One of the biggest mistakes I think a person or company can make is charging by the hour. Everyone loses. This applies even to employees.
Ultimately when we charge people for our services we want to do two things: make money, and serve our customers. Neither of these things go well when pricing by the hour, because your value is not clearly expressed. If you think about pricing you can really improve how much money you make and the value your customers receive.
One of the first principles of pricing is to frame yourself in comparison to your perceived nearest competition. When you price by the hour, you are perceived as a commodity, and in commodities, low price is of the goal. Keep in mind that customers often think about the total cost, not the hourly cost. That is how they tend to measure value.
One of the biggest problems with pricing by the hour, is that it does not have a multiplier built in. It's very hard to make money when you work once and get paid once. You have to find a way to work once and get paid multiple times, this is a key to doing well. You'll be hard pressed to find people who are successful in any terms who are not applying this principle. For some companies, having a multiplier means producing a product. Design a product, sell it many times. For actors, it's get paid for a movie, sell it many times (royalties).
This is possible even in service related businesses. Hosting companies charge a monthly service, or bandwidth charges. Do you have a dirty yard because of the dogs? Doody Calls (www.doodycalls.com) will clean up for you at various levels and frequencies depending upon what you pay for.
The other problem with pricing by the hour is that you have no flexibility in the quality of work. When I first started, I worked as a software engineer and I tried pricing by the hour and I often struggled because sometimes I wanted do way more work than required because of my quality standards or I enjoyed the project. I cannot charge the client for this. At times I would say that I did more work than required and tell the client that I would not charge them for this, but somehow I found this damaging to my reputation, it sounded like I should just get paid less per hour because I wasn't that good. On other hand, sometimes I was able to work very quickly and perform amazingly well, but in those cases I get paid less because I worked less hours. I was penalized for doing a good job.
So how can you switch into multiplier mode and escape hourly rates? Let's consider some commonly hourly business and the ways in which they could reframe themselves. As an overriding principle focus on what the biggest value you offer to your customers and what customers want most from you. Also consider packages or levels of service. Packages make it harder for your customers to compare you to others, and it encourages the customer to focus on overall value.
If you're web designer an hourly rate can be a problem you will want as many hours as possible while you're client will not. Consider instead perhaps that you could focus instead on a total fixed project cost. Or consider using a common base design or template and selling this.
Or perhaps you can charge a fixed up front cost and a fixed monthly fee for ongoing maintenance. This could work for you and your customer as most sites require constant maintenance and it is in your best interest to provide a consistently high quality site since the customer is a reference and reflects your reputation.
If you're a therapist consider creating videos or books that you can sell to your clients. Or perhaps you can offer regular lectures to all your patients on a particular topic and charge for these. Or perhaps you could offer a paid video education series on particular health topics.
You could also consider a monthly fee and be more flexible in your services, such as offering various levels of telephone or email support for your clients when they are suffering rather than a weekly session, such as 9-5, or 24x7. Or perhaps they are allowed one out of session emergency call per month. Perhaps you throw in your monthly lecture when they at a certain price point. Or perhaps you could charge for various stages of the treatment process, such as one price for a diagnosis, and another for progress along the treatment path.
On the other hand, if you're in the field of construction or a contractor, consider instead charging a fixed rate for the project, or for various levels of quality. Consider, like the above suggestion for web designers, a monthly or annual maintenance service.
Let's consider some pricing options if you're a music teacher. Like a therapist, consider offering packages of services such as lectures, online instruction, telephone support, or practice reminders. Perhaps you can offer tools to help your students track their progress. Consider group classes. You could also charge based upon time of day or the day of the week. Certain time slots during the day or during the week are more valuable than others, both to you and your client. You could consider having more experienced students teaching less experienced ones. The more experienced students getting a discount or something for what they teach to others, or simply paying them outright.
You could price more like tuition than per individual classes and offer a comprehensive set of things or make a more complex set or requirements in order to be students. For example you could require students to take certain courses (group classes), or required they teach a certain number of other students.
With all these pricing ideas, the overall goal is that pricing by the hour is dangerous and it is very difficult to get ahead with that model. Focus instead on the greatest value you provide. Consider offering packages of services instead. Think about the ways in which you repeat certain aspects of your job over and over and try to capitalize on that with things like videos, books, or lectures.
Do you have a situation in which you are paid hourly and would like to escape? Do you have other to help others who are stuck in the hourly pricing model? Tell me and maybe we can share ideas.
No comments:
Post a Comment