Ditching Hourly

Hello, and welcome to Ditching Hourly. I'm Jonathan Stark. Today, I've got an audio excerpt from an answer I provided on my YouTube channel. You can check it out at thejonathanstarkshow.com, and it'll redirect you to YouTube if you're into watching videos. Otherwise, you can just listen to the audio here on the podcast. Enjoy. Hey, Jonathan here. I've got a question from Harichu Andre. Sorry if I butchered that. And the question is, Hi, Jonathan, how can you value price the execution of a very large software project like a CRM or remake of a big high-traffic website in the absence of comprehensive spec document defined in advance? Is it still a good project for value pricing? Asking this from a software developer point of view. Also, I understand that we can value a chunk of it, like wireframing strategy, UX, et cetera, but can this still apply to execution? Thanks. Okay. Super common question. I talk to lots of developers, and lots of developers work in the implementation layer of involvement with clients. So there are three layers of involvement that, three big groupings of involvement that I see with client engagements. The sort of bottom floor is maintenance. The middle floor, the middle tier is implementation or building or creating stuff. And the top tier is strategy or design or planning, those sorts of things, like brains work less so than hands work. So if you want to find out more about that, I did a free webinar. It's about, I think it's about 60 minutes long, might be a little longer. And you can find that by going to jonathanstark.com slash altitude. And it's a free webinar. You can watch the replay. It's called Altitude of Involvement. And it walks through a map of how to work yourself up farther and farther in the altitude, how you engage with client involvement. Okay. But most people are in this middle layer where they're doing implementation work. So someone's given them a plan, or in this case, hasn't given them a plan. So it's like, you know, how do I value price the large software project without having a spec document? And the fear that is being expressed here is, how can I know how much work it's going to take me to build this thing when I don't know how much work there is? And that's a time and materials or cost plus way of looking at the problem. So you're starting with how much is it going to cost me to do this? How much time is it going to take me? Because that's my cost, time, or if you're hiring freelancers or other people, but primarily it's a time cost. And what you're worried about is if I don't know how much time it's going to take me, how can I set a price? And what that reveals is that you're thinking about it backwards. You need to think about what the outcome of having it built is and what the value of that might be to the customer, and then set a price based on that. So if you're building a CRM for them, it's to solve a problem. They're not going to do it for fun. It's not an art piece that they're going to put in their living room. They're trying to achieve some goal. And if it's a CRM, it's going to be to have some sort of system for their salespeople to engage with leads and prospects and turn them into customers and that sort of thing. That's what a CRM is for. So when you're talking to them, they come to you and they say, hey, we need you to build a CRM. We understand that you've built other ones in the past and that you're really good at this. A value pricer is going to come at this like so. They're going to say, thank you. Yes, I can build CRMs for people. I've done it in the past. It's been very successful. Those companies were in their own particular situations, and you're in your own particular situation. So let's first have a conversation about what your situation is, what you want done, just sort of brain dump all the aspects of the project that you're aware of. And they'll do that for a while, and you'll take notes, and that'll be really helpful. And then you want to back up and you say, okay, from everything you told me, it's very clear what you want done. Can we back up for a second and talk about why you want to have it done? Why not just get something off the shelf? This is going to be a huge undertaking. This is going to be a big project. It's going to not just cost you a lot of money, but I'm going to have to be interviewing a whole bunch of people from your staff. We're going to have to have regular meetings on top of whatever you normally do in your job. So this is a major undertaking. Why don't you just use something off the shelf? What's wrong with Salesforce? Or what's wrong with Streak CRM? Or why not these other things? And go through a whole why conversation, which I don't need to get into here. I've talked about it plenty of other places. But you want to find out the reason that they would do this. Why not not do this project? What will happen if you don't have this CRM built, Mr. Client? And they'll give you some sort of reason. And the idea is to get down, to sort of get confident in a conversation like this, that them building their own custom CRM really is a good idea. Maybe they're planning to resell it. Maybe this is going to be the foundation.

their business. Maybe it's a core differentiator between them and their competitors because their competitors all use Salesforce or whatever. They use something that has limitations that they'll be able to get around if they have their own custom platform that they've had put together. Maybe they want it to integrate with a whole bunch of things that Salesforce doesn't or whatever it is. But they want some outcome. And so you're sitting there and you're like, okay, first of all, I believe that, yes, this is a pretty good idea. They should do this. There's a business case for them building this thing. And that business case is going to equate to something, some sort of benefits for them. So you need them. You say to them, what would a home run look like? Well, a home run would be if we had this in place, we would be able to trounce our competitors. Oh, well, what does trounce your competitors mean? Well, we'd be able to attract twice as many clients as they're attracting or something like that. How many clients are they attracting now? How are we going to measure this? How are we going to declare victory? And so they would need to think about these things. If they haven't thought about these things, you shouldn't start until they do think about it because this is a major undertaking. And if they haven't thought it through, then you're going to have scope creep. People are going to be changing their minds midway as they see it come together. They're going to start to realize, oh, no, I didn't really think about how this was going to work. And now I need to change direction. That's where scope creep comes from. People don't think it through the business case. They don't think it through in advance. That's where scope creep comes from many times. So if you work all that out upfront, and they'll tell you, they'll say, in other words, they'll have to convince you. And in order to convince you, they have to tell you this is what we're hoping it will do. So you say, okay, for a company your size, and then mentally you're just thinking about it back in the napkin. If this company could actually achieve that and then land twice as many clients or something like that, that would be worth at least $10 million a year. So if I charge them a million, a tenth of 10 million, to execute this, deliver a 12-month bug-free guarantee afterwards, perhaps offer some aftercare of some kind, support and maintenance for a year, whatever it is, and you put together this package, that's what you price. And then you look at it and you say, okay, you haven't even thought about the build yet. You think, okay, the goal is X, Y, and Z. The goal, not the spec. The business outcome, the goal is X. I think it's worth about $10 million. It could be wrong, but it's an educated guess. So if I had a million dollars to build this out, is that enough? Could I do it? Do I think my costs are actually $100,000 in costs to get to this desired outcome? Even if I'm totally, completely wrong and it was $700,000, would I be happy with the leftover $700,000? And I'm using round numbers and inflated numbers to kind of paint the picture of margin and how to think about this. So if you are working with a big client, potentially a really big client, and it's obvious that this would be a $10 million thing for them in the first year if they could get three more clients, like if it works. You're not guaranteeing they're going to get the three new clients. If you were, then you could charge $10 million. But if they think that this could turn into $10 million in the first year alone, post-launch, then divide that by 10, take it down to a million. Is it worth 10% investment to have a shot at a $10 million increase in revenue? Maybe it is, maybe it isn't. But if you figure out the value first, then set a price based on the value, then you're like, okay, what could I do with a million-dollar budget? Can I do it for $100,000 or $200,000? Even if I was totally wrong and it was $700,000, I'd still have $300,000 profit over the course of the year. Then you start deciding about how you're going to approach it to reach that outcome. So you can spend the first two months of the project researching the business logic, interviewing their current customers, researching the customers that they want, defining who those customers are, finding out what they're currently using and how can you be better, how can you offer them something more compelling with this system that you're going to build. And then you get to the end. And if it works, they had a huge return on investment because they only paid 10% of the increase, and they had other costs too, but they only paid you 10% of the increase, the increased revenue. And if it fails, they only lost 10% of this. They took a shot. They have to take a risk. You're taking a risk. They took a risk. And yeah, I mean, that's the way it works. So you don't really need the scope at the beginning. I understand that it feels dangerous because people are used to pricing themselves way too low. So when scope creep happens, their margin is so thin that they're immediately losing money or they feel like they're losing money. So the solution really is set fine projects that have a really high potential value to the client, price yourself at, say, a 10th of that to discount for the risk of it actually working.

And then you, within that budget, you figure out what you can do for them. And that's what you propose. So in other words, you almost propose a scope. Okay, so I know that was a lot. I hope that helped a little bit. If not, you can follow up with me in the comments. Make sure to hashtag AskJonathan, and we'll get to that answer as soon as we can. See ya. Hey, Jonathan again. Do you have questions about how to improve your business? Things like value pricing your work instead of billing for your time, or positioning yourself as the go-to person in your space, or maybe productizing your services so you never have to have another awkward sales call or spend hours writing another custom proposal. Book a one-on-one coaching call with me and get answers to these questions and others in the time it takes you to get ready for work in the morning. Best of all, you're covered by my 100% satisfaction guarantee. If at the end of the call you don't feel like it was worth it, just say the word and I'll refund your purchase in full. To book your one-on-one coaching call, go to JonathanStark.com slash call, C-A-L-L. That URL again is JonathanStark.com slash call. Hope to see you there.