A Wake Up Call – Hourly Pricing vs.Value Pricing

September 30, 2013 / in General Information / by Jason Terry

Post written by Jason Terry, Entrepreneur | Social Coach | Web Developer | Scuba Instructor | Guitar Player | Cruise Traveler | Lego Collector

My friends at Karbank Real Estate Company let me use their corner office today… I thought I would share the great view of downtown Kansas City from the 39th floor.  And that is what gave me inspiration for my blog post today… sharing the perspective.

Best month ever… again.

Back in July, Blue Gurus celebrated the best month of revenue in the history of the company.  It is an awesome feeling to hit a milestone like that.  Just two months later, here at the end of September, we’ve beaten the July number by 31%.  We have hard work and great clients to thank for that… but the most interesting result for me is the realization that I still have a lot of work to do!

Make sure you celebrate the wins along the way.

I know quite a few business owners that are never satisfied with their wins.  They don’t take the time to celebrate their wins along the way and are left feeling burned out.  I don’t want to make that mistake, so Mic and I are taking our wives to Vegas this week for the Blue Gurus annual retreat.

Hourly pricing

Before I started Blue Gurus, I had been in the world of hourly consulting for more than a decade.  It was what I knew.  It seemed fair to me… get paid for the amount of time you put in.  If you have to do more for a client, they pay more.  And yes, if you don’t have the meeting because of things outside your control, they pay less.

My mindset was all about hours and not about VALUE.

Mic has been challenging me for years about our pricing model.  I remember having the discussion with him in the first 6 months of him starting to work with me.  That was more than 3 years ago.

I had to see it to believe it.

Over the past 12 months, we’ve focused on adding retainer clients to Mic’s book of business.  Our pricing for those retainer engagements is based on the value that we are providing, not how long it takes to get the work done.  It is more profitable work and we are getting fantastic feedback and kudos from the companies that we work with.  We have enjoyed some great successes over the last two months.  The ironic dilemma for me is that Mic hasn’t had to work as many hours to generate the same amount of revenue.  What a wake-up call.

An example where hourly doesn’t make sense…

I recently did a project for a client that has been with me for many years.  I charged our typical hourly rate of $150/hour.  The project ended up taking 10 hours, all done in one long, focused day.  What we delivered was worth tens of thousands of dollars of revenue to our client and we only charged $1,500 because of the hourly agreement.  It would have been appropriate to charge $5,000 or more for the project. (The client even mentioned after the fact that we could have charged more.)

We have the knowledge and efficient process to deliver great results quickly.  We shouldn’t get penalized financially if something only takes a few hours to complete.  Often, it is years of experience, trial and error and ongoing practice that allow us to deliver consistent results in a timely manner.

Now you know why I have a lot of work to do.

I have been doing hourly consulting with clients for years, but it is clear to me that hourly pricing for much of what we do no longer makes sense.  I am working hard to break the hourly pricing habit when talking with new clients.  At some point, I will probably need to have delicate conversations with current hourly clients.  I really love helping people solve problems and get to “happy”… but I finally understand that it is okay to price projects based on what the outcome is worth, not the number of hours it is going to take me to do the work.

How do you price your services?

I am sharing this with you in case you are in the same place I was.  How do you price what you are doing?  Are you crazy busy all the time and not feeling like your revenue matches up with your efforts?  Do you wonder if the fee you are paid is on par with the impact your work is having on your clients?  If so, there is a much better way.  You just have to find the courage to change the way you scope and price your projects while getting away from an hourly mindset.

For more information about value pricing instead of hourly pricing, be sure to read this free, short eBook from FreshBooks.  (Thanks to Jennifer Peek for recommending this to me!)