The Problem With Flat Hourly Rates
Flat hourly rates are fine. Nothing wrong with them.
But they have a fundamental problem: misaligned incentives.
When you bill hourly, you profit from working longer. The client pays for inefficiency. Neither of you is motivated to ship fast or work smart. The project drifts. Scope creeps. Nobody wins.
That’s why I stopped using pure hourly rates years ago.
How I Propose Flat Plus (With Efficiency Discounts)
Instead, I propose what I call Flat Plus or Flat Plus Efficiency Discounts.
Here’s why it works:
Both sides win when a project allows for:
- A predictable block of hours to plan around
- A chance to discount the rate slightly because the hours are mostly guaranteed
- An incentive for me to be smarter, faster, and more efficient so we can launch early
Example Pricing
It sounds like this:
If this were billed hourly for the 40 hours I expect it to take, the cost would be around $7,000. But here’s a better option…
I’ll do the full project for $6,000 flat. You also still get the benefit of discounted hours AND a 4-hour buffer baked right in. If we exceed 44 hours (10% over estimate), any extra time past that will be billed at my standard rate. If we approach 60 hours without renegotiation, and we haven’t agreed on a plan before then, there may be a premium applied due to scheduling conflicts that start appearing at that scale.
Why this works:
- You save $1,000 upfront
- I’m incentivized to finish in 35 hours (higher hourly rate than $150/hr)
- We both have clear guardrails (44 hours, 60 hours)
- No surprises
Fairness in Delivery
I always stand behind fairness.
If an overrun happens because I miscalculated, underestimated, or created the bottleneck—I step up and absorb a generous share of it. That’s my responsibility.
But here’s the thing:
If slowdowns or delays are caused because the client:
- Wasn’t prepared for kickoff
- Needed more versions due to uncertainty
- Struggled to deploy due to fear or indecision
- Or kept iterating without defined boundaries
Those are business delays, not project delays. And they need to be handled differently.
This is why every engagement should have a Version 1.0 launch milestone planned before we begin. No ambiguity. No endless loops of revision.
We define it upfront. We agree on it. We ship it.
Payment Cadence That Protects Both Sides
I keep payments simple, predictable, and milestone-based:
- 50% deposit at project start
- 30% at beta or key delivery milestone
- Final 20% at launch or delivery
This structure does three things:
- De-risks you — I’m not out weeks of work with no capital commitment from the client
- De-risks them — They’re not paying in full before seeing anything
- Creates checkpoints — At 50% payment, we validate direction. At 80%, we validate execution. If something’s wrong, we catch it early.
If the hours begin expanding past what was estimated—or even look like they might expand—I don’t wait for chaos to arrive.
We go back to the table quickly and determine:
- What stays, what ships, what waits
- Or whether we switch to another value model
Clarity first, always.
When Hourly Doesn’t Make Sense: Shared Upside Models
Sometimes, a fixed project rate isn’t right. This happens when:
- The outcome depends heavily on execution and client decisions
- Results are measurable and tied to revenue or profit
- We want an ongoing partnership, not just a one-off project
- The client wants risk-sharing, not risk-transfer
That’s when I propose a Flat Plus % model.
How It Works
We deliver an initial project at a fixed rate (same structure as above). Then, if the client wants me to keep refining, optimizing, and improving beyond our agreed scope, we shift to a revenue-sharing model.
My Part: I continue optimizing and refining for [2/3/5 years] at no additional hourly rate. Any improvements, feature additions, or optimization I make is included.
In Exchange: I take [5-10%] of gross revenue or [10-15%] of net approved revenue (my discretion based on risk profile and scalability potential).
My Discretionary Call
Here’s what’s important: I only take percentage-based deals when I genuinely believe in the product, team, and market opportunity.
These deals put me at risk.
When I take a percentage deal, I’m saying: “I believe in this so much that I’m willing to bet my income on it. The team is capable. The product solves a real problem. The market is there. We’re going to win together.”
That means I’m selective. Very selective.
I turn down percentage deals regularly—not because they might not succeed, but because I don’t personally believe enough in the team or the product to bet my income on it.
Gross vs. Net: When to Choose
5-10% of Gross Revenue (Simpler, Higher Risk for Me)
- Everything the business generates
- Doesn’t account for expenses
- I use this when: The business model is simple, it’s early stage, or cost structure isn’t clear yet
- Example: $1M in revenue = $50-100k annual payment
10-15% of Net Profit (More Complex, Lower Risk for Me)
- Revenue minus approved expenses and salaries
- More accurate to actual business health
- I use this when: Established business, clear cost structure, I’m embedded in decision-making
- Example: $1M revenue – $600k expenses = $400k net → 10-15% = $40-60k annual payment
The exact percentage within those ranges? My discretion. Based on risk, stage, and growth potential.
The Partnership Mindset
When I take a percentage deal, I’m not just a vendor anymore. I’m a stakeholder.
That means:
- I care deeply about long-term success, not just shipping
- I’ll push back on bad decisions
- I’ll optimize for sustainable growth, not quick wins
- I’ll stay involved and keep refining
- I have skin in the game
The Buyout Option
But I also respect that you might want to own it outright at some point.
After Year 1, you can buy me out of the remaining term:
The Formula: Year 1 payment × 1.5 × remaining years × [50-70% discount]
Example:
- Year 1: You paid me $50k (5% of $1M revenue)
- Remaining term: 4 years left on a 5-year deal
- Buyout: $50k × 1.5 × 4 years × 60% = $180,000
- Result: You own it outright; I’m done
The 50-70% discount is my discretion based on:
- Impact already delivered
- Value created in Year 1
- Market conditions
- Future potential
Bottom Line
- I price the risk I take
- Discount the certainty I get
- Reward the efficiency we create
- And share the success we generate
I’ll always be fair. Always be clear. Always move quickly back to the table if things start evolving beyond what anyone predicted.
If you’re looking for a partner who believes enough in your success to bet on it, that’s me.
If you’re looking for someone who will work the clock to maximize hours, that’s not.
Next Steps
If you want to talk about structure options for your project, let’s chat.
I’m happy to walk through:
- Which model makes sense for your situation
- How the guardrails work
- What a realistic timeline looks like
- What happens if things change
No pressure, no pitch.
Just clarity.
Questions or want to discuss a potential project? Reach out to me.
