How Higher Hourly Rates Result in Lower Costs

• July 24, 2019
• Control Concepts

When evaluating a service provider like a independent programming company, the question about hourly rates can many times serve as a qualifier. While comparing hourly rates would seem to be a natural way to narrow down the field, the decision may not be as straightforward as it seems. As clients are evaluating their options, it is important to understand the significance of an hourly rate.

An hourly rate is not only indicative of the qualifications, quality of work, or level of service of a service provider, but also of the value that an individual or firm places on their time and their clients’ time. Time is a limited asset for everyone and the laws of physics tell us that time can not be expanded nor recreated. Therefore, time allocation needs to be protected and used wisely. Lost time yields lost productivity, lost revenue, higher costs, and additional effort depending on your perspective.

While hourly rates do factor into the cost of service, it is only a portion of the equation that defines overall pricing. The other factor being the time associated with the scope of work and the anticipated effort. As we know, a lower hourly rate combined with a higher time variable result in a comparable overall price as a higher hourly rate with a lower time variable. In either case, without a positive outcome or result, neither truly matters.

In a competitive landscape like the AV industry, a higher hourly rate is not only indicative of higher level of service and appreciation for time, it is also a sign that the service provider compensates their team well and thus needs to charge a rate that corresponds to their costs.

Working with a higher cost service provider will yield a greater focus on the time and effort required to complete a project or task. In doing so, all involved will be challenged to work smarter rather than harder and complete tasks in less time thus leading to efficiency and profitability. We can all agree that every project has a component of lost or wasted time associated with it. However, by focusing on working efficiently, projects get done quicker, budgets become easier to manage, and higher hourly rates result in savings rather than increased costs.

While it may seem to be important to compare hourly rates, all variables that impact the total cost need to be considered. Evaluating a service provider based solely on hourly rate is similar to purchasing a car based only on its gas mileage. Neither provide a complete picture of overall cost nor the quality of the outcome.

In a future post, we will look at ways to optimize time and manage costs on typical projects.