Friday, September 20, 2013

Why I Charge $1,000 For An Hour Of My Time

Many few years ago, I explained to Bob Murphy that I do this for pretty much the same reason. I have noted since then that some supposedly familiar with Austrian economics and opportunity cost don't get this.-RW

By Don Fornes (

As an entrepreneur, you have a lot of things competing for your attention, from big-picture strategy to product development to human resources. So how do you decide whether or not it’s worth your time?

In this post, I’m not writing about how to weigh the merits of one strategic project versus another. Instead, I’ll write about prioritizing the frustrating little battles we’re drawn into that distract us from our strategic projects.

As I struggled with this early on, I realized that I needed a quantitative framework for deciding what is worth my time. So I decided to value my time by the hour – and set my hourly rate at $1,000.

This may seem high; after all, not many people bill themselves out at $1,000 an hour. But if you’re an entrepreneur seeking outsized returns, you should operate as if the net present value of your future earnings are large.

Wrestling Over Principle Is Expensive
To be sure, every entrepreneur needs to have ethics and principles. They are critical when guiding decisions about how you treat clients, employees, business partners and the community in which you operate. But what about when someone else – such as a vendor or client – violates your principles? When do you fight, and when do you walk away?

I experienced this scenario in the first few years of running my business. On several occasions, I dealt with developers, designers and other contractors who either did poor work or just plain flaked out. By failing to deliver a quality or even a completed product, I felt they had violated their end of the deal. But more importantly, they’d violated my principle of always delivering high-quality work. So I chose to fight – and not pay them.

Well, this led to angry emails and threats from the contractors, which led me to contact my attorney – who, himself, has a very high hourly rate – to find out what my liability was and how best to respond. Not only was this literally costing me money, I was spending my valuable time on dollar amounts that were small (~$750) compared to what I could be generating if I were focused on growing the business. I would have been better off if I’d simply paid the offending parties to go away.

The Real Cost of Conflict
Financial matters aside, struggles such as these also incur a psychological toll. When you’re in “fighting mode,” you get angry and stressed; every exchange in a principles-based battle escalates these emotions, which build up in your mind over time. And the more they accumulate, the less brain power you have left for clear, creative and strategic thinking. This, in turn, will negatively affect how you deal with your employees, business partners and clients.

Consider this example: You hire a contractor to write you a 750-word article for a rate of $500. You get the first draft, and it’s really poor. You now have a few options. You could tell the contractor you’re not going to pay him because the poorly-written article violates your principle of providing quality work. Inevitably, he will argue with you, saying he has already invested a lot of his time – and besides, your opinion is subjective. Alternatively, you could tell the contractor he doesn’t have to finish the article, and offer him a stop-loss fee of $250.

Read the rest here.


  1. As a general rule this sort of battle isn't worth fighting, neither financially nor psychologically.
    You just never do business with that person again.

  2. It's interesting to extrapolate that to why wealthy societies are less violent: people have better things to do than to pick fights with one another over petty shit