If you’re stuck in the rut of selling your time, do yourself a favor and grab this free eBook I’ve cosponsored with my friends from FreshBooks – Breaking the Time Barrier.
Very early on in my consulting career I learned an important lesson about time – You only have so much.
I know that may seem like an obvious thing, but many businesses still base their pricing, and therefore their capacity to earn, on time calculations. You know, it takes me 10 hours to build this so that will be 10 X $75/hr.
When I provided consulting services this way I quickly filled up my capacity and essentially trapped my profit potential. After I had done this for a few years I started to raise my prices and a funny thing happened – I stayed just as busy.
Then one day a potential client called and said he heard that I was really good at getting companies featured in the local business journal. Instead of suggesting an hourly fee I told him that if I was successful the cost would be $2,500. At first he balked, but then he considered there really wasn’t any risk unless he got a result.
I hung up the phone and made one call to a journalist that I knew was looking for precisely this kind of story. I secured the interview and called my client back with the good news and an invoice. He said, “but wait, it apparently only took you 15 minutes to get me that story and you want me to pay you $2,500?”
I told him in fact it had taken me the better part of 10 years to be able to get him that story and that he was paying for the value of the result and not my time. He had no argument with that logic, paid the invoice and was thrilled with the result.
That was the day I knew I would spend the rest of my business life using value based pricing. I began to align all of my fees based on the results I knew I could deliver and took time off the table every time it crept into a client conversation. In the end clients don’t want your time, they want a result. When they become confident you can deliver that, they don’t really care how you do it.
The keys to embracing value based pricing
- Understand that price is a function of perceived value – increase your or your product’s perceived value and you can increase the price. This is why best-selling authors can charge much more for speaking fees and why Apple can charge more for a phone.
- You must have a clear point of differentiation – Your methodology, point of view, feature set, delivery, packaging, experience, training, design, etc. must set you so far apart from others that there is no way in which a prospect would consider using price as the lone comparison tool.
- You must measure results – Once you start to appreciate that the work you do delivers tens of thousands or hundreds of thousands of dollars in results to a client, you’ll get much more open about value based pricing. You must measure and review with your clients the actual results they get from working with you so that you can confidently begin to price and sell your work based on this knowledge and proof.
My friend Mike McDerment, co-founder of FreshBooks, just completed a free eBook (with Donald Cowper) in which he chronicles the story of a web designer who comes to appreciate why he’s going broke selling his time vs. selling the results of his work. If you’re stuck in the time rut, do yourself a favor and grab this free eBook – Breaking the Time Barrier – How to Unlock Your True Earning Potential.