Time sheets to Value Pricing - Have you made the change?
Updated: Jul 9, 2019
I listened to an interesting podcast last week that a fellow momprenuer sent me. I was feeling down because I was getting questions about billing from a few clients and was having a hard time not taking it personally. I'm in an amazing group of Virtual Assistants on facebook and it's been nice to share ideas and learn from other VA's experiences.
As one woman pointed out, "...sometimes breaking things down too much empowers the client to feel as if you’re their employee and that they’re doing you a favor by “giving” you a job. Do not put up with people mistreating you. Even if you need the money your time is better served going and finding a client to PARTNER with as an equal."
It started to make me re-think the way I do billing and charging clients by the hour. I understand the client perspective when they want to know how long or how much a project will cost and I'm not able to give them an accurate quote charging by the minute. But I'm not sure how to correctly estimate how much to charge per project or per month. How do you account for scope creep?
According to Jonathan Stark, "when you base your fixed price on the client’s perceived value of the project outcome instead of your estimated labor, you can set your fees significantly higher, deliver more effective results, increase customer satisfaction, and more."
His top three reasons to shift to value pricing include:
Hourly billing misaligns incentives - Misaligns the direct financial incentives between you and your client (i.e., the longer the project takes, the better it is for you and the worse it is for the client). This creates trust fractures which erode the relationship over time if your estimates are not accurate. This erosion is manifest as questioning hours, micromanagement, and lack of testimonials/referrals.
Hourly billing encourages aimlessness - Allows you to get started before knowing your client’s goal. If you don’t have a goal, you can’t succeed. If you can’t succeed, your client isn’t going to be happy.
Hourly billing discourages efficiency - There is no financial incentive to become more efficient (e.g., tools, systems, automation, processes, education, training, professional development, etc). On one of my first value based projects, I found myself shopping around for plugins. I found one that did just what I needed. It was $700 which might sound like a lot but it was going to save me weeks of time.
Check out Stark's interesting podcast about Value Pricing. Definitely food for thought!
I'm not sure how I'm going to move forward with this (and who has time to figure it all out when the kids are out during the summer!) but it's something I want to learn more about. My goal is to improve client relationships, offer prices up front and always be accountable -- without a minute by minute timesheet.
Do you use Value Pricing in your business? How do you set your rates? Do you have better customer satisfaction?
I'd love to hear your thoughts!!