Value Pricing our work has been a major topic of conversation in the press and at events lately. This topic has been introduced at Scaling New Heights for the past several years, and
is included in Joe Woodards' Institute https://www.woodard.com/institute. It is everywhere. I have had many lively conversations with peers on whether or not Value Pricing is appropriate. Many embrace it, some vehemently oppose it and others are undecided as to its value. I fully embrace it, but the challenge for me has been finding an appropriate consistent implementation strategy.
Keeping track of hours worked is hard for a Visionary, like me, as the "Squirrel" effect comes into play a lot (see Les McKeown article). If the job warrants it, I will do hourly tracking. But my preference has always been to bill the client on the value of the job so that they and I knew what the end goal is. In my contracts I always included an unknown situation clause which would be on a time/material basis, much like a contractor who is building or remodeling your home. The challenge then is to be "effective" in working on the project so that I feel that the time put into it is both fair to me and the client. As I became more efficient (I could get more done in an hour) with my projects, my overall project revenue would decrease on hourly projects. This left me one option to increase my earnings. Raise my hourly rate. This has its limits as clients look at the hourly rate and compare to other ProAdvisor rates, whether meaningful or not. Right or wrong, that is my experience. I still have an hourly rate, but I leave it for special work.
Value Pricing for me was like the best of both worlds, but in the beginning I tended to "price" my projects with a set desired hourly rate in mind. And in the beginning I did not include enough "wiggle" room for minor errors or under anticipating the work involved. I was fearful of the client rebelling if I asked for more money. A hard lesson was learned. Even if I was charging an hourly rate, I would still hesitate going over the "agreed" to estimate.
My mindset and business changed after taking the Woodard Institute "Gateway" course and devouring Ron Baker's book, "Implementing Value Pricing". I have become more consistent with my pricing and have been able to up my contract prices. I don't feel guilty if a client agrees to my price if it means I will be making a good margin. It’s the value they get. And as Joe has stated, consider what you are saving them in time and money on a regular basis and to also consider the risk to them of not doing the project. At the same time, the goal is not to get greedy and gouge the client. If there is no integrity in your price, the client will sense it.
One of the reasons I am able to price my work now is that I have experience to know what a project will generally entail and how long it will take. I have set up templates to help me get the tasks done more effectively. I had to put in many hours to learn my tools and craft, and i had to woefully underbid some projects to get to this place. It did not happen overnight. I am still evolving as new techniques and tools come into play.
Clients don't balk over price and are usually relieved that they will not get nickel and dimed to death. They know what they are paying for and they know what they are getting. I collect a good retainer on each project - which my clients pay readily. I outline when the client will be billed and have not gotten any grief about my billings. If there is work that is outside the scope of the project, I make the client aware of it and then bill. Because we have an agreement on the services provided, my bills are not in as much detail as they were on an hourly based billing.
The first project I do for a new client is generally priced higher as you need to spend time learning about then and how they work. Reviewing their QB and other systems involved and considering a design to achieve desired outcome. At the onset of a project I attempt to offer the client three choices on services (I frankly am still working on refining these offerings). Depending on the kind of project you are dealing with, the three choices are:
- Individual pricing for each project
- Discounted price for choosing more than one project
- Premium for including more automated processes
In doing project work there are generally three phases:
- Design and Familiarity with project. How does the client do things? Tolerance for change. Find an evangelist in the company that will help to promote any changes required in work process.
- Create the product…Keep the client informed as you progress.
- Test Results..On your own and with client . This is probably the most understated time value. Don't short change this task!
For large projects where I am working with client to generate new workflow or building out an app in Method, I will use a blend of hourly and pricing for the project. I break it down into reasonable phases so that if one area gets way off track - only the one phase is affected. The upfront design work is generally billed hourly (with a budget in mind) and the actual project work priced.
My analogy for this kind of project work is that of hiring an architect and a contractor to remodel your house. For larger jobs, you will hire an architect to design your building, consider all of the structural issues, etc. There is a lot of back and forth and meetings to consider. On large projects this design time is traditionally billed hourly. You just don't know what they will continue to ask for and what you will find in developing a design. I am on the fence as to whether or not this should be included as part of your price. The "construction" part can more conducive to value pricing. I am still refining my technique for these types of jobs.
For smaller projects of this nature, where you are doing more "construction" than design, I will tend to value price the entire project.
Overall, as I refine value pricing that works for the projects I deal with, I am finding that my revenue is increasing over last year. My clients are happy and I am also happy as my overhead for billing and tracking project work is decreased.
I strongly urge all to read Ron Baker's books on Value Pricing. His arguments are very compelling. And even if you do not fully agree, it can provide you with a different view of how your clients think of you and your billing models.
Additionally I highly recommend the Woodard Institute Gateway Course.
Fran Reed is owner of FreedUP DataOptics, Inc. Her company provides Relief from the drudgery of report preparation and inefficient business processes through their core services:
* Creative and Innovative reports that provide Clients with clear visualization of their business
* Business Process Design
* Industries Supported: Non Profit, Wholesale/Distributor, Retail, Service