Strategic pricing helps your brand and helps you to make more money. Issuing a price is like handing out a business card—it’s a great branding tool, but be careful about what it says to your market. Beginning relationships with customers at a high price makes the statement: “we’re good at what we do and we know it.” Fighting with a competitor over a low price says “I’m uncertain about my abilities, so I’ll take what I can get.” Failing to use a considered pricing policy will leave you treading water in a sea of design mediocrity, allowing you to just stay afloat while you sell commodities. Blah.
Here’s how to become strategic about your pricing:
1. Price by the service, not by the hour. Though very normal for the creative professions, one of the most non-strategic things you can do is to charge by the hour. Why do you charge by the hour? You may have read about charging by the hour in a book, seen your previous firm do it, or heard a friend say that’s how you were supposed to do it. Charging by the hour is non-strategic on many levels:
a) When you charge by the hour, you and your client begin your relationship with diametrically opposed desires. You want to bill more hours, they want you to bill fewer hours. That is a sucky place to start a relationship.
b) Billing by the hour does not consider outcomes for the client. When clients come to you, they want some kind of result from your work. They want to invest in your abilities to bring clarity to chaos and deliver effective messages. When you deliver a bill based upon your arbitrary internal costs, it may not translate into specific desired outcomes for the client. Always consider the value of the outcome to your client when you set pricing.
c) Billing by the hour does not allow you any creativity in billing. Always try to tie your up-front fee to what the client values. And when you discover their value triggers, then you can get creative to make more money. For example, you can ask a client “what is the greatest outcome you can imagine from my work with your company?” Maybe they’ll say “I want your work to be so effective that we sell 15 to 20 percent more products compared to this same time last year.” Now you can attach your price to their outcomes. So you might say, “My base price is $50,000, but if you sell between 15 and 20 percent more products than this time last year, then I will receive a bonus payment of 5 percent on your additional sales.” This links what you get paid directly to outcomes. And the clients won’t mind paying if you helped them sell more stuff. Everybody’s happy!
2. Slow down your sales process. Slow down how, when, and who you take on as clients. You need time to determine a client’s needs before you price their projects. You must know what outcomes they desire. Diving into a project with a minimalist contract that speaks to your hourly rate will not let you know when your client is truly ecstatic about your work. And the only reason to serve clients is to bring great value to them and make them extremely happy!
Clients often self-diagnose their problems. But they can be wrong. You are the expert. That’s why they’re hiring you. Slow down your process and warn potential clients that you are not the “emergency” designer. Clients that are in a hurry are problem clients. Slowing down allows you to not only be creative in pricing, but also allows you the time to determine what the client really needs. Slowing down helps the client to get their needs met, while you get paid what you’re worth.
3. Inject value into your client’s experience with your service. You simply have to charge more. That is a totally strategic move, and one you can’t do unless you have the guts to do it. But you can’t charge more for crap. It’s a little known secret that you can charge not only for your creative work, but for the client experience around the work you deliver. In essence, you can price things that have nothing to do with design, but have everything to do with the experience your client encountered throughout the process of engaging with you on their project.
Clients will pay more for your work when you deliver the end result with some well-designed client experiences wrapped around the whole process. This injects value, and when you inject value, you can price your services higher. Strategy in pricing means creating something creatively that you can charge more for.
Establish a client intake process#section2
For example, imagine your client intake process is a four-step process. First, determine the purpose behind your client’s needs. Ask them questions about their purpose for wanting your services. Ask them how the purpose could change. Second, investigate the expected result. How will you know when you’re done? Investigate your client’s ability to bring this project to an end. Is this the type of client that will never be satisfied? After applying this process for some time, you’ll be able to tell if a client is not tracking with you. Scope discussions could be added to this phase of your new client intake process. Third, conduct value discussions. Value discussions should be about identifying what the client truly values and how you will price the things the client values. In this part of your new client intake process, you can address how you want the client to interact with you and find out how the client wants you to interact with them. Do they like to meet face-to-face or is a digital relationship okay? These value discussions will directly influence your price. Finally, create engagement. This is where you determine your price, and offer three price options for the client to choose from, based on scope. I typically offer three options. I will typically include things in my top package that the client didn’t ask for because they didn’t know they could ask for it. The engagement process is also where you request an agreement to be signed and get your first down payment on the work.
Change your thinking, charge what you’re worth#section3
These processes are easier for the more experienced creative professional. But how do you implement pricing strategy when you are a fairly new creative? I see the answer as part retraining your brain and part raw guts. When I coach creatives, I walk them through specific ways to simply step up their price with each new engagement that they get. Creatives must not be afraid to charge what they think they’re worth. At its core, this technique takes guts. But the more we work through these exercises, the more comfortable the creative is at going higher and higher with their price until they are comfortable where they are supposed to be.
The more heady answer to implementing strategy for an inexperienced creative is to retrain your thinking. Explore your beliefs about creative services, where you developed your beliefs, what you think the world thinks of creative professionals, what true value you bring to your client, etc. This applies not only to creative professionals, but to most kinds of professional. When pressed, my clients will often come to the conclusion, “but I don’t think I have that much to offer my clients.” This thinking needs to stop. Your services are valuable; and your pricing should reflect that.
Strategic pricing is hard and good work to undertake in your profession. The sooner you get started, the quicker you will learn what it means to be strategic not only in pricing but in so many other important tasks your clients hire you to do.
Here are three things you can do now to get started on your journey toward strategic pricing:
- Develop your new client intake process, similar to the example above. Add the various steps that you feel are valuable and walk your clients through it BEFORE you begin your work.
- Begin offering three options to all of your work. And always include things in your options the client did NOT ask for. When you start selling things your client didn’t ask for, you will be surprised at how many clients choose the higher options. You will make more money and the client will get more of what they want.
- Test your pricing, but don’t benchmark! To know what your market will bear, begin pricing higher than you have been in the past just to test your market. And avoid benchmarking—which is the process of looking at what your market or direct competitors price their services at. Remember, your competition may be pricing non-strategically as well. Don’t follow the blind. Strategic pricers don’t follow, they lead!
In summary, we should strategically charge clients for what we do by pricing our services (not our hours). Take new clients slowly, show them your intent to take care of them and give them a wonderful experience. Deeply consider where you have developed your thinking on the creative profession and its worth, and then step out with some guts to charge your clients for your true value. Strategic pricing comes with practice, and your skill will grow over time. Pricing is a learned discipline that anyone can learn. Start practicing! Do your clients a favor, charge them what you’re worth. You will both be happy as a result.
Great read. When I was starting off with web designing, I thought of charging per hour but as I started designing more and more sites it struck me. We shouldn’t do that. While designing a site, I refer to good sites, better coding styles, new trends, in between the project so that I could integrate them as well and if I were to charge per hour, it’d have been very difficult to make the clients understand the whole process behind the research. So, even I think that charging per project is very sensible and logical as it gives us the room to do our research and deliver at our best.
A great article and something which is very much at the forefront of my mind at the moment (as someone who runs a small digital outfit).
An issue i’ve got though is that many potential clients want *some* idea of costs before you move forward – I mean, they need some kind of ballpark – are we taking £1 here or £1M? Simply saying “it depends” can look evasive. I try to counter this by explaining my process which typically kicks off with a ‘discovery’ phase.
Discovery is important to me because it’s during that (billed) phase that you *really* get to the nitty gritty of what the client is after. And if opportunities get thrown up then I want to be in a position to suggest them and not have the client think they were included from day 1.
Perhaps you’re describing your discovery phase above – if so, I’m hoping it is billed?
Also, I’m guessing you’ll do some internal per hour project tracking to make sure you did end up breaknt even?
Thanks – love these kind of articles!
Joel
We have found that starting out the relationship with a service based contract and then moving into an hourly relationship is what works well for us. It takes time for clients to trust you and desire for you to put as many hours into the project as necessary, but once you have, your relationship can flourish with an hourly setup.
Can we not call ourselves creatives? It makes it sound like I’m a thing, like a toaster or something.
We also charge for discovery on bigger projects (anything we assume will be over $5k). We spend a lot of time in discovery before we design/develop and want to know that everyone is on board with the decisions we’ve made and why.
Do you charge for discovery, or do you roll it into the overall project total?
We are oddballs in that we only charge hourly. I’ve *never* had a project not change drastically from concept through completion, and by charging hourly, our clients feel like they have the freedom to make changes without having to go through change-orders and rewriting specs. It’s worked well for us, so far, and we have great working relationships with our clients.
I’m always on the lookout for new/better approaches to the initial proposal phase of a project because I really think it’s so important to structure it well to set expectations, establish trust and perform due diligence – but it gets complicated.
These are good points. Let me address a few…
@godgeez You make a good point. Billing by the hour tends to hide the value of your work. In that, when you do necessary research, they can’t see that work directly in a deliverable, but it certainly added value to the overall web project. So, instead of billing by the hour, we can price all up front, bring transparency to our prices and give our customers a choice of what they want us to do for them. In your up front price, add in research, show it to the customer, and have the conversation with the client of it’s importance. It’s better than hiding it with an hourly rate and surprising the client later.
@Joel_Hughes Def, customers want an up front estimate. I would say don’t give them an estimate, give them an EXACT price up front. And while you’re at it, guarantee that it will NOT change (unless they submit a ‘change order’ for more/different work). Does that scare you? You totally add value to your relationship with the customer when you give a firm price up front. But, remember, when you do that you add such value, that you can offset the value you have injected into the relationship on guaranteeing an up front price that you can price your services MUCH higher than you currently do. It’s a risk balance, really. You balance the risk of offering an up front firm price to the customer (which is best for them) with a higher price on your end (which is best for you). It’s win-win. Essentially, your price now includes an amount for your work, an amount for the guarantee of your services, a guarantee of an up front price, etc. In the article, I noted that you can price for more things than just design. One thing you can use to price your services higher is to price away the customer’s fear! That is, take away their fear of ‘Joel sure is doing a lot of work, how much is this going to cost me?’ Take that fear away and price for it. When you ‘price everything up front’ you do such a service to your customer. They are more at ease through the project, you have had all of your difficult price discussions and the customer doesn’t have to worry about any ‘surprises.’ But if you do this (upfront pricing), you MUST price MUCH higher than you currently are – I would say by 50% higher. It takes longer to sell up front, but all the while you are being forced to build relationships and that is so good for your business. And, no, we do NOT track any time internally. I fundamentally disagree with pricing my knowledge, experience and expertise by an arbitrary hourly rate. I think it is flawed and I disagree with it on principle. We know we have made money by looking at our financial statements (we don’t need hourly rates). And we know we have taken care of the customer when they say they are happy and send us referrals.
@level2d I have to disagree with you here. You can implement processes at the beginning of your relationships with your customer to create trust between you. If I can’t get my clients to trust me BEFORE we begin a relationship, then they are the wrong client for our firm. If you are ever basing your value to your customer based on how many hours you spend on anything, then you are leaving freakin’ money on the table, big time. You’ll have to get off of the hourly rate TOTALLY to see what I mean (or go through my Creative Coaching Course online). If you want your relationship to flourish with your client, AND you make more money, then stop billing by the hour.
@TheBadger What would you like to be called?
Yes, we charge for EVERYTHING, including discovery, design, implementation, and training afterward. All of it can be done through value pricing, not hourly billing.
And you are correct, our projects change too. We price in stages, which is one way to manage the pricing of each engagement. Actually, breaking your work up in to smaller stages is a strategic to price each part in creative and strategic ways. It is easier for you to manage, easier to price and you slow the client down through the whole process so you can take better care of them.
Hopefully some things mentioned in my post above addressed some of your concerns as well.
Great comments from all! Let’s have more discussions… these pricing discussions are very deep and actually pretty hard to implement!
As, sometimes, time is money, the rule of not pricing/charging by hour cannot be a golden rule.
On the different ways of working (after agreeing to work, not while still meeting and finding out if we both are a good fit) with a client, one of the services I offer is to work _next to_ & _with_ them (ie. in situ, in-house), and solving particular problems or explaining things, or helping them figuring out stuff. This meetings are usually a mix of consultancy & real, tangible work.
For example, when doing maintenance-related work (ok, it may not fit into “creative” work, I admit), it could be a mix of analysis/talk on how to improve page usability and apply some SEO-related stuff, and then, doing the work (editing pages, content, HTML, CSS, images, whatever) not just _next to_ them, but _with_ them.
I’ve found this way of working to be good both for them & me. They are happy to “guide me” on what has to be done (“change this, add/remove that, let rethink this text together, etc”) on _their_ website, and have it done there, instantly, that is, without having to wait for me to give them a quote, and an estimated time of delivery.
So far, the only way I’ve found to measure fairly this kind way of working together is by the time spent together.
So I usually set a fee that decreases over hours. First hours costs $XX, second hour a little less, third hour even a little less, and from then on, the hourly rate gets fixed.
I have been charging by the project for years. I spend time discussing the project with clients and then tell them exactly what the costs will be. A good deal of this comes from the fact that I’ve done it for years and I know how to factor in costs for additional programming charges etc once the scope of the project has been discussed. That does include everything, including discovery.
One thing to note. I always ask the client what their budget is. Pricing is about value and perception. If the client thinks it’s a $7500 project and you were thinking $3500 why leave money on the table? Meet in a middle ground and make them happy. The market and your experience and reputation are what drives pricing. Don’t sell yourself short!
Interesting article, but after reading all of it, I must say that is hard for me to agree.
We are now completely shifting from the pay-for-service model to an hourly charge, the total opposite of what you suggest. Since the adoption of hourly bills, I’ve seen the most happy customers ever. They need to be free to grow their project if they notice the added value.
I’m feeling confident with this model since I can see the value of every hour spent in a project, even just talking. Did someone ever like when the charge didn’t correspond to an actual job? This doesn’t feel right to me.
Finally: we see that many clients really think about their website/app/whatever over and over, hypothesizing every kind of change. Do you refuse when they ask for little changes? Do you say: “that would be 5$ to move that button to the left”? You probably don’t. But in this case, be ready: more requests are on their way.
Nah, it’s just too unclear to me. We are not selling goods. We are hiring out our knowledge and skill. I find it a matter of honesty and simplicity to bill by the hour.
I found this article interesting, having been thinking along similar lines myself recently. However, I’m having trouble imagining how I’d apply this to small requests relating to existing projects (minor updates / tweaks / feature additions, etc), which make up a significant chunk of what I do from day to day. At the moment I quote for the number of hours that I estimate the job would take. I’d be interested in any suggestions for a non-time-based way of pricing jobs like these, mainly because it would be great to be able to reduce the amount of time I end up spending trying to estimate how long things will take.
@Julian Unfortunately, I’m not sure if you agree or disagree with me. But I will say this – you may spend time with your clients, but that is not what they are buying from you. They are buying your knowledge. That is why customers will pay you for what you do even when you are NOT spending time with them.
@JackMcDaniel I like the way you think! Truly, value is subjective to the customer. If they perceive a higher value then give them what they want. Customers will pay for what they want.
@fornace value pricing your services up front will inevitably make some customers unhappy. Pricing in strategic ways will prove your worth as a business owner, and demand that the market place pay for your worth. Some won’t like that because they are price-shoppers. They buy commodities. You don’t want to work with people who buy commodities (they look for the lowest price). When you price high in accordance with the value that you are delivering, some just can’t go there with you, and will not enter into a relationship. But isn’t it better that they learn that up front before you are serving them and they are always demanding a lower price? If everyone of your customers are happy, then I question whether you are pricing correctly.
I have to say, @fornace, I agree that you are hiring out your knowledge and skill. But everyone of your hours are not of the same value, are they? Do you charge the same hourly rate when you move the $5 button as when you develop a new amazing idea for your customer? You probably do, but you shouldn’t. The values of the two different things that you did are worth different amounts to the customer, and I think you should price them differently.
When we price our customers before working with them, we find out that we are not for many of them. They would have probably been unhappy in our firm, and our strategic pricing was a way to make sure we didn’t get into a relationship.
Fornace, I think we both agree on the same thing… and I think value pricing your customers up front is better for them.
Strategic pricing allows you to think of your work in different ways. Maybe the small changes means you are not sufficiently spending enough time with your customer before you begin work. I’m not sure if that is true or not. I’ll assume it is.
Price your services in a way that give you a lot of time up front with the customer. It slows down how many customers you can take on, but you can really take good care of them when they come to you. Include a lot of time for discovery in your packages so that you can thoroughly ‘diagnose’ what they client needs BEFORE you start work.
I find it often true that the client does NOT know what they really need. A thorough up front discovery phase could really help you deliver some serious value throughout your work with them, and hopefully minimize the small changes and questions through your actual design process.
But if you do this, you are delivering value. Don’t forget this rule: when you increase value to the customer, you also increase your price.
Great article, that convinced me to change my pricing policy.
Is it then dispensable to make your daily time report? I think no. Time reporting is still necessary to check the correlation of price and efford.
I can’t thank you enough for the timeliness of this article. I always try to mature my pricing practices, and this is the best advice I’ve come across in a while. I will be pricing several projects today, and I’m looking forward to implementing the “three options” approach. Thanks again.
Some nice points about pricing strategy, but I’m not sure I completely follow your the idea of pricing by service rather than by the hour. I agree some services are valued higher than others and should therefore be priced higher, but internally we put time budgets on projects, as most agencies do, and time track so we can judge how effectively we’re working on a project (and whether it’s come in on budget).
In financial terms the time budget loosely equates to an hourly rate, which may of course be different for different types of work to reflect skill, knowledge and risk around that service.
Your idea of pricing up front seems to me (though I may be wrong) that you’d need to estimate time internally, and then charge what you think is reasonable to the client. It’s still time-based, just hidden.
Some others have commented pricing by the hour allows some flexibility, ie. an agile approach. This is something that has worked well for us on some projects. Though we find the majority of web projects demand a “fixed quote”. So in practise we end up pricing stuff up front, though it is at its heart still based on hourly rates that may have been informed by an (ideally paid for) “discovery” phase.
Sorry, but I’m with the people who lean towards hourly rate. Personally I find value pricing to be distasteful, and borderline dishonest/exploitative. I understand the concept of value pricing (i.e. not leaving value on the table), but another way of explaining value pricing is that you’re required to think “how much is this company good for?”, or “how much can I get away with?”. I think some clients are wise to this, and are similarly put off by it.
What’s wrong with a fair day’s work for a fair day’s pay?
At my company we generally prefer a “time and materials” approach, which is consistent with hourly rates. We want to be paid our hourly rate for the work (and value) that we bring to a client – no more, no less. True, we’re not likely to get rich quick, but neither are we likely to go bust quickly either. Our ‘value’ is reflected in the rates we charge, i.e. is reflective of our levels of skills, experience, service, etc. Our rates are higher than some, and less than others.
There’s a great article here with a highly relevant section called “The Curse of the Flat Bid” – well worth a read: http://www.myintervals.com/blog/2010/03/31/we-f-cked-up-observations-from-sxsw-interactiv-web-design-and-development/
I think hourly rate actually creates BETTER alignment between client and service provider. Not perfect – just better. If a client wishes to change course, add new features, etc. during a project, they’re most welcome to do so, and they know full well that this will cost extra. With value pricing the (cynical) incentive structure of the service provider is to perform as little work as possible to achieve the highest possible margin, and the incentive of the client is to squeeze every last drop of effort out of the service provider because the price is fixed.
Hourly rate is also more consistent with the Agile Methodology (for software development) http://en.wikipedia.org/wiki/Agile_software_development where the Agile Manifesto reads:
“We are uncovering better ways of developing software by doing it and helping others do it. Through this work we have come to value:
* Individuals and interactions over processes and tools
* Working software over comprehensive documentation
* Customer collaboration over contract negotiation
* Responding to change over following a plan
That is, while there is value in the items on the right, we value the items on the left more.”
Much more honest and flexible than value pricing.
p.s. We are a website design/development company first and foremost, and I concede that value pricing is, perhaps, more normal and acceptable in more subjective/creative/concept-driven industries such as branding, marketing, PR, etc.
Thanks for the thought-provoking article – in the most part I agree with you. Creative work is undervalued by the creators.
When it comes to value-based pricing I have similar ethical concerns as itomic above (pricing based on how valuable the end thing is to your client).
How valuable is a parachute to someone on a crashing plane? It’s worth exactly the same amount as a super expensive hi-tech magic teleportation machine to get him out of there: every last penny he has.
If your client will make $1M/year from their new site that you designed and built in 200 hours, what makes you think you’re entitled to _any_ percentage of that?
I find it interesting that value-based pricing seems to be readily accepted in the b2b world but is much riskier and sometimes totally abhorrent in a b2c context. There’s an interesting essay on value-based pricing as it relates to restaurants and their diners here: http://varaix.mit.tur.cu/tcsc/LibroWeb/Webturismo/Capitulo restauracion/Cap rest anexos/430502.pdf – The part on “Dual Entitlement” is particularly relevant – the customer expects the supplier to make a profit and they expect to gain something valuable in return.
However (and correct me if I’m wrong) you’re suggesting pricing based on your overall service, which is slightly different, though still includes an aspect of perceived value.
bq. a) When you charge by the hour, you and your client begin your relationship with diametrically opposed desires. You want to bill more hours, they want you to bill fewer hours. That is a sucky place to start a relationship.
— I actually disagree with you here though; I see it very much in my interests to complete any hourly-billed tasks as quickly and efficiently as possible. The value you get from this is:
* more time to spend on adding value to your business, marketing, networking, offshoring or developing passive-income streams or working on small fixed-cost projects (which are generally more profitable).
* tasks completed under-budget = happier clients = higher perceived value = more referrals
These benefits mostly outweigh any income from a few extra hours of working slowly. (And if it’s more than a few extra hours compared to your original estimate your client will likely never return).
James
I challenge you to 100% totally get rid of your time sheets and see what happens. Someone made up time sheets. Why did they do that? Why are they better? Why is okay to NOT use them for pricing, but still use them for internal effort analysis? What are you missing by being tied down by time sheets? You have to answer these questions for yourself.
How would da Vinci price his work for painting the Mona Lisa? By the time it took him? Do you care how much time it took to paint the Mona Lisa? Why or why not?
How much time does it take to build a Tesla Roadster? Do you even care? Do you want to buy how much time it took to make the Tesla Roadster, or do you care about other more valuable things about the car (like it’s aesthetic looks, it’s speed, how it makes you feel, whether you can get more chicks, the statement you want to make to the world about your success, etc.)?
A common misperception about Value Pricing is that you are “trying to stiff your client and take them for more money.” I used to struggle with that until I realized that value pricing ALWAYS begins with a hyper-focus on the client. If you don’t have time sheets to fall back on, what do you do? You have not choice but to ask the client “what do you want?” And that is a very good place to start pricing your services.
Value pricing takes you away from your lazy methods of billing by the hour (yes, it’s lazy to do that) and makes you spend hours up front with your client diving into what they want, what they value, understanding what they are asking for and trying to discover what they need but don’t even know what to ask for. When you do this good work, guess what? You are bringing value to the relationship, and if you fail to price for that, well then you are a poor business person. You bring validity to the old moniker, “starving artist.”
Design is no longer pretty stuff, but now a way for businesses to solve problems and differentiate commodities among a sea of sameness in our marketplace. Design has value. Stop undercharging, and demand to be paid for the value that design brings to the lives of those you serve. When you price according to the value that you deliver, you solicit quicker buy-in from your client, thus deepening the trust they have in you and your ability to change their life. And a higher price will make you a better professional as well.
Do you let the phone ring when it is that loser client that won’t pay you a dime? Of course you do! Do you return emails quicker to the client that just gave you a $50k down payment on a $100k job. Damn straight.
Price is your entrance into better service, more enjoyable work for you, and finally allowing you to give your clients what they really want… solutions to their problems. Stop selling yourself short. Price properly and watch your clients and your business prosper.
These are really great points, thanks for sharing. I am halfway through this process and feel affirmed now that I am heading in the right direction.
Thanks so much for the encouragement! Moving to this type of pricing is VERY difficult and takes a lot of practice and commitment. It is a skill learned over time, so don’t get discouraged. Stick with it. I’m still learning and always will be!
Philly Hops staff includes award winning games designers, professional team building trainers, special event planners, and improvisational comedy experts stationed in New York, Philadelphia, Washington and around the country.team buildingv
Great read – I’m a believer!
In response, I went off on a bit of a tangent with this matter and wrote about the negative impact created by NOT shifting away from T&M work. I think we accelerate the decline in value of our service work when we bill by the hour.
For those interested, you can read about it here:
http://summitdiary.com/2012/02/05/are-you-guilty-of-killing-your-business-without-realizing-it/
Hi, fantastic discussion, something I am currently working on for our company is a better process and pricing model.
My question however is how much time do you spend scoping the project and producing a proposal before the client even agrees to use your company and sign a contract?
I have been reading Pro Web Project Management which is a great read. Within the book there is details of a thorough requirements document produced during the Discovery phase which I think is great as both parties know what is then within Scope. I am now wondering if this document should be produced before the client even agrees to a contract with you?
In the photography industry not billing by the hour can sometimes put you at a location much longer than you want to be. We just have minimum time frames that we accept bookings for.
@azambainc, thanks for supporting me in here and adding value to my article.
@philipbenton Yes, absolutely, this takes a lot more time to operate in this manner! And what I didn’t realize is that this is driving us towards our customers. It forces building relationships, something our clients have always wanted all along. But when you bill by the hour, you can’t bill for “building relationships.” There is no effective way to do that. Clients won’t pay for it AFTER you bill them. But, they will pay for it BEFORE you price them. By that I mean, you can price things more effectively BEFORE you do the work. That is one of the strategic ways to price: price BEFORE you start work, not AFTER.
But you can’t slow down and spend time with each customer like that unless you price for it. You have to price higher to be able to spend so much time with each customer. Your higher price will allow you to spend amazing amounts of time with each customer, thus driving HUGE value to your customer and give them what they really want in the first place.
I like a lot of what Jason has to say. My only disagreement is his dogmatic anti by-the-hour stance. Clearly working by the hour is working for many people.
I use both methods. For larger jobs I bid a set price, but for small updates my clients love that I have a 15 minute minimum charge. I make a fair amount of money on these small jobs (usually updates to sites) charging hourly (I’m a one-man show, freelancer). I can’t imagine bidding a job to update a few sentences or prices on a website. As stated by someone else here, my long term clients trust me.
As in so many things there is no “perfect” and “only” way to do most anything. You have to find what works for you, what works for your clients and what you are comfortable with. Good discussion.
Yes, I am dogmatic. I believe billing by the hour is hurting our businesses and our clients. And, yes, billing by the hour may be working for some, but it is not the best method for pricing (at least, that is what I believe).
I simply think there is a better way that is better for our clients, that’s all. You said your clients love that you charge a 15 minutes minimum charge. Did they tell you that? I would ask them if you gave them one price that included all of the updates you wanted, would they like that instead? No more surprise bills and everything included. Obviously, that price would have to be pretty high to pull that off. But maybe the client would value that more… or at least, the RIGHT client may value that more.
I think allowing your clients to ask you to do 15 minutes changes will (1) keep you from scaling your business (the administrative nightmare of having many people invoicing for hundreds of 15 minutes charges would totally eat you alive), (2) will mean you make less money (you will make more money when you price up front based on what the client wants), and (3) could burn you out to this ‘client service’ work (are you going to spend the rest of your career fixing 15 minutes problems?).
I do agree that there is no ‘one way’ to do pricing. And let me tell you, Value Pricing is the most creative method of pricing around. Every single client is priced differently solely based upon what they want! It meets their needs and allows you to make enough money to build margin into your firm to grow and become a better creative professional (which will allow you to price higher for your services in the future).
I so believe in pricing the client based upon what they need (and not on how much it costs me) that I will not take a client that won’t let me price them strategically. I KNOW it is best for them because I’ve been doing it. And I will not do work that is not best for my client.
Thanks for a great post. It’s all the kind of stuff we’d love to be thinking about when discussing pricing, and I’ll be doing my best to inject a bit more strategic thinking in this area.
However in the current climate the number one priority for us is to ensure we get the job, and most of our pricing logic goes out the window in favour of ‘what’s the lowest we can price this at to ensure we get the job and still make a profit’.
Thank you! Web design is a second career for me – I’m a recovering lawyer – and I’ve been telling myself that I can charge more because I understand the needs of the higher end professional market. It’s scary, but I think it’s working. Clients aren’t just paying for design and some html. They’re paying for judgement, for a work ethic, for pro-activity and reliability. I’d do the same hiring a designer. Thanks for encouraging us all to value what we do and charge accordingly.
I’m a little late to the party but I do see the advantages to switching to value pricing for creative work. As the author stated, charging hourly means you and your client inherently have different goals. Although as a company you want to advance a sterling reputation in customer service, with an hourly charge, you are still trying to bill as many hours as possible.
This does not necessarily mean that you are trying to squeeze every client and purposefully delaying jobs, but maybe that you are simply trying to squeeze too many clients into your schedule.
This is what the author means in value pricing. Pricing by the hour and not wanting to take advantage of the customer or avoiding the uncomfortable discussion on why it cost more than they assumed, may cause you to switch focus to new clients before your old ones are completely satisfied with the product and service rendered. Value pricing allows you to charge for this commitment. It puts a monetary value on the fact that you are willing to forgo new clients in order to service existing clients. Is it exploitative to charge this way? If you wanted to rent out a restaurant for a private event wouldn’t the restaurant want to be at least guaranteed what they would expect to make serving the general public?
But there are more advantages than simply the relationships and expectations it builds with your customers. You as a business owner get to plan and forecast your earnings easier. You say many customers want changes and updates after sites have been created and this changes and updates are not design flaws but changes in trends or technology? Why not sell service contracts to the customers that think they may want these services? If you sell x amount of service contracts for x amount of dollars then you know exactly how much revenue you can expect to receive and just may be able to establish a steady revenue stream of satisfied customers. All without having to cram new clients into an already busy schedule…
And as the author pointed out, do you really want to be continuously updating websites for negligible wages all the while your customers may be assuming you are nickle and diming them to death for a professional website that they may have expected to run smoothly for years to come?
It is all about transparency. Explaining to clients upfront what it is you expect from them and what they can expect from you. Lay down the terms in an agreement and make it clear that if the terms need to be changed because the customers needs change, then the whole plan will have to be re-examined and priced accordingly. Manage expectations. By not getting the price out of the way first, you may inhibit your ability to provide your best possible work. If both creative and client are still focused on price, can they really be expected to have the interest of the project as their sole objective?
The man who mentored me many years ago taught me to say this to prospective clients. He did not allow discounting. And now, through the many years I have been in business, I can only conclude that my life has been much easier and more profitable because of my stubbornness to follow this simple adage when quoting prices to potential clients.
Thanks, I’ve recently been looking for information approximately this subject for ages and yours is the best I have came upon till now. However, what in regards to the conclusion? Are you certain about the source?
“Web Design Company”:http://www.sminfosoft.com
“Technology News”:http://update-technologynews.blogspot.in/
I always charging per project. It makes our customers more comfortable, because charging per hour “seems like” more expensive for them.
This is actually a great article. This article can really benefit new start-up entrepreneurs who are just entering into the business market.
Great article. Suggested solution works for waterfall type projects only. For agile type projects, suggested approach is catastrophic.
Many customers aren’t able to think in abstract categories. First reasonable input comes when they actually see an outcome, which leads sometimes to redesign or huge amount of changes. Do not apply pricing suggested on this article for agile project type.
Otherwise, for waterfall projects, go ahead.
The underlying problem with pricing hourly is that as time goes on and you become more efficient at your craft, you can accomplish something in less hours than say, someone with less experience. Does that mean you should make less money that someone with less experience? Of course not! This could be adjusted by charging more for your hourly rate, but what about when you are working with a group of people at varying degrees of experience? I worked at an agency for 5 years and I was the most experienced web designer there, and I could complete projects in half the time of the other people there. But if we based the proposal hours on my times, then if anyone else worked on the project then we made less money. I still price things based on my hourly rate when freelancing, but I’m considering a move to strategic pricing, especially considering that I’m working a full time job at the moment and only want to take on work in my free time that would be the most profitable and rewarding for me. Thanks for the article, it really made me think!
Great article. Charging for a design and development service is extremely difficult especially nowadays with lots of options available. I think the best way is offer additional value and exceptional service. That way you distinguish yourself and you will name a price, not compete because clients will be choosing you for value. Its more like the Apple model.