Value-Based Pricing: Breaking the Time Barrier [en]

[fr] En tant qu'indépendant, il faut absolument s'éloigner d'un modèle où l'on facture pour son temps -- et facturer en fonction de la valuer qu'apporte notre travail au client. Cela implique une toute autre approche de la relation client et du travail de l'indépendant, très bien expliquée dans le ebook Breaking The Time Barrier. Une heure de lecture en Anglais, un peu plus si vous êtes moins à l'aise. Mais elle va vous faire gagner de l'argent.

Today I read Breaking the Time Barrier. It’s a quick read, an hour or so if you take your time. If you’re a freelancer, you should read it. If you have an hourly rate and are selling your time, you should read it even more. Thanks a lot to Claude for sharing this e-book on the Going Solo Discuss group.

I was first introduced to the concept of value-based pricing by Martin Roell on the occasion of his introductory workshop on consulting at Lift’07. It made perfect sense: if your expertise can solve a client’s problem in 3 minutes, should you really be paid only for three minutes of your time?

As I was explaining to a prospective client of mine Monday morning, when you spend half a day doing an exploratory workshop with me (to try and figure out what the f*** to do with social media, if anything), you’re not paying for four hours of my time. You’re paying to have answers. You’re paying to know what to do. Why would I charge you less if I can help you get there in just four hours than if I dragged you along for two whole weeks?

Since way back when, I’ve tried as much as possible to price my services based on their value to the client, and not based on how long it takes me. Time-based fees make my skin crawl: the client wants to keep the number of hours down, the consultant wants them to go up. It’s a really stupid system. It also implicitly encourages an “employee/employer” relationship, with the client possibly breathing down your neck to make sure you’re making good use of this time of yours he’s buying.

After reading Breaking the Time Barrier, I’ve understood one of my missing links: not putting a number on the value my client will get out of my work — which is a necessary element to pricing my service as an investment.

I’m also always a bit torn about my exploratory workshops: I charge for them separately, because too many times I ended up doing a workshop, writing up proposals, and end up with the client walking away. I realize now that on some of the occasions my proposals were not adequate because I had not understood the monetary value what my client was hoping to get out of the investment they would be making with me. One of my issues is also that a lot of the value I bring is advice, and that is sometimes all my clients need from me. Sometimes all they needed was that initial workshop. I still haven’t really decided how to deal with this, but I realize I need to think about it.

I also find it hard to stand firm sometimes with clients who insist on counting in hours. Business is so formatted to function like this that even when you tell people that you have no hourly rate, also because all your hours are not worth the same, and how many hours you spend on something is your problem and not theirs, and that what is important on their side is the result and value they are going to get, the conversation still ends up drifting back to “ok, sure, but how much will you charge for a day a month?”

I’m also having trouble applying this model to training. Training typically is something with a day rate. How do I provide value-based training? Focus on competencies and outcomes — but then, there is the unknown: how well the student learns. It does not take a fixed effort to teach something to somebody. Some people learn fast, and with others… you can start again from the beginning next month.

So there we are… my questions-in-the-guise-of-musings to Karen in the story.

Do you still have a day/hourly rate? Do you apply value-based pricing for your business, or part of it? Do you have any answers for the points I still struggle with after all these years?

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8 thoughts on “Value-Based Pricing: Breaking the Time Barrier [en]

  1. I have this exact same problem with a prospective client. I know the kind of work he wants, because that’s what I’m doing with another client. I sell my “brain time” and expertise. I apply a monthly fee for this access, but had to specify a maximum amount of hours of work (since I have two kids who need me a lot, I cannot work 8 hours a day).

    I fear that they are going to divide the monthly quote by the maximum hours and ask me to do half that time–and I know it’s not going to work for me or their project, because to start well they’ll need that amount of time and work, on many different kinds of skills that, as you say, do not have the same value of expertise or time spent.

    Let me know if you figure out a way to deal with this, and thanks for raising the question in the first place: you’re putting words on something that was bugging me without me realising what it was in the first place.

  2. the conversation still ends up drifting back to “ok, sure, but how much will you charge for a day a month?”

    Karen’s answer to that is that you don’t want that client.

    My bigger problem is to get the value of my services for a given client. It’s pretty clear that the value of, say, installing WordPress, is not the same for a lazy tech savvy client than for the one who as no clue, whereas for me it is still the same amount of time but what about much complex projects?

  3. @Nathalie I feel a contradiction in what you say, on one side you client

    they’ll need that amount of time and work

    which means you already know about what amount of time and work they will need but you

    had to specify a maximum amount of hours of work (since I have two kids who need me a lot, I cannot work 8 hours a day).

    As I understand it, either you don’t need to cap your work hours because you know it’s not going to take more than you can manage or you know they are going to take you more than you can manage or there is a risk that you are not willing to take. In the first case I’d say don’t cap anything, in the last cases either drop the project or hire someone to help you.

    About this:

    I fear that they are going to divide the monthly quote by the maximum hours and ask me to do half that time

    Do not negotiate on hours, provide them with options.

  4. I’m Miss Contradiction, Claude!

    What I meant is that the work they are asking me is more or less equal as the work I’m doing for my other client, so I know how much time I’ll probably need to do a good job setting everything up and helping them use the whole thing.

    I have limits on my time though, and the relationship might not be the same as with the other client—they might need more help understanding things, more guidance, more work on my part (writing blog posts, for example), etc., but I can’t be there 8 hours per day helping them. That’s what I meant. By setting a maximum hours per month, I know I’ll be able to keep this under control.

    I’m certainly not of the opinion that doing less is better, I’m a hard worker, but it has to stay manageable on my part. I do provide them with options and told them I could probably fit into a smaller budget, but that will mean that something has to go. The maximum hours is a way to say, no, I can’t do anymore time on this project, if I feel things get out of hand.

    Am I clearer now?

  5. We all have limited time, actually. So I think the key is to be able to evaluate what workload you can take on, set expectations about what your availability will be, and set deadlines which take into account the fact you don’t have that much time per week to work. Just like when I’m faced with a new gig, I have to balance it with how much “available” time/space I have for it with the other gigs I already have. Not a different problem in fact 🙂

  6. Nathalie: it sounds like you don’t have the capacity to take on that client.

    The client should not need to, and in fact: cannot properly think about the “time” that it will take you to do work. By saying “no more than 8 hours” you are effectively saying: “I might be able to help you, or not”. You cannot work that way. Either let the client go and do good work with and for the clients you have capacity for, or build capacity so that you can wholeheartedly say: “yes, I will help you.”

    The options you offer need to be about the scope of this help, not about the time it takes you to provide it.

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