    the economy deteriorates even more they would get some money back —
    it made it very enticing for many customers. Our sales have been up
    significantly since we started this.

    One important additional element to the Tees and Tats philosophy is
    our desire to give back. For every T-shirt sold in the initial
    collection, we are going donate a percentage of proceeds to the
    non-profit ArtWorks Foundation. Based in Englewood, N.J., ArtWorks
    provides children and young adults suffering from chronic and
    life-threatening illnesses, and their siblings, access to creative and
    performing arts programming which encourages the use of the creative
    process as a vehicle for healing, communication, self-expression, and
    personal development.

    I just want to thank you for listening to my story, and I want to say
    that as things are looking bad and seems to be getting even worse– It
    is going to be the American people who are going to fix this problem.

    Best Wishes,
    Jeremy Parker

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