Captain’s log, stardate 20200213
Sent by Jonathan Stark on February 13th, 2020
Imagine that you’ve been in business for a while. Five, ten years let’s say. You’ve been making good money and you’re pretty comfortable.
You’ve started to get a creeping feeling that something’s not right.
For the last few years, you made about the same money. Meanwhile, you’re working just as much as ever. It doesn’t feel like you’re building toward anything. It feels more like you’re in a rut. Your income has maxed out. You’re basically stuck.
When you look to the future, you can’t imagine what would have to happen for you to significantly increase your income (or significantly decrease how much you work without taking a pay cut). Privately you wonder, “Is this it? Is this the most money I’ll ever make? Will I always have to work this hard?”
I’ve good news:
No, this is not “it” :-)
You can break through to the next level. You can work less and make more. You can worry less about money and more about making a positive impact on the world.
You, my friend, need to start thinking more about pricing.
Billing is not pricing
First, let me rant for a sec about hourly billing. If your income is based on trading time for money, then you don’t price your work - you bill for your work.
Billing and pricing are not the same thing. If you bill for your time, then you’re probably providing clients with estimates not prices (if you give them estimates at all).
The fastest way to increase your profits (i.e., make more money without working more hours) is to stop billing and start pricing. And by pricing, I specifically mean giving your clients fixed prices in your project proposals.
Is there a risk that you’ll set your prices too low? Sure. Any businessperson who is bad at pricing is going to learn some tough lessons pretty quickly. But with that risk comes a big reward, and that reward is called increased profitability.
When people think about switching from giving estimates to quoting fixed prices, questions come up. Here are three big ones:
For custom project work, I recommend setting your prices based on the client’s perceived value of the expected business outcome. Yes, the perceived value is a squishy number, but is it really any squishier than a number you pulled out of thin air multiplied by a guess based on incomplete information? (i.e., your hourly rate times your estimated hours).
NOTE: DO NOT set fixed prices based on how many hours you think a project is going to take. Unless you’re incredible at estimating, you’ll get killed doing this.
If value pricing custom projects seems too risky to you, you could create a productized service, which I define to be “a fixed scope, fixed price offering that you market and sell like a product but deliver like a service.”
Productized services don’t typically result in the kind of windfall profits that value pricing a project can, but they are pretty safe, they’re easier to sell, and unlike hourly billing, you benefit financially by delivering them faster not slower.
And let’s not forget about products. You could write a book, launch a video course, run an online seminar, etc. These would normally be lower priced options than custom projects or productized services, but they scale up like crazy. If you believe that there’s a good sized audience interested in learning what you know, a good product launch can make your year.
Here’s the thing…
If you want things to be different, you have to do something different. That means you have to change, and change is hard.
But what’s your alternative?