The Costly Mistake
Your hourly rate is unfair.
Entrepreneurs commonly charge for their time. School taught us that our time is highly important. However, this pricing strategy teaches your clients to view you as a hired hand. You’re clumped with unskilled labor that’s paid for back-breaking work.
Unlike day laborers, you devoted countless hours to developing your expertise. Don’t dismiss that critical factor.
It’s time to kill the billable hour. Let’s uplevel your pricing strategy with one that highlights your knowledge and values your time.
History of the ‘Billable Hour’
Everyone starts out charging an hourly rate. Well, I’d like to share its back-story. In 1919, attorney Reginald Heber Smith invented the “billable hour”. As the Wilmerhale story suggests, he wanted to provide a “fair, logical, transparent and indisputable method” for valuing legal services.
In Smith’s own words, “This method is especially pleasing to businessmen, all of whom have cost systems of their own. You can show him your cost and you can give him your supporting evidence. This at once dispels the notion that you are charging ‘all the traffic will bear’.”
In summary, showing a client your hourly cost and “supporting evidence” will convince them to pay you a set hourly rate.It’s time to kill the billable hour. Let’s uplevel your pricing strategy with one that highlights your knowledge and values your time. Read full post. #getpaidwhatyoureworth Click To Tweet
When you fast-forward a hundred years, this pricing strategy promotes underpayment. It’s exactly why so many entrepreneurs struggle financially. That’s because technology now does many tasks that previously required manual labor. Why use a hand crank phone when you can opt for a smartphone?
Your Hourly Rate Creates Conflict
Your hourly rate puts you and your client at odds. Consider this:
- Your client wants the work quickly completed to lower the cost. On the other hand, you earn more money when you take more time.
- With an hourly rate you calculate all your costs and diligently track every minute of your time. You client doesn’t really care about those things. They’re primarily concerned with the end result.
- Projects often require more time than expected to produce quality work. Then you worry about going over budget and your client’s response.
- As the years roll by, your process speeds up. If that’s the case, then you earn less for the same work done. Your hourly rate puts a cap on your income since time is finite.
If your client runs into a problem, they avoid reaching out to you because of the additional cost. When they do contact you, the problem has escalated and fixing it costs more than if they had contacted you sooner.
Clients sometimes pull a total cost out of thin air. Without understanding the intricacies, they decide the work can quickly be completed and cap the job’s total amount. As a result, they expect a low bill.
Then they’re shocked when you send them the final invoice. And now, you defend your work and negotiate your fee. How much have you written off over the years?
Your highest value occurs before you start the work. Once the job is done, it loses value. Consider driving a new car off the lot. The cars value depreciates before the ink’s dry on the contract. That mindset applies to your work, too.
All of this can easily be remedied. A solution exists.
Value Based Pricing
Value-based pricing solves the problem. When you attract ideal clients, they appreciate your expertise. Unlike price-sensitive clients, they’re seeking a specific type of experience. Everything you do reinforces the benefits and outcomes.
The rates you charge reflect value, not time. The total price, and what’s included, is agreed upon before you start to work. To avoid miscommunication, everything’s clearly stated in your client contract.Ever notice how the clients who pay the least expect the most? Read full post about why your hourly rate is unfair. #getpaidwhatyoureworth Click To Tweet
Once your client agrees to the price, the contract’s signed and your fee is paid. As a result, you solely focus on delivering the outcome with no distractions or guilt. Here’s the best part – you’re now on the same page as your client. You both want the job to be completed as quickly as possible. Your clients invest in solutions, not buy time.
Stand out from the Crowd
Ever notice how the clients who pay the least expect the most?
Dare to be different. Refuse to compete on price. Then carefully select which clients you choose to work with. Let someone else deal with the price sensitive clients.
You have to own your value before you can expect others to value what you offer. Value based pricing is the single, fastest way to increase your income. More income opens doors of opportunity that a cash-strapped business doesn’t enjoy.
No Income Ceiling
Einstein said, “The only reason for time is so everything doesn’t happen at once.”
The magic begins once you separate your income from your time. Value based pricing liberates you from the dollars per hour trap.
Ditching your hourly rate removes the anxiety and fear about getting paid for your services. Basically, you no longer chase money or need to justify your rates.
Value based pricing rewards speed and efficiency. Overnight delivery services prove that people will happily pay more for something to be quickly delivered. So, let’s apply that proven concept to your business.
Ditch Your Hourly Rate
Your hourly rate puts you in opposition with your client, because you get rewarded for effort. It sets the wrong incentives – you want to take more time and earn more, they want the exact opposite. This overlooks your highest value, the results you deliver. Plus, you earn less as you gain expertise simply because you accomplish things faster.
Value based pricing solves the trading time for money dilemma. You dictate your prices based on the value you create for your client. This eliminates the tension around time.
With value based pricing you no longer compete on price. Instead your rates reflect your expertise, not what you do.
Ready to ditch your hourly rate? Follow these recommendations for your business to smoothly transition to value based pricing. Are you tired of doing work for free because you don’t know how to charge for it? Discover how to get paid what you are worth and attract clients who understand your value. Right NOW claim your FREE RESOURCE to create value based pricing.