Why Hourly Pay is Killing Your Results (and What to Do Instead)
 

What is going on? My friends Mike Walker here. Welcome to another episode of the Wealthy Consultant Podcast. Thank you for joining me today. It's been a minute, it's actually been a minute since I've been in the studio. I've been traveling a ton, uh, doing some great family trips, and, um, we've been back filling with some of the.

The legacy content, some of the gold that we have in the war chest, things that, uh, unless you are a client, wouldn't have even been seen. And so we kind of want to pull from that and feed the channel with some good stuff. But I'm here with you. I'm back and I wanted to, um, share with you an idea that kind of struck me today.

I was driving up the road and, and just kind of thinking about. Value, like where, where can I bring the most value to our listeners of the podcast? And um, one of the things that came to me was a discussion I had with a contractor recently. So one of my other businesses is a software company. Uh, we're, we're very much in the early startup phases and we're officially kind of rolling things out to the public just now.

Client bloom.ai, go check it out when you get an opportunity. Uh, but, uh, it's fun. And now here's the. Cool part is developing other businesses and being involved in other ventures is ultimately one of the ACEs up my sleeve as a business development consultant. Why? Because it's not theory anymore, right?

It's, I've been there, I'm doing it. I'm actually out on the front lines, just like our clients are, and it's something I've been really passionate about for over two decades now, is the fact that the experiences, the ups, the downs, the tribulations, the trial, the tears, all the things over those decades and years combined.

Um, adds not just value to my own life, but I get to pull from that and help other clients turn, you know, uh, what, what I would say is turn my decades in today's for, for you and the client, right? Um, and so one of the elements of this though was a conversation I had around. Compensation. If you are a CEO, a founder, a manager, a leader of any type where you are in charge of or oversee the compensation of team members, then what I'm about to share with you today, I think will have some pretty profound impacts on how you view the value exchange that happens in their efforts, their time and energy, of course, being put into some particular objective for your business.

And then in, in exchange, of course, they want to get paid, right? That's why they're doing it. And so.  What I wanna share with you though, is a very simple concept, and honestly, I'm gonna be dead honest. It still kind of blows my mind how few people  think about it this way. And that is the idea of, uh, hourly based compensation. 

Hourly based compensation. And so let me just kind of give you some context here. Okay. So, uh, we're develop, we're a software company, right? This other venture I'm talking about, and we're developing this really powerful ai.  Uh, driven client retention software. I'm really excited about it. It's something that we're already using here at the Wealthy Consultant, and, uh, it's gonna be being rolled out to the public.

And, uh, part of that venture though is the fact that I need developers. I need people on the front lines. We have our in-house guys, but I'm also now starting to bring outside people in for very specific projects. Okay. So we've got to be clear. We have our in-house team, they're always there, but then we also have.

Uh, some developers that we're bringing in for very specific niches or features of the software that we're developing just to speed things up and to make sure that we don't have concentration risk in our team, whereas. You know, all development and our entire roadmap is essentially hinged on these couple people in-house people's, uh, abilities and, and bandwidths, right?

And so we kind of gotta diversify. I'm a huge advocate and I hope you do this for your own business. Always kind of have like a a, a bench being built up with other people in the background. You never wanna have a situation where. God forbid something were to happen to one of your A players or there's just a life event or something pulls them away for whatever reason, and now you're stuck here holding the bag going, oh my God, we don't have any backups.

You don't want that, right? So just like a pro ball team of any type has their, their frontline players, right? They always have someone in the back because if someone got hurt or whatever, you need to be able to backfill that person. Well, it's the same with developers, especially when you're developing software in the ai, uh, you know, category.

Things happen really fast. Developments are happening literally by the hour every single day. And we need to always be on the front edge of that. And so part of doing that is, like I said, making sure that we have some people in the backfield that can, can help us with very specific projects. So all that to say, there's your context.

Um, I mapped out very clearly what this project was gonna be. I had a very definitive start and end. It wasn't like an ongoing thing. There was a very clear start and stop to this particular feature that we were building out. And the developer. Been around a long time, very skilled, you know, vetted through a lot of people.

We weeded through a lot of people to find this individual and I said, great. You know, this, I, I'd love to get started. Looks like you're the type of person we're looking for. Here are the dynamics of the, of the contract. Here's what we're looking to achieve. And he said, great. Here's my hourly rate. And then I just stopped.

I said, uh, okay,  I never pay hourly.  And the guy gave me a really odd look. He's like. What, what, what do you mean you don't pay hourly? I said, yeah, why would I compensate you more for going slower? See, it's, it's not a, it's just not a very equitable way of value exchange. 'cause think about it. If I'm a contractor and I'm getting paid hourly and faster I go to complete this project, the less money I'm gonna make.

It doesn't make sense. I said, look, buddy, I'll just be honest with you, whether it takes you six minutes, six days, or six weeks, I care, but I don't care that much. And to be honest, I don't want to pay you six weeks for something that you could have gotten done in six days, but you want to, you know, stretch it out.

Now, I'm not trying to suggest that this person would maliciously stretch out hours, but think about it. If you were the one being paid hourly and you literally could complete something in six minutes.  But you have the opportunity to get paid over six days. You  see what I'm saying? Like it just doesn't make sense.

And so we have to remember as business owners and founders, regardless of your, um, how you are paying, okay, and who these people are, whether they're outside contractors or internally, we have to remember that compensation is not just about time exchange, it's about value exchange. And ultimately what we wanna have happen is we want to reward the activities.

That we want the leading activ, the leading activators, or the leading, um, indicators of the end result that we are looking for. Right. And so just more hours, quote unquote, is not what is a leading indicator of success. It's not more hours necessarily. It's more better hours, right? It's better time, it's better efficiency, right?

It's better skill, better experience. And so what I told this contractor and what I tell every single person that I work with in this type of capacity, I say, look.  I'd rather just get a very shared understanding of what this is, what this presents to me, the business owner as as valuable. Like what? Let's prescribe a value to this end piece.

Whatever this end result may be, let's prescribe a shared understanding what that value is, and then you tell me how much is it gonna take for you to get there? How much do I need to pay you in order to be it worth your time to develop this end result in, uh, quality and precision? I don't care about time.

Like I said, I don't care if it takes you six minutes or six days, does not matter to me. I prefer the shorter, to be honest. In fact, I might even pay you more if you can get it done in a faster amount of time than otherwise, as long as it gets done really, really well. Right? We won't sacrifice quality or precision, certainly in the, in the SAS space, right?

So, uh, it immediately became clear and that's, and now every time I do this, I've been doing this for years, and every time I talk to a contractor and kind of share with them this concept, I say, well, no, no, I'm not gonna pay you by the hour. I'm gonna pay you by the result. You see the light bulb go on, and then right after that, right after that, in their eyes, every single time you see a sense of ownership take place.

And now they are no longer a clock puncher, just pushing in time, reporting. Hey, I spent this much time. I don't care about your time, bro. I do not care about your time. I care about the end result instantly when they become the owner of their time. Owner of the result, they take ownership of the, the whole thing.

It's like now they are bought in. They're almost like a partner with you now because they have a shared synergistic, uh, compensation schedule with you. They realize, wait a second, so you wanna get this done as fast as possible, as well as possible. I wanna produce this as good as I can, as fast as I can, because technically the faster I produce this quality end result, the more my hourly rate.

It goes up, right? Because if I'm willing to pay them say, you know, $10,000 for this end result, and they realize, hang on, I can actually achieve this really well in a day. Their hourly rate exponentially by multitudes of order went up versus what I would normally pay anybody on hourly rate. Right? So see, they now turn into an owner of the project.

They buy into it, and now their compensation isn't tied for just clicking away the hours and kind of milking the clock. It's purely based on outcome, purely based on results. Now, I know this is not a rocket science idea, but like I said before, I am. Always surprised how many contractors, independent contractors in particular that I communicate with that have never been compensated in this way.

They're always like, oh, my hourly rate is $30 an hour. My hourly rate is $150 an hour. Whatever it is. And it just so surprises me. Now, are there advantages to hourly maybe out there in some scenarios? Maybe there are. Okay. So I'm not saying this is, you know, gospel per se, but more often than not, if you are the owner of a business and you are trying to develop something, it is imperative that your compensation strategy is synchronous to both your needs for speed, precision, results, and essentially getting it done quickly and well. 

And making sure that you get their buy-in, like they need to be motivated by the same things you are. And when you pay them by the hour, you are literally compensating them more for taking longer. It just doesn't make sense.  Doesn't make sense. Okay. So anyway, very simple, uh, concept I wanted to share with you today.

But again, if you apply this, it's pretty amazing when you see the light bulbs go off and now you've got people that are working for you that are very much more bought in to getting the results. Not just the hours. Hopefully this helps my friends. We'll see you on another episode of The Wealthy Consultant Podcast.

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