Is it time to rethink or retire hourly rates?

During our Community Xolo Pledge, we asked Xolopreneurs of all types to give us their biggest challenges. The community responded, and we’ve chosen a few highlights from this campaign to share in full detail. 

Today we interviewed Mihai Dragomirescu, a Romanian freelancer, who’s take on hourly rates may be a more growing, shared sentiment among freelancers in today’s changing landscape: Is it time to rethink, or possibly even retire, hourly rates? 

Mihai, could you introduce yourself?

“Hi, I’m Mihai. I am a 43 years-old freelancer, I live in Romania and I am constantly learning refined ways of surfing through life with all the challenges it comes with. I steward various communities and I act as a producer for some amazing wisdom economy professionals.”

You have an interesting view on hourly rates. Could you elaborate on that? 

“Just as local regulations were not ready for the Uber-like-apps that have taken on cities, getting paid by the hour is an outdated system that does not reflect the value a contractor is providing.

The current system rewards slower and less efficient work—essentially, the longer a contractor takes, the more they get paid. This approach doesn’t reflect the true value of our expertise or the years of experience and investments in training we bring to the table. More and more people are getting better at what they are doing because they love it. It does not feel like work and so they invest their time and money in it.

Hourly rates enforces a perverted mindset that clients might have — thinking they own the hours of that freelancer that they are paying for.

We need a new model.

How can we reinvent the model for compensating freelancers that truly reflects the value of their contributions, rather than just the hours they spend? We need a system where efficiency and quality are rewarded more than mere time expenditure. What is the real value you bring––a question that if answered honestly by everyone could create a better collaboration model.

What do you think the system of billing should look like?

“Flexible.

In many cases payment upfront is necessary. To make an analogy, I’d compare it to when you start using a Saas platform or create a paid ads campaign––you’ll need to pay before you begin, or at least have funds available on the linked card for billing. A fraction of the agreed payment upfront creates trust, motivation and sets things off to a great start.

I do believe we should explore fixed rates, and obtaining a percentage of the value your contribution brings in for the project.”

How do you currently bill and price tag your projects? 

Before billing it is essential for me to understand if I can help the client, if I can bring anything useful to the project. If I like it, if it excites me (highest energy always wins), if it aligns with my professional trajectory and my bigger plans, I accept it.

I then evaluate the potential of the project and how it integrates with all that the client is doing. I evaluate how much it would cost them if they would get all the services I provide traditionally.

Then I ask how valuable they allow my contribution to be? Are they open to step into a higher class of results? Do they have limiting beliefs around that? What aspects of their project will I be responsible for?

I like to underpromise and overdeliver.

It’s a dance of mutually believing in the other. My recommendation and insights might be good but they value absolutely nothing if they are not followed and implemented.

If we don’t step on each others feet too much, the dance flows and I usually take one of these routes:

• If it’s something static (it usually never is) I evaluate the total work required to get the project done, I factor in the forecast of the value I think it will bring and give a total project estimate. The time taken to complete a project is always dependent on both parties' timely feedback and supply of required materials.
• If it’s developing into a (new) line of revenue that I will have a contribution too and my contribution is required ongoing, I usually ask and receive a percentage of the future money we will be making together––this keeps me engaged in the project and creates an energy loop that feeds its own growth.
• If the project requires more than a one-time effort before it starts to bring revenue, I ask for an upfront investment in a monthly retainer plus a percentage of the revenue we will generate. We then gradually lower the retainer, as the revenue starts to come in.

I never look at money as an objective but rather as a consequence of the value I created.”

What feedback have you received since transitioning from hourly rates to your new pricing model?

“I have not really worked on hourly rates that much.

When I was building a project for myself (UrbanKID.ro) I used to keep a spreadsheet where I was calculating hourly every type of work I was doing and calculating it based on different hourly rates. Like when launching a Wordpress site I was putting in development hours, design hours, copywriting hours, business strategy hours, marketing hours and so on—so that I could estimate the total money invested.

After a year, when I saw that all my hard work was evaluated in the spreadsheet at €12k — I realized how skewed the hourly rates mechanism is.

Feedback has been very good. People I collaborate with often tell me how comfortable they are knowing that there is always someone who’s got their backs with the things we agreed on. The revenue split scenario keeps me engaged and allows me to always think of things that will bring better results, and all clients love a proactive consultant/collaborator. The fixed project rate or the monthly retainer allows both my clients and I to correctly estimate the costs/revenue so we know what to expect. ”

Mihai’s personal introspection and usage of his own system for billing seem to work. But the notion of fully transitioning from historic, hourly rates can be a long journey. As we at Xolo continue to expand our services and personalize the user experience for all freelancers, it’s our community that brings the freshest ideas.

What do you think? Is it time to move past hourly rates, or change them to be more experience inclusive? 

Streamline your freelance business management with Xolo

Xolo is the all-in-one solution for expat freelancers, offering a seamless and efficient way to streamlined business management. 

Embrace the future of accounting with Xolo and know that your finances are in good hands. It’s time to say goodbye to the complexities of traditional tax advisors and welcome a new era of financial management that is automated, cost-effective and tailored to meet the unique needs of freelancers in Spain and beyond. 

Change the way you handle finances with Xolo →