Ditching Hourly

Hello and welcome to Ditching Hourly. I'm Jonathan Stark. Today I want to dispel the misconception that value pricing is a license to print money. Value pricing cuts both ways. It's not like some magic wand that you wave and suddenly poof, you get to charge more for your projects. Value pricing, as you can tell by the name, is the practice of setting a price for a project based on the value that the project delivers. More specifically, the perceived value in the client's mind of what the project will deliver, the outcome. In the value pricing model, the price that you set necessarily has to be lower than the perceived value in the client's mind. Otherwise, they will have received a negative ROI. They'll feel like they lost money. This is where buyer's remorse comes from. So here's an example where value pricing is a great fit. Alice from Domino's Pizza approaches you to design and build an event microsite for their upcoming Super Bowl promotion. It's basically a fancy web page. So you have a why conversation with Alice and agree to an objective for the project, metrics to gauge progress towards the goal, and a rough value to Domino's for the success of the project. In a situation like this, it's conceivable that the value to Domino's might be in the seven-figure range, or that failure would cost them seven figures of brand damage or what have you. If that's the case, you could almost certainly sell the project, i.e. building a single, albeit fancy, web page for $100,000, about a tenth of the value. Even if this took you 100 hours to build this web page, you'd be making an effective hourly rate of $1,000 an hour. Now here's an example where value pricing is not a good fit. Bob from Bob's Pizza approaches you to design and build a website for his single location pizza place. Naturally, he wants all the usual restaurant stuff, so things like an online menu with professional photography of all the food, info about the history of the restaurant, contact info for calling in an order over the phone, the location of the restaurant, which, of course, he's going to want a fancy interactive map, and, oh, by the way, online ordering that accepts all major credit cards and Apple Pay and Google Wallet and PayPal. And while you're at it, could you also do one of those pizza trackers like Domino's has? So it'll send out updates to the customer as the pizza is, like, on its way. So obviously this would be a ton of work. You have a why conversation with Bob, and the objective, metrics, and value of the project are super hazy. He says something like, his brother-in-law told him we should have a website, so I called you, and he doesn't really know why he wants it. He's got no idea how much it might increase his sales, never mind other intangibles like, you know, brand or goodwill or anything like that. So you push him on this, and he guesses that maybe the site would increase his sales by a few hundred bucks a month. And he says, to be honest, if it did much more than that, we wouldn't be able to keep up with demand because we're already crazy busy keeping up with all the walk-in traffic from the local college. Would Bob agree to $100,000 for this project? No, of course not. He probably wouldn't even agree to $10,000. The trouble is Bob's perception of the project value is very low. If he paid more than a few thousand bucks for all that work, he'd feel like he was losing money on it. So for the Domino's project, where the labor intensity is low, so that's the amount of work you have to do, but the perceived value of the project is high, so this is in the mind of the client, value pricing is a perfect fit. It allows you to capture more value from the project than you possibly could at an hourly rate. For Bob's pizza, where the labor intensity is high, but the perceived value of the project is low, value pricing straight doesn't work. So this leaves you with the question, what do you do when somebody like Bob comes along? Do you bill him hourly? No, he doesn't need the website he described. It's a bad idea. You basically have two options. Option one is reject the work out of hand and just spend more time trying to attract clients like Domino's, bigger clients that have higher risk projects that have a low labor intensity. Or prescribe something else for Bob where the labor intensity for you and the perceived value for him are not completely out of whack. So maybe something like just building him a Facebook page or a simple single page landing page for the business so at least they have some basic online presence. That's it for today. I'm Jonathan Stark, and this is Ditching Hourly. Thanks for listening. The next time somebody questions an entry on your timesheet, I want you to visit valuepricingbootcamp.com to sign up for my free email course. Again, that website is valuepricingbootcamp.com. 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

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.