Why Chris doesn’t work hourly…
…and how he told us all about it.
Tonight, I attended a talk focused on Value – Based Pricing schemes and why working hourly is very very stupid. Here’s some back story: if you live in a major metro area like San Fran, Seattle, New York, Boston, or LA and are an independent professional, you should check out Biznik (www.biznik.com). It’s a great networking website for indie pros that focuses on creating community, offers events, talks, blah blah. Their slogan is ‘Business Networking That Doesn’t Suck’. It’s great. Not too long ago, my partner submitted an article entitled ‘Why I don’t work Hourly and Neither Should You’ which, according to him, sparked something of a “firestorm” among fellow Bizniks.
(click here to see the full article and the war that followed)
People either loved it or hated it and nearly every night I’d see him on his iPhone checking how people were rating his article….people either gave him zeros or 10s which both amused and distressed him. One thing led to another and pretty soon he and his business partner, Beth Yockey-Jones were having people pay them to break this concept down (Rough life, eh?)
While I’m not an indie professional (yet), I still got a lot of value out of it. Maybe my newbie nature explains my next statement but it seems like a lot of business/marketing principals are intuitive and the more we overthink things, the more muddled and toothless our ideas become. So, tonight’s lecture was interesting but it left me feeling ‘Duh’ for not thinking of this stuff on my own.
This is what I learned last night and hopefully it’ll help some of you out there.
Steps for making the change from hourly to value-based pricing:
1. Identify what you’re really selling. Whatever you business, you should be selling results.
– Action step: write down what you DO vs. what the client GETS (ie: if you’re a writer, you write stuff down but your clients get value through a better brand, better copy, all that. See the difference?)
1. a. Your time is VALUABLE!! Think about the value of one hour of your time. What would someone get for one hour if they only paid you hourly?
2. If someone asks how much your services will cost, do not answer them. As with everything, the first person to name the price usually loses. Establish power by making them name the numbers first.
2. a. Along the same line, letting them name numbers will help you decide whether they’re a worthwhile client. Chris told the story of the woman who wanted a sales letter written for $400. Right away, Chris knew that she was either not familiar with what good copy actually is and what it costs, OR she would be so cheap that he’d have her breathing down his shoulder for the entire length of the project. Neither of those scenarios are good and he politely (I hope) explained that he could not do the work for her.
3. Once you decide you’re going to make the leap away from hourly, you need to decide whether you’re going to use a ‘boiler plate’ pricing structure or negotiate each contract individually.
– Do this by looking at the volume of work you need to reach your goals. If your jobs are less than $1k each, you can probably get away with using the same contract over and over. Conversely, if your jobs are complicated and vary widely in price, individual pricing is probably necessary.
– Don’t low-ball yourself. Beth brought up a good example using roof contractors. Say you need your roof fixed and you get three estimates and one is $5000 less than the other two. How likely are you to go with the low estimate? Not very because you assume that since the price is so low, the quality will be horrible. Use this logic to set your prices. If you’re competing with larger firms as a solo professional…position yourself as ‘the anti-corporation’. By working with you, your clients get face time, personal touches, and percieved emotional connection. No one can argue with that!
4. Realize that you have the ability to choose your clients and you need to be willing to WALK AWAY at any time. Clients that are pains in the neck are not worth any amount they want to pay you. Also be careful of clients that may not have a clear idea of what they need or why they need you. An easy way to tell is to ‘jargon drop’. If they keep up, then you’ll know they know what’s up.
5. So, now you have the client who’s totally ok with your Value Based Pricing structure! Hurray! How do you write the contract?
– Early in the document, state where the client is and where they want to be. You can even reiterate what the client has told you and you’ll look like a genius who listens. Amazing!
– State the client’s goals specifically
– State the specific benefits that your client will get from working with you. BE SPECIFIC!
– Establish deadlines with the client. Example: Full payment is expected within one week of receiving this contract. -or- Follow up consultations must be scheduled X days in advance. This shows the client that you are a) busy, b) valuable, and c) are in control of your business.
6. If you’ve got a client who’s teetering on the edge and feels like he REALLY needs an hourly rate, try to spin non-hourly work as a benefit to your client. Theoretically, you could triple your hourly rate and say ‘You could either spend $300 and I will give you one hour of my time where we can accomplish X,Y,Z objectives -or- you can pay me $1000 and I can promise you that your project will be complete and exactly as you want it with revisions up to 30 days from the delivary of the final product’ Most people won’t balk if they think they’re ripping you off.
Bottom line: You are valuable. Your time is valuable. And working hourly will only cause you grief and make you lie (see Chris’ article for justification of that statement).
Check out Chris’ blog for random musings and related articles: Hard Working Words