Knowledge Workers Do Not Flip Burgers

Knowledge Workers Deliver Value based on their intellectual property

And they should charge their clients a reasonable proportion of the value they deliver

It must be said that the United States is becoming a nation of coaches and consultants. Those of us who have amassed years or decades of specialty knowledge have decided that our future is in our intellectual property, from the “life coach” who is the new therapist to the water arbitrage specialist who serves as an industry expert to hedge funds (the latter charging as much as $1300/hour).

It’s Time To Blow Up the Hourly Bill

Many of my clients are entering into consulting contracts after years or decades of professional employment in finance, law, engineering, and industry of all kinds. The one thing they all have in common is the struggle to set consulting fees. A struggle arising mainly from the effort to set hourly rates based on past compensation for full-time jobs that appeared to be compensating them for their time.

I’ve had clients whose recent salaried compensation ranged from $500-$750K. These are the PhD’s, engineers, attorneys at top law firms, bankers, hedge fund directors, engineers, private equity researchers, and, COO’s among many other highly paid professionals. These newly-minted entrepreneurs often take the 2000 working hours of a 50-week year and find that measuring their consulting fees by the hour ($250 to $375/hour) would provide them with an income substantially below what clients are willing to pay for their services ($750 to $1,000/hour).

Their pay, of course, did not equal the market value of their services because their employer had overhead and the general rule of thumb for professionals is to pay no more than a third of the income they generated for the firm. One-third of client fees for the working attorneys, for instance, and two-thirds for overhead and profit to the shareholders.

your value is in costs saved or revenue driven


A value billing expert told me years ago that measuring a lawyer’s value by the amount of time she spends to produce the desired result is like putting a ruler in the oven to learn its temperature.

You are not a product, but you are more like a product than you are like a worker on an assembly line or a short order cook, both of whom must be physically at their stations for a set period of time in order to guide the engine into a car or deliver your burger within minutes of the moment you ordered it.

Not so a knowledge worker. Your client wants to use your intellectual property and industry knowledge to achieve a certain goal that has a value to the business retaining your services. You might be able to provide that value off the top of your head (“California is not a common law state; there is no common law marriage here; it’s always been a community property state because its marital property laws are based on Spanish civil law, not on British common law. Because, you know, Mexico.”)

If someone needed that advice from a family law attorney, the family law specialist could provide it in a couple of minutes. But the client doesn’t need the attorney’s time. The client needs the attorney’s knowledge. The client also needs the malpractice policy the attorney buys to protect the client (and herself) against mistakes.

The attorney’s value consists of mostly uncompensated time. Law school, for instance, that now costs a cool $150K, not to mention the Bar Exam prep course and the number of years that the attorney is out of the job market while pursuing legal studies. The product, if you will, is primarily the attorney’s intellectual property and there’s a market value to that. A value measured more accurately by the benefit of the knowledge to the client.

And how do we measure that? Stay tuned. I’ve got to engage the gears of my stream of consciousness and flip through my brain’s intellectual property files to answer that. I’ll do so next week.