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 Zach Stevens who asks, have you ever actually told a client that you practice value-based pricing? The conversation would go something like this, I imagine. What's your hourly rate? Said the client. I do not have one. Projects are compensated on a value basis, said the consultant. Is that a suitable response? What would you say? Actually, no, I never talk about value-based pricing with clients. What I do is I say, you know, when they ask me what my hourly rate is, I say I don't have one. And then I just wait for them, you know, in this yawning silence that stretches out between us for them to say, well, how do you price your work? And I'll say, well, I'll give you a fixed price for the project so you know in advance how much the whole thing is going to cost. Will that be acceptable? And almost always they'll be, yes, they'll say, yes, that's acceptable. They'll be very excited about that because the idea of making a purchasing decision, a really big risky purchasing decision about a big software project and not knowing how much it's ultimately going to cost is a very scary feeling for a client. So even though they're used to paying for things by the hour, when presented with the option to actually have a price for it instead of just an estimate, they, assuming they believe you that you will stick to your price, which is a separate issue, but assuming they believe that you will stick to your price, they'd much rather have that because it takes a lot of risk away from them. It takes tons of risk away from them. So they dig it. The exceptions to this will be when you're talking to a gatekeeper or someone in procurement who's just sending out RFPs and they, for some reason, you know, for regulatory reasons or whatever their policy is, they need to get hourly rates to compare apples to apples from one vendor to the next. You'll see this in higher ed and government a lot of times. If you're dealing with a real buyer, they can get around these sorts of things, but there are certain areas where it's tough to not give an hourly rate and still get the job. But those are probably bad client projects anyway. So if you say to someone, you know, you come up with a value based price and you present it to them in a proposal and you haven't had any kind of discussion with them that, oh, this is value based and I think you're going to get a million dollars out of this project, so I'm charging 100,000. I don't do any of that. That's all going to happen behind the scenes in their mind and in their subconscious. We're going to talk about the value of the project, what the desired business outcome is, and then I'm going to say, hey, here are three options. You can do the $50,000 option, you can do the $120,000 option, or you can do the $250,000 option. And here are the benefits that you'll get with each one. Here are the risks with each one. Here are the rewards with each one, so on and so forth. Maybe I'll even have different guarantees for each one, different risks and assumptions for each one. Regardless, they'll all be fixed prices, and if the client comes back and says, well, how did you figure this out? Like, how long do you think it's going to take you for option one, let's say? And I'll say, I don't know. That's why I don't charge by the hour, because that wouldn't be fair to you. I don't know how long it's going to take, but no matter how long it takes, it's going to cost you the same amount. If I'm guessing it's going to take me three to six months and it actually takes me 18 months, that's my problem, not yours. You're not going to pay a dime more than this price. So you need to constantly push them away from thinking about you as an hourly employee or an hourly contractor. And if they try and figure out, you know, if they're trying to reverse engineer your price into hours, just be like, it's not about hours. I don't know how many hours it's going to take. No one on planet Earth knows how many hours this big project is going to take. You shouldn't take that risk. I'm the expert here. I'm going to take that risk. I believe that this price will work for me. I believe that I think based on what we discussed, this price should be a reasonable investment for you. If I'm wrong, we can create a new proposal. But aside from that, you know, does this seem like a fair investment for the outcome you're looking for? And just constantly be pushing them back to the value of the outcome that they're looking for. And, you know, don't let them try to, you know, try and divert them from reverse engineering the price. If they really keep pushing and they're like, no, but seriously, how did you come up with this price? Just say it's based on past experience and leave it at that. I've done similar projects to this. Based on past experience, I think this is a reasonable price. If that's not acceptable, then we can talk about a different outcome. We can talk about a different project or we can just part ways. But you cannot let them deconstruct your price, you know, because that's just them thinking about the wrong thing. They're thinking about a cost. They're thinking of you as a cost and not as an investment. And they're not thinking about the benefit of the project. They're just trying to get it done, perhaps just trying to get it done cheaply or whatever the case may be. So just those are a few tips on how to navigate that sort of situation. And hopefully it helps. All right. I'm Jonathan Stark. If you have a question for me, you can hashtag AskJonathan on Twitter, LinkedIn or YouTube.

We'll find it and add it to the list. See ya. Would you like to learn how to get paid what you're worth? How about selling your expertise and not your labor? We work through all of this together in the pricing seminar. Pre-registration starts soon, and you can sign up to be the first to know when early bird pricing is announced at thepricingseminar.com. That URL again is thepricingseminar.com. Hope to see you there. 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.