On this week’s episode, we chat with Jonathan Stark, author of Hourly Billing Is Nuts and host of Ditching Hourly.
Jonathan is the former VP of a boutique software firm who became dissatisfied with the hourly billing method and decided to branch out on his own as an author, aiming to convince businesses that value-based pricing is the way forward.
“It was kind of an organic transition from me leaving the hourly billing… going out on my own and moving over to value pricing, but, you know, I’m not trading time for money. Ultimately, people asked me so much about it that I started to move in that direction,” says Jonathan when asked about his career transition.
On this episode, we chat about transitioning from hourly billing to value-based pricing, as well as…
- What types of projects are ideal for value-based pricing
- What factors you should be looking at to determine if value-based pricing is a good fit for your project
- How value-based pricing can be used to optimize your labor
- The caveats of value-based pricing (they’re likely not what you think)
- And more
Mentioned in this episode:
Steffen Horst: Welcome to the Performance Delivered Insider Secrets for Digital Marketing Success Podcast, where we talk with marketing and agency executives and learn how they build successful businesses and their personal brand. I’m your host, Steffen Horst. Today, we’re going to talk about value-based pricing. Here to speak with me about the top biggest Jonathan Stark. Jonathan is a former software developer who is now on a mission to rid the world of hourly billing. He’s the author of Hourly Billing Is Nuts, the host of Ditching Hourly and writes a daily newsletter on pricing for independent professionals. Jonathan, welcome to the show.
Jonathan Stark: Thanks so much for having me.
Steffen: Jonathan, before we tackle the main topic, value-based pricing, tell our listeners a little bit more about yourself. Why did you switch from being a software developer to becoming an author and trying to convince individuals and companies that value-based pricing is the way forward?
Why Jonathan Shifted His Focus to Value-Based Pricing
Jonathan: Oh, sure. Well, I started out, I guess, where does the story start? Yeah, I was the VP of a boutique software firm. We had 10 or 15 employees at the time. And we were billing by the hour, you know, there’s sort of a whole backstory there. But I became dissatisfied with that approach, to put it lightly, and decided that I wanted to try a different approach, which is value pricing. And went off on my own to do that. And the firm that I was at was fairly prominent in our space.
And I had a lot of connections, I was fairly well known. I was writing for the trade journal and speaking at the annual conference and that sort of thing. So a lot of people were like, you know, had their eyes on what happened. And over the year, you know, and it went great, and over the years, my friends and colleagues would reach out to me and say, you know, I’m starting to feel this hourly trap thing that you been talking about. How does it work? You know, they would ask me how I ran my business, not using hours.
And that led to blog posts and it led to invites to meetups. And eventually, I had, you know, I don’t know, 20, 25 blog posts that I collected together as a book of essays that I called Hourly Billing Is Nuts. So it was kind of an organic transition from me leaving the hourly billing, you know, dev shop world, going out of my own, moving over to value pricing and other approaches, but, you know, not trading time for money. And then ultimately, people just ask me so much about it, that I started to move in that direction.
Steffen: Yeah. I mean, you know, our audience is mostly, as I mentioned earlier, digital marketing professionals, agency owners or people that work at agencies. You know, they’re all trying to maintain a healthy margin when they win new clients or when they renegotiate with existing clients. And, you know, quite often they have a situation where, you know, a client comes and says, well, you know what, we increased budget by 50%, 100% over the last year.
So you’re making more money now because you’re billing us on a percentage of media spend, let’s cut back to the percentage that you get. That approach leads to thinking that the client most likely doesn’t value the results, the performance, the service that he gets from that particular professional sector. And that, you know, with an increased budget, usually revenue or whatever the KPI is that is being delivered increases too, otherwise no one would spend more money. How does value-based pricing for agencies work?
Pricing By Project
Jonathan: Yeah, so value-based pricing I use in a very specific scenario, and that is for project work. So if someone comes to me, you know, to use the software example, if someone sent me an email and said, Hey, you know, I had some software books also and, you know, back in the day, and someone say, Hey, we read your book, all of our developers have it on their desk, and we’ve got this project, we can’t seem to cross the finish line with it. We’d like to talk to you about, you know, having you come in and help us do it. What’s your hourly rate? And I would say, I don’t have an hourly rate.
And they would say, Well, how do you bill for your work? And I say I’ll just give you a price for the project. And if that’s acceptable, then let’s set up a meeting and we can talk about what you’re trying to achieve with this work. In that kind of a scenario, we would have a conversation about the project. So this isn’t like an open-ended retainer type of arrangement where forever and ever they’re going to be paying me 15 grand a month to do some work on their behalf or to advise them about something.
It’s got a beginning, a middle and an end. There’s success criteria. It could be anywhere from six months to a year to 18 months. Seen plenty of projects go that long. It’s got an end. It’s got some kind of launch, some kind of delivery. And in a perfect world, perfect world scenario for value pricing is that the project is very big in terms of, not necessarily, it’s usually big financially, but it’s more when I say big, I mean, it’s, it’s important. It’s a bet the business kind of project where the client really can’t get it wrong.
They’ve got one shot at this big switch and there’s going to be major consequences if it doesn’t go well. And when they’re in a situation like that where the investment and the execution is probably going to be high, but also the risk of it not succeeding or going way over deadline. If any of those things are true, then the value is going to be very high to the buyer and they’re going to be interested in mitigating their risk by hiring an expert to be involved so that it’s more likely that the project will succeed.
So that is the ideal perfect scenario, when you attract a big client with a risky project that they need to get right the first time or on some kind of aggressive deadline. And they just know that the odds of them screwing it up are high. So that’s not like, you know, my understanding of the advertising world is fairly cursory. But if you’re, what it sounds like, what you were talking about was more like an ongoing subscription to labor that your employees or the agency’s employees would be doing on behalf of the client and that it’s not really a project. But correct me if I’m wrong. Is that true?
Steffen: Yeah, that’s correct. It’s an, I wouldn’t call it a retainer. It’s an ongoing feed client pays, based on the media investment on a creative word for creative agencies, some other agency businesses, they might be project-based. You know, because they develop creative units, whether that’s a website, for example, or ad units, content pieces and things like that. So that’s probably a little bit more in line with what you mentioned from a project perspective.
Jonathan: Yeah, I think for me a big project for an agency would be something like a huge rebrand, you know, like redoing the Pepsi logo and all of the related marketing materials. Like that, to me, that’s a project and that’s a great example of something that would be, you know, that would be a candidate for value pricing. Something like ongoing assistance that doesn’t really have an end, it might have phases or like you read the contract annually, but it’s kind of like an ongoing thing where you’re basically like an outsourced department for them. I see that as more of a subscription model.
And you could price it a couple different ways. One way would be to value price it when you first meet the client and say, Hey, okay, you know, you’ve got these needs, there’s this gap, you can’t fill it and let’s talk about what outcomes you’d like to achieve. And then just give a price that would perhaps be broken into monthly payments where say, hey, you send us $50,000 a month, and you don’t have to worry about this laundry list of things. So if you price it on a customer by customer or client by client basis, then you could deploy value-based pricing to come up with that.
And it would have nothing to do with the ad spend, I never understood the connection between the ad spend and like the value that was brought by the agency. It doesn’t. There’s like a, it’s kind of like hours. Hours is this arbitrary thing that can correlate to some kind of successful outcome. But if nobody talks about what the successful outcome is supposed to be, then you’re kind of just shooting in the dark. You’re just dribbling around on a basketball court in the dark with a blindfold on hoping to sink some baskets. And it’s not a great fit for value pricing.
You need to know what you’re trying to achieve. The thing you’re trying to achieve could be an ongoing thing, but it’s typically not. So I would think more along the lines of viewing that kind of relationship as a subscription. And you could price it client by client, like I said, and maybe come up with some kind of value. We’d probably be based on the fully-loaded salary that it would take for them to do this, to hire talent as good as your agency and have them be full-time employees and you could kind of anchor it against that.
But it seems, probably it would be easier to just have a subscription that was the same price for everybody that included certain things. And then you would be, you know, maybe you have a couple of tiers of that, two or three tiers of service level. And the client, it makes it very easy to sell that kind of a thing. You create, like a productized service that’s sold in a subscription kind of model. It gives you a lot of predictability. It’s much easier to sell than having a sales interview with every single new client. And they can get into a rhythm with it where it’s not, you know, it’s not fluctuating.
They don’t have to rethink the purchase decision. So that would be, you know, and you can over time, since you’re not trading time for money, you can optimize your labor. So whatever is involved with executing this work, you can do things like increased productivity through software, or standard operating procedures, or morale, or there’s all these other ways that you could make it easier to do whatever work you’re supposed to do for the client on a monthly basis faster and with less time. So that, well, faster, but without losing quality, and that is basically, that increases your margin without going back to the client and saying we need to raise our prices.
Steffen: Well, that’s, I mean, say that obviously, with every client, even in the advertising world, there is a goal at the end of the day, right? So if you have an ecommerce client, right, then the goal is to sell more products at a certain price point or a certain return on investment or return on advertising spend. So there are obviously, there are KPIs that need to be hit, right? So and then the other point probably is that no client will have the same request.
Like, you have different channels that have to be taken care of or managed. You have clients that want different service levels as it relates to how often do they catch up Or how often do they get reports and things like that. And as you said, you know, you could build a pricing model that accommodates that. But it probably would get quite complex, I would think.
Jonathan: Yeah, if you, productizing and works best when you get really focused on the kind of clients that are ideal for you and you say no to the clients who are not ideal for you. Another approach, though, is that you could have different kinds of offerings. So you could have this productized service that’s a good fit for a certain kind of company, like, you know, a Shopify store that’s doing $10 million a year, between 10 and $15 million a year or a regional chain of restaurants, you know, fast-casual restaurants.
And that is a good fit for this particular package. But If someone comes along and they’re not a good fit for any of the packages, then you can say, all right, well, nice to meet you, dear client. What are you trying to achieve? I see that you don’t fit into any of these boxes. So we could spin up a custom project and achieve your, you know, reach these KPIs that you, these needles you’d like us to move, that can be our initial project.
Once that initial project is over, the first time, it’s probably going to have a lot of spin up. There’s probably gonna be a lot of things that you need to create the first time around, you know, style guides or, you know, new branding materials that you don’t need to keep recreating every month or a couple of months or maybe even every year. So there’d be this initial spin up project to be kind of like the v1.
And then after that, you’ve been working with them, you understand their demand level, I guess I would say. And at the end of that, maybe they do fit in one of the boxes and then you can move them over to one of those services. Or maybe you create a new one for this new kind of client that you’ve identified. But specializing down on a particular kind of client would probably be pretty important if you’re going to have these pre-made packages.
Steffen: Yeah. How, I mean, I think this question probably would apply to whether you’re able to use value pricing quotes or not. From your perspective, how can you convince a client of the value that you deliver or delivered or will deliver? Because at the end of the day, many clients come and say, Hey, you know, what, how did you end up at price x, right? How did you calculate price x? And why is your price, let’s say higher? You know, you said earlier that, you know, this works probably best for situations where there’s a high risk, urgency, etc.
But not every project has a high risk, right? Not every project has a certain urgency that kind of you can take that off and say you’re not because it’s that I’m using value-based pricing. If it is just a normal project with, you know, a normal half a year timeline, how in those situations can you convince a client? Or would you approach a client saying what, this is, what is, why the price is the price and why I’m not telling you, you know, I’m spending 40 hours per month, for example.
Why You Shouldn’t Take On Every Client
Jonathan: Lots of questions in there. So the first one is, you don’t have to take every client. And hopefully, people listening to this aren’t in a position where they have to take every single client because that’s a bad position to be in. So if someone comes along and any of those questions that you just asked, I’m going to address as many as I can remember. But if any of them kind of don’t go your way, when I give you the advice about how to deal with them, then you just don’t take the client.
Not every client is a good fit. So that’s a pretty important consideration right off the bat. No matter if you’re value pricing or not, you should not be taking every client. And if you are taking every client, then you, I mean these are ad agencies. You should be working on your marketing and branding and positioning and improving your sales funnels and all of those things. You should not be, you should be saying no to at least 50% of the people that want to work with you.
So that said, What’s another question you had? How do you convince people of the value? You don’t. When you talk to them, you know, if you have a meet an initial meeting with them and call it a sales interview, this is the first time you’ve met this customer. This isn’t an existing customer, someone who wants new work. You meet with them, and they think you’re the solution to some problem that they have for whatever reason. Maybe it’s a gut instinct, maybe it’s a referral. They mentioned that they’ve got some kind of problem or gap or something and somebody said, Oh, you should talk to these guys.
Whatever the reason is, they think you can solve their problem. In the meeting, I, the thing that people usually try to find out is how much work is going to be involved in this engagement. I don’t want you to think about that at all. Scope last, not scope first. Scope first is backwards. It’s what everybody does pretty much, but it’s backwards. You don’t need to know how much work is going to be done because it’s too soon to say what work needs to be done.
You need to find out what the problem is that is in their head that caused them to contact you. That’s all you need to find out. And at the end of the day, or the end of the meeting, I should say, at the end of the meeting, there’s, once you uncover that, and it might not be easy, and I’ve got a series of questions that you go through to figure it out, but when you get to the end of the meeting, if you haven’t figured out, roughly, not exactly, but roughly what it’s worth to this client to solve this problem that they have, then you have no basis for a price.
And personally, I wouldn’t even take on the project. But let’s say that you do get a kind of back of the envelope calculation of, you know, some KPIs that were mentioned, and I don’t know, conversion rate’s terrible, funnel’s leaky, or we need to get more eyeballs on this new offer. So we’re gonna run all these ads, whatever the thing is. As you’re interviewing them. and you start to learn these things, and you start to become confident that you can apply your expertise to this problem and give them some kind of desirable outcome, a specific desirable outcome.
One that they can articulate with your help. So you get down to this really core first principles type of thing, where it’s something like it’s some kind of business outcome. It’s some kind of metric. It’s more money, increased sales, increased revenue, higher profit margin, improved employee morale, improved brand reputation, better thought leadership position. These are all things that someone might want.
The tricky thing is they’ll come to you and they’ll say, we want you to run these ads and we want you to do this and script these webinars and do all these things. And they tell you what they think they want you to do. But you just push back on that and you say, yeah, we can do all those things. We have those capabilities. But let’s first find out what needle we’re trying to move. And then we, implication being the experts, will decide which things to do.
Like you don’t go into your surgeon and say, Doc, I need a triple bypass. And the doctor says, Yeah, jump up on the table. I’ll just go get my stuff. And then you instruct the doctor how to do the surgery. That’s not how it works. So you push back in the sales meeting so that they’re not getting up in your business about how you’re going to do your job. And you understand the business motivation for this meeting in the first place. What is this project or what is this engagement all about? How’s it going to make them better when you’re done?
Once you figure that out and you’ve got some kind of rough calculation that it’s probably worth $100,000 to them, then I would think I would just come up with three prices. And I would usually use a rule of thumb of like, you know, a base option in a proposal being like, would be in this case, probably be $10,000. And an option two would be $22,000. And option three at $50,000. Haven’t decided at all what I’m going to do yet. Got the value, roughly, I’ve got three prices based on what I think it’s worth to the client, not my cost, because I don’t even know what I’m going to do yet.
And then I think, Okay, what can I do for $10,000 that would contribute to this outcome that the client wants? That would be hugely profitable to me, like it might only take me a day, a weekend or two junior people. And I’ll outline something and two junior people can bang out a PowerPoint for 10,000. And then you think, well, what can I do for 22,000 to help contribute to this outcome that the client wants? And you decide what stuff you’re going to do.
And if you do that, it doesn’t matter, really, if the value to the client is only $10,000, you can do the same thing. If you want the client come up with $1,000 option, a $2,200 option and a $5,000 option that are really, really easy for you to deliver so that you feel very profitable doing the work. So like value pricing doesn’t automatically mean you’re gonna writing seven-figure proposals but it does mean that the bigger these projects are that I’ve been talking about, you know, that’s why it’s such a great fit when it’s a big important project because the value is through the roof.
So it gives you tons of wiggle room in the middle for setting prices and then deciding on the scope last. So another question you had was, what if they then take your proposal and they say, how’d you come up with these prices? And the answer is very simple. You say, based on experience. And let’s see, well, how many hours do you think it’s going to take? And then you would say, I don’t know. That’s why we don’t bill by the hour. We wouldn’t want to put you on the hook, or go over budget, or have this cost more than it’s worth. So since we’re not sure how many hours it’s going to be, we’ll give you a fixed price.
Steffen: Okay. So now the company that you talked to has other offers on their table and yours might be still the most expensive one. How do you, in a conversation then, you know, convince them that you know what? You might be expensive, but you are the best solution for them. Obviously, not knowing what the other companies are. But you’re convinced that you’re the best solution for that particular client.
Jonathan: I never try to convince anybody anything. So I feel like that’s worth mentioning because it takes a lot of pressure off you in these kinds of communications. So in sales communications, I genuinely treat the client like it’s my mom or something. I don’t want her money unless she’s going to be happy with the outcome. So if I don’t know who the other people are, then I don’t know on the best option.
I would be a fool to be convinced that was. You don’t know what, you would come across as desperate for you’re like well, I’m the best option. They know you don’t know who the other people are. What I would do instead is say, one thing I would call out is I would say, Well, if the other options that you have, you know, they say all your twice as much as the next option. I would call out and say well, is the next person on the list, I would contact them and ask them if they’re willing to stand behind the price. That there’s not going to be, it’s not an estimate, it’s a fixed price.
There will be no change orders, there’ll be no up charges, there’ll be no cross-selling. That’s it. That’s the price. And if they’ll stick to it, and it’s half of my price, then you should go with them. The other, the bigger problem here and the bigger issue is that you clearly have not strongly differentiating yourself in a meaningful way from your competition in the eyes of this buyer. And you can’t just be, you know, you might know, maybe you take a wild guess and you’re like, these people are, you know, they’re in the LA area, they’re probably talking to the two other people in the LA area besides us. They’re kind of like our size.
If they can’t tell the difference between you and them, even if you know those other agencies are awful, and they’re just the worst, or they’re, you know, they’re mediocre let’s say. If the client, it doesn’t matter if you know that, the client needs to see a difference. The client needs to understand from your marketing because they’ve never worked with any of these people, from your marketing, they need to understand that you are the only option. You’re not one of many. You’re the one. You’re the one they want to work with. Which is a, you know, positioning, branding, marketing exercise that you should be doing all the time.
But once this, once you have that work behind you, and you become the go-to agency for a particular kind of problem or a particular kind of client, they’re not even going to look at other people. You’re the only option. So there’s, so that’s a bunch of answers. One last thing is that in the, we didn’t talk about the types of questions that I ask in the sales interview, but I call it the why conversation.
And one of the categories of why questions is, why would you hire someone expensive like me? Why not do this more cheaply? Do it internally? Why not hire some juniors? Why not outsource this to a low cost of living area. Why not go to Fiverr? So on and so forth. So you set your, so you get all the objections upfront to what would be objections to your proposal. So you find out upfront why they can’t go to Fiverr, or why they can’t hire people to do this internally, or why they don’t want junior people or why they don’t want to be working across a 12-hour timezone difference.
And you just take that information and put it in the proposal. It’s like, well, there are other cheaper options out there, but you can’t use them for these reasons. Boom, boom, boom, boom, boom, and you just write what they said. So when they get to the price, they should expect it to be expensive just based on your marketing leading up to the meeting, your conversation in the meeting, and then the proposal, it’s not going to be surprised that you’re the most expensive one. I often tell people I will be the most expensive quote you’re going to get before I even write it just to gauge their reaction.
Steffen: You set in mind early on so that they don’t expect the
Jonathan: Yeah, I don’t wanna be in the business of writing proposals that aren’t going to close.
Steffen: Yeah, that makes sense. That makes sense. Jonathan, your book title is Hourly Billing Is Nuts. So, from your perspective, why is it nuts?
Why Jonathan Says Hourly Billing Is Nuts
Jonathan: Well, first of all, it puts an artificial limit on your income. And this is more for a soloist than for someone who’s got an agency because agency people have already decided to scale up their hands and then mark up the rate that they’re paying to these people who are either contractors or employees. So you can scale up your business that way and that’s fine. If that’s the kind of business you want to have, that can work. The problem with hourly, so that particular problem doesn’t necessarily apply. But for people who are soloists or a small firm, you know, two or three people, hourly puts a really hard cap on your income.
There’s like so many hours in the day, so many weeks, you know, days in the week, and there’s only, you know, the only way to increase your income, if you want to raise, you want to double your income, you got to work twice as much. That’s not good. You could theoretically raise your hourly rate. But that’s highly unlikely to land you deals unless you’ve got really, really strong positioning and you’ve got some kind of credible reason why you would be twice as much by the hour as someone else who also is a Rails developer or, you know, whatever, a copywriter.
So that one’s mostly for, you know, smaller agencies. Another one that really drives me crazy, is that hourly billing allows you to get started working without knowing what the client’s trying to achieve. So there’s a joke in consulting, where, you know, two people from the same firm are talking to a client and, you know, they run out of the room and say, you get to work, I’ll find out what they want.
You know, as, you know, let’s get that clock going and get the money flow in our direction without even knowing what you’re trying to achieve. And here’s the big picture problem with this because you can bill a lot of dollars against a vague request or specific request to do particular tasks, which may be the wrong test to do. But hey, that’s what they asked me to do. And I put in the time, so you won’t need the money, dear client. But that’s not a great way to build a long-term client relationship because it puts all the expertise on them.
Like, why should they have to tell you who’s the expert of what you do, what tasks to undertake? Doesn’t make sense. Like, why would a shoe company or a pizza place, why would Domino’s call up a designer and then start giving them, like, instructing them what type of fonts to use, or what typefaces use, or what colors to use? They know pizza. And I’m not going to tell you how to do pizza and you’re not going to tell me how to design your website.
So you tell me, Domino’s, what you’re trying to achieve with the website or the, you know, annual sales letter or whatever the thing is, and I’ll achieve that outcome. And then we’ll figure out how we’re going to measure it and so on and so forth. But hourly billing lets you skip that step and start getting, you know, billing against time that you put in When you really, you know, if you don’t know what they’re trying to achieve, you’re just sitting there doing best practices, which might not be ideal for whatever situation they’re in.
And it leads to, and this is related, but it’s another one, but it’s related, if you gave them an estimate first of how much time this is going to take and there was never a stated goal, then there’s no way to control scope creep, really, because they’ll say, yeah, you’re doing all the things we said, but why don’t you try putting a carousel on the homepage or maybe we should try advertising on Tik Tok or, you know, they’ll start throwing stuff at you just throwing stuff up against the wall.
They’re just flailing, and that’s fine in the moment because you’re like, all right, more money for me, more money for me, but they’re damaging themselves and at a certain point, they’re going to be burned through their budget, or they’re going to start looking at how much they paid you over time and say, you know, we’ve spent like twice as much as we were planning on spending with you and we’ve got nothing to show for it.
And then it turns into this fight. And I’m sure everybody’s had this experience where it’s like, Well, yeah, but you told me to do all this stuff and I did what you told me to do. And it’s just not a professional way to manage a client relationship. If you’re a professional, if you’re an expert at what you do, I’m not talking about people that are just starting, not talking about people who are just learning how to do their craft, I’m talking about people that know what’s up.
They’ve been around, they know how to do their job, and they’re good at it. You should not be letting the client tell you how to do your job if you want to have satisfied clients. So hourly billing makes it really hard, it makes it really easy for you to just kind of take these scope requests, you know, these scope changes and just do them and then that comes back to bite you all the time.
Steffen: Yeah, yeah. Jonathan, before we finish the podcast, you have talked a lot about, you know, the pros for value-based pricing. From your perspective, what are the cons? Are there any?
Are There Caveats To Value-Based Pricing?
Jonathan: Oh yeah, there’s pros and cons to everything. Value pricing is really hard. That’s, hourly billing really easy. Everybody understands it. I think it’s nuts, obviously, but everyone does understand it. It’s easy to explain. But it’s got, I mean, I have a list of 12 more things here that we could go through. I know we don’t have time. But value pricing is not easy. It’s not what people are expecting. It’s more art than science. You need to have, it certainly helps you a lot if your positioning is strong and a lot of people have trouble defining a really good, defining and sticking to a real laser-focus position.
It takes an extreme level of confidence in the sales interview to ask why conversations, the why conversation questions because you’re essentially trying to talk them out of working with you which is a gigantic mind shift for most people who are trying to get like, you know, the payrolls come in, I need to get, I need to land something quick and get a deposit so I can make payroll this month. So, you know, that’s a downside. But the funny thing is, most people think the downside is that scope creep will kill you.
And that’s actually not the downside. Like, I think in 10 or 15 years, it only happened to me once that the project took longer, you know, significantly longer than I expected. And the funny thing is, even when that happens, it’s not like when things go longer with hourly because when a project goes say twice as long as expected with hourly billing, the client is flipping out because they’re paying twice as much. When you get a fixed price for, you know, $200,000 for a project that I thought was going to be 12 months.
It actually took 24 months. So it cut my effective hourly rate in half. But the client was totally cool. The relationship never suffered. They just weren’t paying me any more. And that was fine. That was the deal. And, you know, at the end, so it removed all of the stress and all of the fighting about hours and all that administrative work that goes with that and all the email and, you know, arguments, all that stuff just disappears and you just get to do your job.
But yeah, so it can, that’s how, like I said, that’s happened to me once in 10 or 15 years. It really doesn’t happen that much because you’ve got a clear outcome. So when they come to you and say, Hey, we’d like you to put a carousel on the homepage or could make the logo a little bigger, or something like that. You’re just like, Well, you know, how’s that gonna help us achieve this goal that we’ve all agreed that we’re trying to achieve more quickly? And if they can’t make a case for it, then you don’t do it. So scope’s not really that much of a problem. It’s really not that much of a problem.
Steffen: Do you think a company would be concerned? I mean, the worst example you just mentioned, you know, you anticipated 12 months, but you ended up spending 24 months. You’re not getting more money, but you still have to do the job, right? As a company, I might be concerned and say Well, you know, now that we’re already at the end of the 12 months, is that person really going to continue to work on the project with the same enthusiasm and dedication that the person who worked the first 12 months? And could the company not see it as a potential risk?
Jonathan: That brings up a lot of questions about trust and how strong your position is and does the client trust you or whatever. But if you’re on the hook to finish, you know, another thing we haven’t talked about is that one thing hourly billing prevents is getting paid upfront. If you give somebody a price, you can get paid upfront. So in, you know, in the example that I’m talking about the kind of outlier, I get paid up, or I think I get paid in like three monthly installments in the first three months or something like that.
But I had all the money way upfront so I can use that to kind of cushion myself out. And by the way, this ended up being 24 months, but not full-time work. And now to your point about whether or not I would, I mean, it’s not like I stopped getting paid in the second 12 months. I had not been getting paid for like pretty much the whole time. I still had the money though, I just, you know, just needs to spread out longer and you’re doing other things anyway.
Especially someone who’s got an agency, they’re going to have, it’s fine. You can, you know, if this one project is a little bit off the rails or it’s just taking longer, you know, at least it removes all of the, you know, all the stress of the client engagement. And if you’re professional, you’re going to get it done. They’re just going to leave the person on it and that’s going to deliver customer satisfaction and you’ll still get referrals that will never have been a big 12-month long fight.
And guess what, now you’ve got a financial incentive to get better at whatever you screwed up. Whether it was managing scope. creep or understanding the project initially. If you got paid for all those extra hours, you wouldn’t have any financial incentive to actually get better at estimates or uncovering, you know, scope or managing scope. There’s just no point. I mean, there’s emotional motivation, but there’s no financial motivation. And financial motivation is pretty important.
Steffen: Well, Jonathan, it has been a pleasure talking to you. Thank you so much for joining me on the Performance Delivered Podcast.
Jonathan: Yeah, thanks for having me
Steffen: I feel like I now have a number of additional questions which, unfortunately, we can’t fit into this podcast episode, but maybe we can get together again and tackle, you know, some of the other questions that you kind of hinted at and that I all of a sudden have on my notebook here. If people want to find out more about you, what you’re doing, if they might need help and kind of hands-on how to approach value-based pricing, how can they get in touch with you?
Jonathan: Yeah, the best way is through my mailing list. So if you go to valuepricingbootcamp.com and sign up for my seven-day free email course, it talks about a bunch of these topics in greater detail. And at the end of that, you’ll end up on my daily list. I’ve been writing, you know, a list on pricing for independent professionals since 2016. And, you know, basically, I don’t really go on social media that much.
I mostly just interact with, you know, my audience, they’re in email. So, any replies, they go straight to me. It’s my real email and I read everyone answer as many as I can. If I get a whole bunch of questions about the same thing, I might write just one big letter for everyone. But I try to respond to everybody.
Steffen: Great. Well, thanks everyone for listening. If you like the Performance Delivered Podcast, please subscribe to us and leave us a review on iTunes or your favorite podcast application. If you want to find out more about Symphonic Digital, you can visit us at symphonicdigital.com or follow us on Twitter at Symphonic HQ. Thanks again and see you next time.