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
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.
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.
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N.W.Ortiz
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?
Neo Bangla Solutions is one of the largest Online IT firms by Bangladeshi freelancers. This enterprise has started its journey with a view to face the challenges of twenty first century through its creative ways & strategies. This aims at providing service to the ever-expanding IT world. Our motto is “never to compromise with quality”. With this motto in our mind we assure you of the best quality product. It started its journey two years back unofficially. Since its birth its main concern has been to provide works within shortest possible time and retaining the standard quality. It started with article writing. And then gradually it has included other dimensions to it. It started with a few professionals. But the gradual increase of the employers paved the way for the interested blog writers, web designers to join and employ their creativity to produce the best work for the employers. Thus this small venture grew up rapidly and reached to its current position. This is the short history behind the rise of this Neo Bangla Solutions. web design bangladesh
37 Reader Comments
Back to the Articlederrybirkett
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.
Jason Blumer
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!
ranunu
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
azambainc
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/
philipbenton
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?
ContinuumPhotography
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.
Jason Blumer
@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.
sweetthursday
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.
Jason Blumer
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.
James Gaunt
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’.
fullstop
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.
N.W.Ortiz
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?
acfurnacefilterguy
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.
sminfosoft10
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/
antoxicool
I always charging per project. It makes our customers more comfortable, because charging per hour “seems like” more expensive for them.
i_l_u_4242
Neo Bangla Solutions is one of the largest Online IT firms by Bangladeshi freelancers. This enterprise has started its journey with a view to face the challenges of twenty first century through its creative ways & strategies. This aims at providing service to the ever-expanding IT world. Our motto is “never to compromise with quality”. With this motto in our mind we assure you of the best quality product. It started its journey two years back unofficially. Since its birth its main concern has been to provide works within shortest possible time and retaining the standard quality. It started with article writing. And then gradually it has included other dimensions to it. It started with a few professionals. But the gradual increase of the employers paved the way for the interested blog writers, web designers to join and employ their creativity to produce the best work for the employers. Thus this small venture grew up rapidly and reached to its current position. This is the short history behind the rise of this Neo Bangla Solutions.
web design bangladesh
Rave Gear
This is actually a great article. This article can really benefit new start-up entrepreneurs who are just entering into the business market.