DYFConf Notes: Jonathan Stark – The Path to Value Pricing
- how hourly is hurting your business
- how value pricing works
- how to transition to value pricing
Hourly billing erodes the trust between you and the client. “Is the meter running?”
Everything is fine with a quote until you hit the quoted hours and you’re not done
- Misaligns incentives b/w you and your client. Clients would rather you come under the estimate
- You could potentially start billing before knowing the project goal. “Need you to work ASAP”
- discourages you from being efficient
Found a plugin that did the work in less than the 2 weeks estimated. Client was happy. It’s something you wouldn’t even consider to use if you were billing by the hour.
Hourly Billing Limits Your Income
3 ways to get paid more with hourly
- Work more
- Raise your rates. Doesn’t sit well unless you are THE expert at what you do.
- Hire juniors. time sink. posting jobs, reviewing resumes, writing training docs, managing benefits, sending tax documents, doing one-on-ones, boosting morale, writing proposals, closing deals, marketing, sales, payroll, worrying about your mortgage and the mortgage of your employees
“If you’re not ready to fire employees you’re not ready to hire employees”
“value is the maximum amount that a consumer would be willing to pay for an item” – Ron Baker
You’re making up your hr rate AND your estimates. With value based pricing you’re letting your customer make it up.
The more you think about pricing the weirder it gets. Everyone is just making it up.
Transition to Value Based Pricing
Get clients to define goals. Don’t let your client self diagnose their solution. Why do you need that done? Why do you need it done now?
Talking clients out of hiring you. Keep giving them simple solutions. Keep hearing back from them why they need to hire someone else.
Estimate cost, find your floor. I would not take this project for less than
Max(cost,value/10). Which is higher, the cost or value/10.
- Put three options into the proposal
- incremental benefits
- focus on outcomes
- no prices in this section!
- Push for option 2 with 1 / 2.2x / 5x shape
- Push for option 3 with 1 / 1.5x / 1.75x shape
- Quote expires in 14 days
- 100% upfront
- Payment instructions
What if they balk?
Usually just revise the proposal and offer one option. Because the client has told you what they wanted.
If they balk at 100% upfront. The compromise is 50% upfront and the key is to have them pick a specific date for the 2nd payment.
More often than not the date they pick is much sooner than the one I had in my head.
If they disappear you can use the http://themagicemail.com/ to follow up before the expiration date. hence the purpose of the quote expiration date.
3 Ways to Transition to VP
- Add a VP option to an hourly proposal
- VP a small chunk of a larger hourly project
- Create a productized service
You can’t do value based pricing with every kind of client (e.g. Startups). Sometimes they can’t measure value yet.
- How to attract clients without doing sales
- How and why to ditch hourly billing
- https://expensiveproblem.com/dyfc <- includes slides and an actual proposal template that has worked for a client
- Kai Davis‘s Notes on Jonathan’s talk