I love what I do: One of the first things I had to learn when becoming self employed was how to charge for my consulting services. Now when I first started consulting as a web designer and computer consultant in the late 90s, I simply stated an hourly rate I was comfortable charging with a given customer at that particular moment in my life. If things were going well in my business, I could charge a higher rate because winning the work wasn’t critical to my survival. When things were not going well, I would invariably charge less hoping to win the work with the end goal of paying bills and being able to sustain my business. Looking back, I believe my thinking at the time, was simply based on survival and fear driven and it was based on an employee model of trading time for money.
Now when I was a computer consultant and provided systems support to small business, charging by the hour was the norm and customers didn’t argue with an hourly rate because the service provided was visible in that I spent time at their place of business, so they could see the service being delivered in real time. However, with the creative side of my business that I was growing at the time (graphic design, web design, business branding), charging by the hour didn’t seem to sell well because customers didn’t actually see you do the work. The work was nebulous and not tangible. I would go away, create something, and then days later, bill the client for the hours I worked.
At the time in early 2000, web sites were still fairly new, and few clients understood what they were, how they were built. Even fewer had a clear strategy on what their web site was supposed to do. All of these factors made charging by the hour a constant struggle because customers wouldn’t understand what went on. Now, I have to admit, I probably ended up attracting clients that weren’t willing to pay what I wanted to charge, and didn’t see the value of what I provided. It’s not that I overcharged or was too expensive. In fact, if anything my rates were too low at the time, and I didn’t believe I had skills worth selling at a fair rate. Also, I probably didn’t do a good enough job explaining and showing value during the lead generation phase of my sales cycle.
Today, I understand my business much more clearly and I have built enough web sites to put a predictable price on what I sell. I know some clients are new to the Internet and need more coaching. While others have already built their first web site and are looking for a revamp and are easier to work with. In all cases, I can almost always use a fixed price model when selling my services, and I have chosen to go down that route instead of the hourly rate model. Now, if you are a web designer listening to me right now, your are probably thinking, I should charge by the hour, but I will tell you what. Customers won’t buy it. I’m also so fast with web development now, that I can create in a day what used to take me a week 10 years ago and so my hourly rate would be in the range of 200-300 per hour. I won’t get many clients at that rate.
In addition, charging by the hour sets me up for a model of trading time for money, and if there is anything I know about being an employee, that’s the one distinction you can make. Employees trade time for money. By following the hourly rate model, I end up being tied to timesheets and some customers that are just starting out with their web business end up being overbilled. There are just too many scenarios where charging by the hour, doesn’t work for my customers. In most cases it’s a win-lose strategy where customers will lose out and won’t ask me for help and guidance because they know they are being billed for my time. I would rather do away with the hourly rate and instead sell at a fixed price, deliver my best work, and let customers interact with me more often. That sounds much more win/win to me and in the end, the best solution is produced.
Idea 1 – Productize your services
Now, you are probably thinking I’m heading in the wrong direction with fixed price design because I lose out, but that’s not really the case. You see, with fixed price design, I can determine what a project is worth by calculating how much time I will have to devote to the project, and determine what my costs will be. One of the outcomes of this is that I can start to think of my consulting services as products on a shelf, or something in a box. I can thinking about a concept called “productization” which is essentially the idea of turning a time-based consulting service into a “product”.
Let me give you an example of “productization”. Let’s say you get a haircut, and the stylist says they charge 150 per hour. Well, most people will try and do the simplest possible haircut, cut out extras like a shampoo, gel, etc. They won’t let the stylist do what they do best and in the end, no matter how little you pay, you won’t be satisfied. Of course, most stylists don’t charge by the hour, and have fixed price “products” you can “buy”. You know the final cost, and you simply expect the stylist to do their best work.
So that’s the first method of thinking about what your time is worth. Turn your services, or the services you deliver most often into “products”, and then put a dollar value on those “products”. In the beginning, you might undercharge or overcharge, but over time, your product pricing will settle to a value that makes sense for your target audience.
Idea 2 – Increase value
Continuing with the example of the hair stylist, have you seen stylists that charge more? Of course you have, and the value of what’s being delivered is tangible. Often, it’s a fancier studio, maybe there are spa services, more talented stylists, better products, and overall, a more enjoyable and engaging experience. Can you think of doing the same with your business? One of the things I have built recently with Full Motion Group, is a knowledgebase. It’s a seperate web site, where my customers can read articles, watch videos, and learn more about how to build their business and their online marketing. I can also increase value by adding members to my team, like I did earlier this year.
You see, one of the things you need to understand about buying behaviour is that people don’t buy based on price alone. The value of what they buy also plays a role and if you can increase the value of your business, and deliver to customers something extra, something above and beyond what everyone else is offering, then price becomes somewhat flexible. For example, consider organic food. Now, I’m not about to argue against organic food. In fact, if anything I actually enjoy eating organic produce and I do see the value. I know organic food tastes better and I feel good knowing that I’m feeding my body with something more nutritious than off the shelf produce. Think about increasing value in creative ways in your business as well that gives you a license to charge more than your competitors.
Idea 3 – Consider market maturity
Your industry maturity plays a big role in how you charge. Unless you can find ways to increase value or stand out from your competition, you are going to find it difficult to charge a premium in your business. Market maturity, however, also is something to consider when thinking how much you can charge. In newer industries or businesses where supply is scarce, you can afford to charge a premium. I have a few clients that offer something few others have and in one case, price is no object and this client can charge any amount they see fair.
As markets and industries mature, more suppliers invariably enter the market and price becomes a concern for customers. Again, as I mentioned before, your client history, testimonials, and value added all help in closing on the sale, so while market maturity is significant, it’s not a major consideration if you have positioned your business effectively.
I would go as far as saying that market maturity actually induces business risk more than it does give you a competitive advantage. All markets mature, and eventually price becomes the only differentiator amongst your competition. That’s the case currently with the web design industry. Some web design companies have used a client list as their competitive advantage, while others have gone the route of teams and technology as what makes them stand out.
Idea 4 – Work backwards from your goals
If you happen to be in a business where your customers don’t have many references to compare your price point, you may want to work backwards from your end goals to determine what your hourly rate should be. I can’t say it any better than a great resource at Freelanceswitch.com called the Hourly rate calculator, so I suggest you visit the site and give the tool a try.
Idea 5 – Learn from the competition
If all else fails and you can’t create more value, or come up with creative ways of selling, you could always learn from the competition. However, this is one area I really don’t suggest you do. You see, it could well be that the competition isn’t providing what customers really want and haven’t spent the time to learn what the pain points are from customers to devise a creative solution.
If you just do what everyone else does, you could fall into what I call the “me2”, and “copycat” way of doing business. Now, there is nothing wrong with that, but do you really want to compete for eyeballs like everyone else? I suggest it’s easier and better to learn the pain points, and devise a solution that makes sense for customers. To me, that makes more sense and ultimately takes you down the path of being a “solution provider”.
Well, I hope the ideas above give you some indications about how you might price your services. Focus on making it easy for customers to work with you and delivering high value. Help customers solve problems, and you will never be short of customers wanting to work with you.
