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Feb 9, 2010 Bookmark and Share

Itomic and hourly rates - one rate to rule them all

The majority of Itomic's revenue is derived from hourly rate activity. We charge for the time we spend working on a task, and the expertise we bring to that time. But how much to charge, and should we have multiple rates for different staff members and/or different tasks?

Firstly, a reminder of Itomic's Mission (as stated on our 1 page Itomic Company Profile):

"To deliver outstanding client service; to provide fulfilling careers and professional satisfaction for our people; and to achieve financial success so that we can reward ourselves and grow"


So the rate we charge must be consistent with our mission. It must:

  1. Be high enough to allow us to deliver outstanding client service. Naturally there's a trade-off between quality/service and price: charge too little and it's not possible to sustain a high level of service. Conversely, letting quality slip whilst leaving prices constant will start turning customers away in search of a better value-for-money proposition.
  2. Be high enough to allow us to achieve financial success so that we can reward ourselves and grow. In the medium-long term the hourly rate must be consistent with a profitable outcome for Itomic - or else there is no Itomic!
  3. In addition, of course, we must sensitive to - but not ruled by - the pricing of our key competitors in the market. We like to keep our competitors on their toes by ensuring that our rates always err slightly on the more economical side of the pack. By concentrating hard on business efficiencies (i.e. by staying 'lean') we believe we can deliver superior long-term profitability than our competitors who are perhaps charging a little more than Itomic.


But should we charge different rates for different staff members (e.g. senior/junior) and/or different tasks (e.g. data entry versus business consultancy)? From a purely economic efficiency perspective - yes we should. But we choose not to. We choose to go with keeping things very simple (for us and our clients!) by quoting a single "standard hourly rate" for pretty much all staff members and tasks. Some of the complexities of charging split rates are these:

  1. Deciding in the first instance what any given staff member, or any given task is 'worth' in the marketplace. This is not so hard to do the first time, but of course will include some degree of subjectivity, and will need frequent review to ensure that these multiple prices remain appropriate over time.
  2. What if a senior member of staff is the only resource at any given time to perform a low-cost task? Do you charge the senior member's rate, or the low-cost task rate? And vice versa.
  3. Let's say we estimate 100 hours to build a new website, where the total price is arrived at my multiplying the number of hours by the cost of each individual activity in the project. What if, in the final analysis, we take more time than we expected engaged in a high-cost task, and less time than we expected engaged in a low-cost task, but the total number of hours still comes in at 100? Assuming the contract allows us to, should we therefore charge extra for the overrun on the high-cost task?


So whilst there is an economic efficiency argument for charging split rates, we believe this is trumped by the KISS principle: "keep it simple, stupid!". We prefer it, our bookkeeper prefers it, and we believe our valued clients do to.

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