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What’s the most profitable way to charge your clients?

Why You Should Stop Charging an Hourly Rate

May 13, 2022

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When you first launch a business, the most obvious way to charge your clients is by the hour. But one business coach says it hurts your revenue in the long run. And he believes there are better, more profitable ways to bill for services.

Meet Jonathan Stark, an independent professional consultant, the author of “Hourly Billing Is Nuts,” and the host of the “Ditching Hourly” podcast. He says that true experts don’t trade their time for money, and he’s on a mission to rid the consultant world of hourly billing.

Jonathan recently joined us on the “Organize Chaos” podcast to share exactly what’s wrong with charging by the hour. And in this episode, he explains how to bill your clients instead:

Problem #1: You earn less as you get better.

Before Jonathan started business coaching, he was an independent software developer building mobile websites for clients. And like many first-time owners, he charged them by the hour. But he realized that as he got better (AKA faster), he was actually bringing in less revenue. 

“[When you] deliver results in less and less time, you make less and less money,” Jonathan explained. And while you could raise your rates in response, there’s eventually a pay cap for any industry. “[No one is going to call] a web designer charging $500 an hour,” he added. 

As a result, owners might fill their time with more projects to compensate for lost hours. But in the end, they only work harder without increasing their profits. And that’s a big problem because your gained expertise should cost more to clients. 

“[Billing hourly] gets you into this hour trap where the better you get at what you do, the less money you make.”
– Jonathan Stark, President at Jonathan Stark Consulting

Problem #2: You attract clients based on price instead of value.

When you rely on hourly billing, clients may choose your company based solely on your price. And that means you’re not only attracting low-cost clients but you’re making yourself easily replaceable. 

Instead, Jonathan suggests providing value-based pricing — where you listen to your clients’ goals before providing a quote. This way, you can ensure you’re the right expert for the job, understand their precise needs, and then position yourself as the valuable solution. 

“If [clients] give a reasonable answer as to why [the project] is urgent, it means [you’re] more valuable to them,” Jonathan explained. And, as a result, you can demand a higher, flat fee for your services.

“Find out the value, set a price, and then decide a scope that would fit into that price.”

Plus, if you find that a prospect has no clear objective or reason to spend money on your expertise, you probably want to pass on it and move on. “I wouldn't even write a proposal [if there’s no clear value], because the client is just going to be pulling teeth,” Jonathan told us.

Problem #3: You’re not charging for a specific service or result.

Billing hourly means you’re trading time for money. And oftentimes, it also means there’s no defined service or product for your clients. So your delivery is inconsistent, and the results are hard to measure — and both of these problems will impact your reputation and profits over time. 

But when you start with the client’s goal, you can package your offering as a clear deliverable that’s repeatable, scalable, and can even make you money while you sleep. Jonathan says there are three easy ways to do this (and it’s how you should charge your clients instead):

  1. Info products package your expertise as a video course, book, or PDF. You can sell these on your website with very little follow-through. And since these products are always for sale, they make money even when you’re not actively working.

  2. Productized service or multiple productized services are services you package, sell, and deliver like products with a set price and precise result. For example, you could sell a $5,000 website build or a $500 design consultation.

  3. Value pricing is when you create a proposal based on the value of the outcome for the buyer. This is the framework that starts with understanding a client’s goals and urgency. Value pricing works well for custom projects because it gives more control when  positioning yourself as the solution. And you can set a higher flat fee depending on clients’ needs. 

Hourly billing is most consultants’ go-to option for charging their clients. But it might not be the most profitable. So listen to Jonathan’s advice, stop listing your hourly rate, and use these three alternatives instead. Just chalk up your hourly billing practice to a rookie misstep. 

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Article

What’s the most profitable way to charge your clients?

Why You Should Stop Charging an Hourly Rate

May 13, 2022

Jump to a section
Share it!
Sign up for our newsletter
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.

When you first launch a business, the most obvious way to charge your clients is by the hour. But one business coach says it hurts your revenue in the long run. And he believes there are better, more profitable ways to bill for services.

Meet Jonathan Stark, an independent professional consultant, the author of “Hourly Billing Is Nuts,” and the host of the “Ditching Hourly” podcast. He says that true experts don’t trade their time for money, and he’s on a mission to rid the consultant world of hourly billing.

Jonathan recently joined us on the “Organize Chaos” podcast to share exactly what’s wrong with charging by the hour. And in this episode, he explains how to bill your clients instead:

Problem #1: You earn less as you get better.

Before Jonathan started business coaching, he was an independent software developer building mobile websites for clients. And like many first-time owners, he charged them by the hour. But he realized that as he got better (AKA faster), he was actually bringing in less revenue. 

“[When you] deliver results in less and less time, you make less and less money,” Jonathan explained. And while you could raise your rates in response, there’s eventually a pay cap for any industry. “[No one is going to call] a web designer charging $500 an hour,” he added. 

As a result, owners might fill their time with more projects to compensate for lost hours. But in the end, they only work harder without increasing their profits. And that’s a big problem because your gained expertise should cost more to clients. 

“[Billing hourly] gets you into this hour trap where the better you get at what you do, the less money you make.”
– Jonathan Stark, President at Jonathan Stark Consulting

Problem #2: You attract clients based on price instead of value.

When you rely on hourly billing, clients may choose your company based solely on your price. And that means you’re not only attracting low-cost clients but you’re making yourself easily replaceable. 

Instead, Jonathan suggests providing value-based pricing — where you listen to your clients’ goals before providing a quote. This way, you can ensure you’re the right expert for the job, understand their precise needs, and then position yourself as the valuable solution. 

“If [clients] give a reasonable answer as to why [the project] is urgent, it means [you’re] more valuable to them,” Jonathan explained. And, as a result, you can demand a higher, flat fee for your services.

“Find out the value, set a price, and then decide a scope that would fit into that price.”

Plus, if you find that a prospect has no clear objective or reason to spend money on your expertise, you probably want to pass on it and move on. “I wouldn't even write a proposal [if there’s no clear value], because the client is just going to be pulling teeth,” Jonathan told us.

Problem #3: You’re not charging for a specific service or result.

Billing hourly means you’re trading time for money. And oftentimes, it also means there’s no defined service or product for your clients. So your delivery is inconsistent, and the results are hard to measure — and both of these problems will impact your reputation and profits over time. 

But when you start with the client’s goal, you can package your offering as a clear deliverable that’s repeatable, scalable, and can even make you money while you sleep. Jonathan says there are three easy ways to do this (and it’s how you should charge your clients instead):

  1. Info products package your expertise as a video course, book, or PDF. You can sell these on your website with very little follow-through. And since these products are always for sale, they make money even when you’re not actively working.

  2. Productized service or multiple productized services are services you package, sell, and deliver like products with a set price and precise result. For example, you could sell a $5,000 website build or a $500 design consultation.

  3. Value pricing is when you create a proposal based on the value of the outcome for the buyer. This is the framework that starts with understanding a client’s goals and urgency. Value pricing works well for custom projects because it gives more control when  positioning yourself as the solution. And you can set a higher flat fee depending on clients’ needs. 

Hourly billing is most consultants’ go-to option for charging their clients. But it might not be the most profitable. So listen to Jonathan’s advice, stop listing your hourly rate, and use these three alternatives instead. Just chalk up your hourly billing practice to a rookie misstep. 

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What’s the most profitable way to charge your clients?

Why You Should Stop Charging an Hourly Rate

May 13, 2022

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