About This Talk
This is a talk by Jonathan Stark about how to go from hourly billing to fixed pricing.
Mentioned in this talk:
2:45 How to Double Your Hourly Rate
8:45 The Problem With Hourly Billing
10:10 Creating Info Products
12:30 Productized Services
18:30 Value Pricing Custom Projects
How to Double Your Income
As a service provider, you only have a few ways to double your income. You can work twice as much, but who wants to do that?
You can double your hourly rate, but that may alienate your existing clients.
You can become a manager and hire a bunch.
The problem with hourly billing? The better you get, the less you make!
Hourly billing has three big issues:
- Hourly billing punishes expertise
- Hourly billing prevents the creation of leverage
- Hourly billing misaligns financial incentives
This is because of the nature of hourly billing – clients aren’t evil.
There are 3 Ways to Package Your Expertise
Jonathan suggests you first reframe your approach:
“Instead of thinking ‘I do X,” start thinking “I know how to do X'”
In this way, you can decouple yourself from the limits of your own time and start finding leverage in the way you deliver. Of course, you could always just raise your prices and do the same thing you’re doing now – that’s an option – but there are three ideas on how to take a more measured, thoughtful, and scalable approach.
Idea #1: Create Info Products
You can create a course, templates, or other info products that you see online. This would work like an ecommerce purchase: people visit your website, find a sales page, and put their credit card or banking info in to buy the product without ever speaking to you. Keep in mind that you’ll need relatively mature marketing to make this work. You can also think of info products as a way to serve a market that can no longer afford you as you raise prices or otherwise alter your offerings.
Idea #2: Productized Services
Jonathan’s definition of productized services: “fixed scope service that you sell at a published price.” This makes your service easier to market and sell because you can make your sales process more specific, tightly define the scope of your services, and make your marketing laser-focused.
Productizing your services has the added benefit of being more repetitive and predictable, which allows you to continually find ways to reduce your effort while increasing the quality of your delivery.
Idea #3: Project Pricing Using Value Pricing
Jonathan’s definition of a project: “a collaborative endeavor designed to achieve a specific objective.”
Value pricing only applies to custom projects, and ones with immense value to your client. In order to value price, create your normal estimate, then give a fixed-price version for 85% higher than your estimate. You can put two options in front of your client then:
- A $10k estimate with hourly billing
- An $18.5k fixed price that guarantees an amount to the client
Eventually you can begin to package your services in three pricing tiers. Check out Jonathan’s value pricing calculator as a starting place if you’re not sure how to price.
If you’re attempting your value pricing for the first time, Jonathan recommends you ask three questions of your client:
- Why this?
- Why now?
- Why me?
Based on your prospect’s answers, come up with the value first then work on the scope. Come up with three levels of pricing using the value pricing calculator (or your own intuition) and you’ll be on your way. One quick note: Jonathan recommends you do a value pricing exercise with a real client once or twice a month to make the progress and get the practice you need to really hone the skill.