Focus on Outcomes Instead of Hours or Repetitions

Sunday, July 1, 2018 - 20:38

My boss reached into the bucket of beans, pulled out a fistful, and then shoved them to within inches of my face before asking a rhetorical question. “Do you seriously think I can sell these?” Confusion turned to a sickening feeling in my stomach as I looked more closely at the mutant sized variety he held in front of me. They were massive, bulgy, and I swear I could see veins popping out and running along the shell. He answered before I could. “Well, obviously I can’t pay you for these buckets. Now go back and ignore any others that look like this.”

Getting paid 75 cents below the then minimum wage of $4.25/hour was not my ideal summer job, but work on the vegetable farm was one of the few jobs I could qualify for when I was 14 years old. While it’s easy to complain about the pay and the difficulty of the work, the reality is that I was grateful to make anything and it was the best paying job I could get at that age where I lived.

An exception to my gratitude for having a job? Being forced to pick beans.

The reason was that we were incentivized to work harder by being paid by the bucket instead of by the hour like we would when picking corn or potatoes. This payment structure made logical sense because it was trivial to sandbag activities that involved you sitting on a bucket while socializing. The problem was that this was a hard target to hit even when going busting-your-ass fast. I typically made almost a dollar less an hour when picking beans, which is why my eyes lit up when I saw those mutant sized beans. Payday! Before my boss burst my bubble, I was on pace to double my effective hourly rate to an almost unheard of $6-$7/hour. My momentary flash of greed short-circuited any thought that there might be something wrong with this particular batch. Why should I care? Nobody told me not to.

You Get What You Measure

If you link a person's pay to repetitions, that person may change their behavior to go so fast as to reduce quality or short circuit their thinking.

If you link a person's pay to the number of hours used, that person may change their behavior to maximize the amount of busy and extraneous work to do versus just getting the job done.

There is nothing inherently wrong with either approach IF they 1) provide the right incentive for the desired outcome and 2) have appropriate guidelines in place. Additionally, things like hourly wages can appear fairer by protecting both parties from the extremes (e.g., paying too much for minutes of effort or paying almost nothing for hours, days, or weeks of labor).

My Growing Problem With Hourly Rates

As someone that has spent over a decade in the consulting space, I’m learning to detest hourly rates, particularly when it comes to areas where I have a lot of training, skill, and experience. The thought process goes something like this.

Five years ago when I barely knew topic X, it might take me hours if not days to come up with the proper solution despite a client's willingness to pay me out of trust. At an hourly rate of $125/hour, that might cost a customer $2,000, which might be a fair price for both parties given the value the client received and the opportunity cost on my side of an equivalent gig.

Now one of the shitty things about consulting is that client often pays the consultant to do things they are not experts at (yet). Sure, consultants are paid to be problem solvers, but consultancy rates are expensive, and they aren’t to paid to learn, but it happens. Perhaps the $2,000 charge for 16 hours really should have taken 4 hours if I knew what I was doing. In short, the client should have been charged $500 for the 16 hours, which would have netted me a much smaller $31.25/hour effective hourly rate.

Fast forward five years and that same task might only take me an hour because I’ve done it over and over and over again. In this case, charging the same $2,000 doesn’t feel right because that translates to a net $2,000/hour and that seems crazy pant high. However, there is also a high degree of confidence that if the client balked at that price and went elsewhere, it would still take them almost $2,000 at someone else’s hourly rate.

The challenge is that equating everything into hourly rates for each given task can result in wildly different rates given the task at hand. Admin tasks might only be worth $20/hour while high-level business strategy might be worth $1,000 in saved time and costs. It's this 25X swing on a task by task basis that makes us want to pick a weighted average to make things simpler and fairer overall.

However, the downside to either hourly rates and repetition approaches is that they can always be gamed against the client while simultaneously harming the consultant. After all, most consultants would rather maximize income while not having to play games to achieve that end.

Outcomes, however, have a higher degree of risk and yet tends to rightsize the quality and cost. If done well, the consultant can profit significantly without feeling the need to game the hours/reps to justify their rate. Focusing on outcomes allows the customer to measure the quality of the service or product instead of forcing them to scan through rows and rows of spreadsheets and nitpicking why recap email X took 21 minutes instead of 15 minutes. Exposing that level of granularity can be helpful to optimize time management, but it can also be destructively nitpicky and, again, you get what you measure. If you are ok with paying a creative consultant to be a meticulous bookkeeper, you’re getting what you are paying for and yet not what you actually want!

Applications to Life

In case it’s not apparent, the same is valid for in many aspects of life. If you are in sales, you may focus on the number of calls you make versus the amount of heart and care you put into each one. If you’re an athlete, you may focus on time in the gym or miles on the pavement instead of improving your overall vitality and health. If you are in a relationship, you may focus on the number of moments you have together instead of the amount of together you feel in the moment.

Focus on the outcomes, and the hours and repetitions tend to take care of themselves.

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About Rick Manelius

Quick Stats: Chief Product Officer of DRUD Tech. Author of Winning the Lottery Within. Graduated from MIT in '03 (BS) and '09 (PhD). Life hacker and peak performance enthusiast. This blog is my experiment in creative writing, self-expression, and sharing what I've learned along my journey. For more information, read my full bio here or contact me.