Why you shouldn’t charge by the hour
Charging by the hour? Here’s how to make more money and keep your customers happy
If you’re a service based business like us web designers, you might be charging your clients by the hour. This is common and not the worst thing you can do. However, here’s an alternative method that could inspire you to change your pricing policy and make more money…
What are the negatives of charging by the hour?
When you charge by the hour, you put a cap on the amount of money you can earn. After all, there are only so many hours you can work, right? Of course, you can hire more people to increase your available hours, but this might not be the most efficient or manageable way to grow.
From the clients’ perspective, the customer often has no idea whether the work you’ve done was efficient – some people take a long time to do tasks that may take other people a few minutes. What’s more, as you get better at your job you will naturally get faster and develop processes to speed up the work. Counter-intuitively then, you’re getting paid less to do the work because you are better at it! That just doesn’t make sense.
An introduction to value based pricing
I first learned about the concept of value-based pricing from the awesome blog team at Freshbooks. If you get time, I recommend reading this short story about it.
What is value-based pricing? Simply put, you price your work based upon the value you provide to your individual customer. If for example, you create a website that you estimate will generate your customers an extra million pounds in revenue next year – it might be justifiable to charge the client £10,000 or even £100,000 for the work. Whereas if the website is only going to generate £10,000 more revenue, the value is less – so you’d need to charge less. You with me?
It sounds so simple and yet so many small businesses overlook this concept. It’s part of the reason that we avoid having fixed prices for our services… After years of delivering quality web services, we’re able to accurately show our customers the return they will get on any work we do and so we have a good idea of what we’re worth. Can you find similar statistics within your organisation?
Read this short story (click here) and think about how your pricing could be altered to reflect your true worth. It’s not about hours; it’s about results.