Why Hourly Billing Is Nuts!

Chris Ronzio (00:30):

Hey everyone. Welcome to Organize Chaos. I'm your host, Chris Ronzio. And as you heard in the intro today, we're talking with Jonathan Stark and we're gonna talk all about hourly billing. What's up, Jonathan?

Jonathan Stark (01:54):

How's it going, Chris?

Chris Ronzio (01:55):

Great. Thank you for being here.

Jonathan Stark (01:57):

My pleasure.

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Jonathan Stark's Background

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Chris Ronzio (01:58):

So, uh, I told you right before we started recording that I've been pouring over your website, and just digging into all of the philosophies behind why people shouldn't price hourly. So we're gonna get into that, but before we do just a little background, did you start off as a software developer or how did you kick off your career?

Jonathan Stark (02:16):

Uh, depends on how far back you wanna go. I mean, my professional career, I guess, as an adult post college was professional musician. Graduated from Berkeley in 93, I think. And did that, you know, gave that a real shot for roughly 10 years. Then got married, got back into software development, which I had done as a kid, actually on a TRS 80 and on my dad's IBM PC. And it turns out that pays the bills a lot better than being like a solo singer songwriter. So I got sucked back into the software world, which I always loved. I loved coding. And then fast forward to the iPhone I specialized in iPhone websites is what we kind of called it. Then in 2007, 2008, wrote a book about it. Books sold very well, started getting a bunch of consulting gigs, spoke to all the conferences and ended up earning a mobile strategy consulting firm for about another 10 years. Then I shifted into what I'm doing now, which is business coaching for independent professionals.

Chris Ronzio (03:20):

Awesome. I love that. So, your main experience, I guess that probably created a lot of these philosophies was the agency work, right?

Jonathan Stark (03:28):

That, yeah, that's where I kind of had the epiphany that hourly billing was nuts.

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What's Wrong With Hourly Billing?

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Chris Ronzio (03:32):

Okay. And hourly billing is nuts is the title of the book that you've written, which I think is a great title. And so that'll kind of frame this whole discussion, talking about hourly billing. A lot of our listeners are service providers. They're people that are running different types of businesses that could be billing hourly, whether it's a contracting service, field services, or an agency like the one that you have. You are on a mission to rid the world of hourly billing. Can you tell us just what's so wrong with it?

Jonathan Stark (04:01):

Well, I mean, let's start with what's right about it. It's really easy. It's what everyone expects. Your clients probably expect you to give them an hourly rate when you first meet them. The whole world is organized, the whole world of services is organized around hourly billing. So when, when someone maybe leaves an in-house job and decides to hang out their own shingle and I'm gonna be a designer on my own, instead of for some giant corporation, the first thing I think is, you know, what should my hourly rate be? It's usually not what should my business model be or how should I charge for my services or my expertise. So it's obvious. It's easy. The problem is, it gets you into this hour trap where the better you get at what you do, the less money you make. Doesn't make any sense.

If you get better at what you do, and when I say better, I mean, delivering, desirable results to your clients in less and less time, you make less and less money and people will respond to that and say, well, you could just raise your rate, but nobody raises their rate fast enough to keep up with how much better they get at what they do. And even if they did they'd price themselves out of what the market will bear for whatever it is that you do. So if you're like a web designer and you charge $500 an hour, no one's gonna call you.

Chris Ronzio (05:19):

Right. So there's kind of a cap on your profitability because getting more efficient means billing for less hours, Fewer hours.

Jonathan Stark (05:26):

Right? So then you have to get more clients and then you're just working harder and harder. And the people I work with, they find themselves in this position, maybe five years in where they are working harder than ever. And they just can't figure out why, how come I'm not getting ahead? It's like, cuz you have no profit and there's no way to optimize because if somebody buys an hour, how long does it take you to deliberate an hour? So you can't get faster.

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Alternatives To Hourly Billing

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Chris Ronzio (05:48):

Right? So there is an alternative. And before we get there, I'll just share. When I first started consulting on my own, before Trainual, I had a little consulting business. I had sold my first company. I didn't know what to charge. I did kind of the same thing. And I just threw a number out there. And at the time it was $35 an hour. And then my next customer was $40 an hour. My next customer was 50 and that was how I was dealing with it. But I hit a wall and I had an epiphany too. What was the epiphany? What's the better way to charge?

Jonathan Stark (06:19):

Any kind of fixed pricing is better? My favorite, well, it depends. There's, there's three that I teach. One is real simple to understand info products, package up your expertise as video course, a book, whatever, you know, that's really easy and obvious to understand. A sort of middle ground, sometimes a transitional phase. If you're already billing by the hour is to start to create a productized service or multiple productized services where you take a service, something that's delivered as a service and you package it up and sell it like it's a product. And what that ultimate means is that you've got a fixed scope service that you offer at a published price on your website. So someone can come to your website and say, oh, it's $5,000 for a strategy roadmap or it's $5,000 or it's $500 for a strategy, phone call or a design consultation or whatever. Where it's either time boxed or you just know what you're doing so well that the scope is going to be fixed and you can put a price on it.

And then people can come to your website and just pretty much click a button depending on the price point. They can either click a button or they can, um, set up a 15 minute chat to see if it's a good fit or something like that. But the marketing and sales of a productized service are dramatically easier than with say like a custom project where the engagement is different every single time. And for something like that, this is the third way. I recommend value pricing for custom project work, where someone comes to you, you don't have a product or productized service that fits what they need. You wanna work with them. You think there'd be a good fit. The objective that they're trying to achieve is in your wheelhouse. Then what you would do is you'd come up with a proposal based, and the prices in the proposal would be based on the value of the outcome to the buyer, instead of the costs that you believe or estimate, it would take you to deliver the service, which is 180 degrees different than what almost anybody does in any other model.

Almost everybody does cost plus and provide an estimate for some number of hours at some rate. And then inevitably they end up going over it and everybody gets angry and fingers start getting pointed.

Chris Ronzio (08:36):

Okay. So info products, productized service, value pricing.

Jonathan Stark (08:39):

Value pricing. Mhmm.

Chris Ronzio (08:40):

I think we can dive into all three of these, info products would just be kind of like a high volume thing, right? You're making courses or books or something like that. And you've got a really easy entry point. And so is that something that you tend to recommend that people bolt onto whatever else they're doing or that some people's whole business?

Jonathan Stark (08:59):

It depends on where they're starting from. if they're starting from, you know, maybe they've been a successful freelancer or a solo consultant, and they're doing, you know, like low to mid six figures and they're really used to client work and they love it. They're just feel stuck and they don't know how to get their business to the next level. I probably wouldn't jump straight to info product. it depends though. Maybe they need to be seen as a thought leader to get to the next level, so maybe they have to do a book. Uh, but usually it's more likely that I'm gonna bolt on some productized services into their mix to make it easier for them to build trust. Build enough trust to create new clients. And then those new clients, a lot of times are gonna say, okay, you know, the strategy sprint was great. Let's get you in to do the implementation. And then you'd give them a price, you know, like a value price proposal for a project like implementation work. So usually, usually just broadly speaking, I would take someone like that and say, productized services would be the next step.

Chris Ronzio (09:58):

There are exceptions to the rule here. Things could just take off. I had a client once that was, she owned a hair salon and did braiding. And so she put together this series of braiding videos, ran 'em through an online course. And six months later, she's making 35,000 a month or something..

Jonathan Stark (10:15):

<laugh>. It can work. The problem usually is if you've been freelancing or you've just been doing client work, you usually don't know what the product is. So you, it's more like if you know what the product is then sure that'd be a great next step. But if you're guessing at it and you don't have demand that people asking for this, or you're known for a specific thing, yeah I'd be all for it because that sort of stuff is, you know, it takes more effort maybe to set it up initially, but once it's done, it's low touch sales, low touch delivery, perhaps no touch delivery. So it's make money while you sleep type of thing.

Chris Ronzio (10:50):

So now when we get into productized services, I've seen some people, package together a number of hours, like you're buying an an eight hour support package or something like that, which is still kind of charging for the hours. Maybe you don't use the whole, the bucket. How do you feel about that?

Jonathan Stark (11:05):

Not great. It's a little bit better. You know, if you sell a bucket of hours in advance, then, it's better, cause at least you have the money, you can ask for the money up front. It's just kicks the can down the road, but I think there are scenarios where, it makes sense to go through a transitional phase. Especially if you have a bunch of employees, you've got payroll and you don't want 40 people sitting there idle when there are clients who would gladly pay for a bucket of hours on a, say a monthly basis. But to me that would be a transitional phase. It's like, yes, you want to keep your utilization high. So you can, you know, your cash flow, doesn't get scary and your payroll is fine. But what I would want someone to do is to transition, like slowly pull the hours out of that.

And, once you are familiar with, what's actually happening every month, you could say, look, you know, our guys would love to stop tracking their time. How about we just, you know, the last couple of months have averaged out to be this number of hours and you've been paying us, you know, 30 grand, some months, 40 grand some months, let's just call it at 35 grand and we'll do two sprints. And as long as everybody's happy, we'll just keep going like that and just take the hours out of it.

Chris Ronzio (12:21):

I think that's a great point in how to transition what you're currently doing. Just to look back at what you've been billing.

Jonathan Stark (12:26):

Yeah.

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Value Based Pricing: The "Why" Conversation

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Chris Ronzio (12:27):

And then value based pricing to touch on that one more time. If you're doing this custom every time doesn't sitting down with a client, a prospect, I guess, and saying, so what's this worth to you, you know, kind of feel a little too fluid? How do you approach the value based pricing?

Jonathan Stark (12:47):

Yeah. It's very, very different than what people are used to. And I've got a, a framework that I've dubbed the why conversation, where if you go into a sales interview and people, the client knows they think they need what you like. They're pretty sure that you're the solution to their problem, or they wouldn't be spending time talking to you. So for some reason, they believe that you have something that they want, or you can provide something that they want. But usually what happens is, you sit down with them and they brain dump about the project and I've got the software background. So usually it's scope stuff like we want to have these features, you know, real specific tactical things about what, you know, the sass might look like or something like that, you know, the different features and permissions and all that. Modules.

Back in the day, I used to eat that up. I'd be writing down all the scope. I'd be designing the solution in my mind. So I could kind of like take a guesstimate at how many hours it would take me so I could give 'em a proposal. So the whole conversation was about me trying to get as much scope out of them as possible. With value pricing, it flips it to scope last. That's the last thing you do. So once they finish brain dumping, all of that really tactical specific stuff, which really, they're not qualified to tell you about anyway, you know, if they're telling you how to do your job already, it's like, it's not super appropriate. It's not that useful, cuz they might have picked the wrong solution. So then about 20 minutes in, they'll exhausted everything they know I've been taking million notes and I would say, man, this is great.

I've got all of these notes. I'm excited about this. Can we back up for a second and talk about the big picture because there are a hundred ways that this could be done. So I wanna make sure that I don't paint us into a corner by picking the wrong way. So let's talk about what you're trying to achieve with this. What would be the home run? Why not, not do this? Why not do it in a different way and again get into the why conversation, which is why this, why now and why me. I would ask a series of questions along those lines to find out, or at least I would encourage them or kind of force them to convince me that doing this is the right thing to do to achieve their desired outcome.

I usually would say, why don't just do it manually. You think you want this workflow solution. It's gonna cost a fortune. It's gonna take up, tons of time, your time, your employees times for the next year. Why would you do that? Why not just hire three more admins to run the invoices faster? Why not do it in some other way? And eventually they'll convince me that software is really the right solution. And then I'll say, okay, why do it now? Why not? Wait? You've you've been thinking about this for two years. Why not wait two more years? And if they can give me a reasonable answer of why it's urgent for them to do it right now, I get excited because that means that it's gonna be higher value to them.

You know, they'll say something like our biggest competitor is stealing our customers or Amazon announced that they're gonna come into our market. We feel like this window of opportunity is closing. That means that this client is gonna be highly motivated. They're gonna be highly engaged. That makes 'em way easier to work with and it increases the value. So I want to hear that it's very urgent for a good reason. And then the last one, which is the hardest for people usually to get to bring themselves, to ask is why would you hire someone expensive like me to do this? Why not get your cousin Vinny? Or you told me I have web developers in house. Why not have them do it? And they'll give you all these reasons. Uh, once you get through the conversation, why they do need an expert, like you, they do need to do it right now and it does need to be this.

Jonathan Stark (16:25):

And if you've got all of that language from them, which you've been like writing down, like crazy in your notepad, then the proposal rights itself. You can say like, here are all the reasons that you convince me to work with you. Here are all the reasons why you have no other option <laugh>. If you get to the end of that why conversation, and there's no clear business objective, you don't see a business case for them spending a ton of money with you. There's no urgency. I probably wouldn't even write a proposal at that point because the client is just gonna be pulling teeth. It's gonna take forever to even attempt to close the deal or probably never close. If it does, they'll they'll try and negotiate down on the price. So I would just say, find out what a home run looks like, what that's probably worth to a business like this.

It has to be this, it has to be now. And it has to be me or at least someone like me. And then I can write a proposal and I can say, all right, this is probably worth a million dollars to them per year. At the end of the day, like ultimately this product is bringing in a million dollars a year. So I can set three prices based on that value and it's a guesstimate, but at least it's, it's in the ballpark, hopefully in the ballpark. And then you just to set three prices like, okay, if it's a million, I'm gonna say, I'm gonna give him an option one, that's a hundred grand. I'm gonna give an option two that's 220 grand and an option three that's 500 grand. And then, and only then do I start thinking about scope?

What, could I do for a hundred thousand dollars to help move the needle that this client wants moved? What could I do for $220,000? And if these numbers seem high, then chop a zero off. If they seem low at a zero, but, but that's the idea. It's like, find out the value, set a price, and then decide a scope that would fit into that price. You'd be happy to do scope for that amount of money. This process works with all sorts of different businesses. If you follow this same framework and you actually do it, then you can come out with much, much higher prices than you ever would've put in a proposal before, as long as you're attracting clients for whom the value of the outcome is incredibly high. If the value is very low, you can't set your prices high, you have to set your prices low. So then, not to guess your next question, but it's like, you need to attract clients for whom you can provide a lot of value. Otherwise you're gonna still have low prices because what you're delivering to them, isn't that isn't worth that much.

Chris Ronzio (18:50):

Yeah. I think the ninja move there, the trick is understanding what is that million dollar value.

Jonathan Stark (18:55):

Mm-hmm, yeah.

Chris Ronzio (18:56):

And asking the right questions to get there. And I love your why framework, because if you can understand, you know, just through asking, well, why don't you do this manually? And they say, well, we're growing a lot and I'd have to hire 12 people to support the volume we expect in 12 months. So we want to kick the software thing off now, then it's easy to say, well, instead of hiring those 12 people, how about for the cost of two? We've got this project.

Jonathan Stark (19:18):

Exactly, that's a classic one. Mm-hmm

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How Do You Analyze A Project's Profitability?

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Chris Ronzio (19:20):

Yeah. I love how you do that. Very cool. So I'm actually, I wanna focus in on, if you're not tracking hours, because you're not billing hours, then how do you analyze a project's profitability when it's all said and done? Is it kind of just a guess and check sort of thing or, or do you still advocate tracking hours?

Jonathan Stark (19:41):

Short answer... there's so many ways to answer this. So the practical answer is, if you've got a bunch of employees and for management reasons, it's important to track their time, maybe their bonus or compensation is based on or something. If you want to keep doing that as a transitional phase, I'm not gonna yell at you. A lot of people do that. If this is working, if you are attracting big high value clients and you're delivering amazing results to them, eventually it starts to become ridiculous to track your hours. So like, when I first went solo, I was in the habit of tracking my hours. So I just kept on doing it out of habit. It felt like it organized my day. I liked to look back at it and feel like I got a lot done.

And it was, it was a habit that I had. But after a while, like my effective, hourly rate was reliably over $200 an hour. It sometimes as high as $2,000 an hour, it just became asinine to track my hours. And if you know, there's no reason that that wouldn't scale to, you know, the size of a firm, maybe 30 people, you still need to create your incentives for employees. Maybe you shipped off of hourly and you say, okay, here are our goals for these two weeks, as soon as you're done and the tests pass or whatever the success criteria is for the sprint, let's say, you can go home, you're off, you can punch out. Then you've got an incentive for them to deliver high quality work as quickly as humanly possible. And then they've got all sorts of autonomy in the downtime.

Let's say you're having a hard time attracting, let's say you're a small firm and you're having a hard time attracting really top-notch developers, because they're all going to Google and Facebook or something like that. You can't compete with those salaries. Well, it'd be pretty competitive to say, you can work from home, we're gonna do sprints. And when you're done with your sprint, you're done. So if you're good and fast, you're rewarded with four days off, two days off, a week off, whatever. You do have to figure out the incentives thing for a group. And, like we said before, the transition from whatever your current culture is to the new culture is not easy. So sometimes people have like a skunk works thing on the side. Sometimes people will sort of separate business where just the owner starts to side business where they're doing consulting on a value basis and it's not work that's spread around the agency. It's just high level, strategic work.

There's different ways to do it. It depends on your situation, but, um, yeah, if you, if you keep tracking hours for a little while there's pros and cons to it. It's hotly debated whether it's a good idea or not, some people will say, if you're still tracking hours, you haven't actually made the mental shift to value. And I think there's some truth to that, but, you know, it's hard, you can't just flip a switch on a 30 person organization. You have to. Yeah. So

Chris Ronzio (22:37):

Yeah. So another thing that I think's hotly debated is, you know, I definitely believe in the results kind of culture, you know, did you get the result rather than just buts and seats and work in nine to five sort of thing. There's been a lot of conversation recently about, well, people working four day, weeks, or three day weeks, or something like that, can they get as much done? Can they meet the expectations of whatever the job is that they're hired for? And so I'm curious your standpoint on this because, yes, you can complete the job, but could you do more in another day, a week that would warrant a promotion or a raise. Or like, as a business owner, what's the thought process there?

Jonathan Stark (23:24):

It comes down to the culture that they want to create. It's really hard to give like a silver bullet. I do know that track, that people tracking their time and billing for time creates all sorts of perverse incentives inside of the firm. I was just interviewing a lawyer on my podcast, right before this I recorded a podcast episode with a lawyer who used to be at a big firm and now he's solo all fixed price, solo stuff, and he's slammed busy, so busy. He could hire if he wanted to. And at the firm, he shared a story about...

It was a big firm and the owner or the founding partner said, every time the new phase of a project completes, a new lawyer's gonna take over the project. So, like a client comes in, you know, a fortune 50 client comes in, they've got some issue. One lawyer will start it and then it'll get to a phase. A next lawyer will take it over and it gets to the next phase. A new lawyer takes it over new lawyer, new lawyer, new lawyer, every time. And why is that? Because the new lawyer has to get up to speed every single time. And it was totally on purpose where they were, they're not padding their hours. They weren't lying. But they were doing things in a purposely inefficient way to increase their numbers.

I know this happens all the time. I talk about this all week, every week with people all over the world, and this stuff happens either consciously or subconsciously all the time, because there's no financial incentive in an hourly model to get faster. Why would you even buy a faster computer? The slower is the better. Right. It doesn't make any sense. The answer to your question of like motivating employees, that's, that's not really my jam. That's other people talk about that. I'm more of a, I'm more for like solo consultants and like single person or real small firms where people have, it's not like it's not like a machine and they need to, like, they just talk to the four people that work there and say, Hey, we're gonna do this, everybody cool with that. Yeah. It's not like a turning the queen Mary kind of thing, where you have to like, you know, get HR involved and we're gonna have a whole new, you know, incentives, procedure, bonus structure. I don't work with clients like that, but I know people that do, it's not impossible, but it's just not my wheelhouse.

Chris Ronzio (25:50):

So one of the posts that I read on, on your blog, kind of related to the perverse incentive or the ethical questions around this, it was, you know, if you can be really efficient and finish a project in five hours that you thought was gonna take you 40 hours, do you just sit around and wait for the 40 hours to go by? So you don't deliver this thing too quickly to your customer. How do you navigate the speed of delivery when you're doing value based pricing, as a component of somebody feeling like, oh, was I charged appropriately?

Jonathan Stark (26:26):

I'm not sure if I understand the question, but let me rephrase it and make sure. So it's kind of like somebody, some client says, we want this particular outcome. I say, yeah, I can do that. I'm highly confident I can do that. They say, okay, great. How much is it gonna be? I say, it'll be a hundred thousand dollars. They say, okay, great. That if you can really do this, it'll be well worth it. And then I do it in like an hour and I say, okay, it's done. Yeah.

Chris Ronzio (26:52):

Or, or you say it, I think it'll take me about a month. And they say, oh great. And, but then you deliver it in a couple days, you know.

Jonathan Stark (27:02):

I mean, theoretically that's possible, but it's pretty rare. I mean, if you're at the point where you are confident enough in your expertise, whatever your area of expertise is, you're not gonna be off by that much. So it's really common for me to say to people that, whatever we talk about the project I'd understand the metrics, the success metrics, the progress metrics, that I would be measured on. The value and all of this stuff. And usually a lot of times they would want like, you know, when's it gonna be done by? And I would always refuse to give a deadline because I'm not in control of that because they're, it's collaborative. So they could be a bottleneck. They usually were the bottleneck. It was almost always the client was the bottleneck. So I can't guarantee hitting a deadline if we're gonna have, like, I need flexibility somewhere else, if there's gonna be a hard deadline, but there's almost never really a hard deadline.

But to your point, so I would say in the proposal, something like this gonna take a minimum of three months. If everything goes perfectly, it's gonna take at least three months and nothing ever goes perfectly. Prepare yourself to be worrying about or thinking about, or having meetings with me about this for at least three months, probably for maybe six. And, and if it turns out to be 10 or 12 or 15, they don't really care because it's not increasing how much they have to spend. It'll be annoying because they have to spend more time in meetings. But they also know that you are not loving it either because you're both incentivized for the project to be done more quickly. You both want it done more quickly. So it's not that hard to get, you know, reasonably close. Like, I wouldn't be like, oh, wow. I thought this was gonna take four months, but it only took me a weekend. That's never happened. It's a good question, but it's not, it's not that common.

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How To Control Scope Creep

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Chris Ronzio (28:57):

On the flip side then, a lot of projects we think are gonna take three or four months, do end up taking 12 months or 14 months. Maybe sometimes there's a little scope creep that you're trying to deal with. Or maybe sometimes you just have a highly unresponsive client that's not getting you what you need. What do you recommend if people are dealing with that and having projects that just don't seem to finish?

Jonathan Stark (29:23):

Yeah. So there's a couple of different questions in there. The scope one is the one that scares people the most. So the scope question is like, well, how do I control scope creep? If they're not getting dinged with a huge invoice, every time they change direction. And the answer to that is in the proposal stage, in the sales interview, you ask the why conversation. You find out what a home run looks like, how they would measure the home run, how they'll know if you hit a home run, or if you didn't or how they would know if it was a massive failure and a waste of money. And then you find out how your contribution, how, what you do is gonna contribute to that outcome. So there's, there's metrics for everything. Also at that stage, I will set the expectation that as the expert, at my piece, that they're hiring me for, I reserve the right to say no to request that I think will jeopardize the success of the project.

So they know right up front that they're not gonna boss me around. If I feel strongly about a particular thing, and they trust that I understand that it's in their best interest and they know they're just have, like a lot of times they know they have shiny object syndrome or some sales guy gets excited about something and comes running in and says, we gotta put a carousel on the homepage, cuz they're so cool. And you're working on the website anyway. And I would say, all right, how will that contribute to the stated goal of this project? And I make them make the case for how it will contribute to the stated goal of the project. And if their random request will not contribute to the stated goal of the project, I will say interesting idea. I will keep track of it, but we'll park that until a V2 or something.

After we achieve the stated goals of this project, we can talk about all the other things that came up along the way, but unless they can make a case for it being beneficial, because we both wanna finish faster. The client and I both want to finish faster. If they can't make a case, I just say no politely, but firmly. If they can make a case that it's a, you know, a tactical shift. We discovered something that will make this go easier or make it more successful. You'll want to do it. Even though it maybe means you have to throw away some work or change direction, or there was an inefficiency created by that because it will still get you to the finish line faster. So when everybody's incentives are aligned to get to the goal line as quickly as possible, no one wants it to take longer.

I almost feels too easy, right? Cause most people are used to fighting with clients because you know, they're going over hours or things are taking too long and, and the client is just like, this is never gonna stop. I'm just gonna run outta money before we finish this thing. When you take that fear out of it, they become way more reasonable about surprises or scope creep or whatever. You need to be a fierce defender of the success metric. Not, not best practices or like, oh, that's a horrible way to do it in general or whatever. They know their business, you know, your expertise and you just meet in the middle and defend the agreed upon success metric of the project at all times. And that's how you control scope creep.

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When Clients Go "Dark," No Communication

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Chris Ronzio (32:29):

I reserve the right to say no. Awesome statement there. And it does position you as the expert. That's what they hired you for. Not just to take orders, but to recommend the right course of action. So I love that. So then if it's not scope creep, if it's just the unresponsiveness in the projects dragging out, I know what a lot of agencies can deal with this where, a project is just going way longer than anticipated. And now they've got a handful of other projects that are getting delayed or they don't have capacity to do everything when the client does rise from the dead and want help. So how do you deal with that?

Jonathan Stark (33:01):

Yeah. I think in any, no matter how you're billing or pricing or running a project, I think tons of communication, it's almost impossible to over communicate with the client. So if they go dark, when it was me, sometimes it would happen. Holiday, somebody gets sick or, or divorce or life happens and they go dark. I didn't really care because I already had all my money and they were like, it doesn't cause more work for me. It just moves the work. So I would just do other things, you know, like you should be doing marketing, you should be, you know, blogging. You should be, reaching back to other clients and fill in your pipeline. There's plenty of other things you can do while you're not doing client work. Hopefully everyone is doing other things while they're not doing client work, working on the business instead of in the business.

So I would just shift over to that. I'd work on my next book or whatever. Um, but to your point about like, cause if they go dark, your people are sitting idle, so just have something else for 'em to do, you know, that's beneficial for your business. But back to the communication thing, if you're waiting to hear back from a client and you did have resource allocation problems because you've got a lot of employees and there's these other projects you wanna start, but you're afraid to start them in case the other client comes back. I would be hammer them with emails saying, if we don't hear back from you, we're gonna be forced to take the developers off your project and put 'em on another one. And then we can't guarantee that we're gonna just like come back instantly as soon as you're ready.

Chris Ronzio (34:33):

Right.

Jonathan Stark (34:33):

Cause when they come back to life, they're like their hair's on fire, cuz their boss yelled at them cuz there's no progress and it's their fault. And they get in try and throw you under the bus. I would just be hammering on them and the highest level person I have access to, I'd be like, look, we're stalled. We're gonna move on to something else. When you get your act together, we'll try and move people back. It might be a different team. There could be, you know, whatever. You could put pressure on 'em but you know...

Chris Ronzio (34:58):

Communication is everything.

Jonathan Stark (34:59):

Communication is everything. Yes.

Chris Ronzio (35:01):

All right. So last question. You're on the, the mission to rid the world of hourly billing. Is there ever a scenario where hour hourly billing is okay where you can charge people hourly?

Jonathan Stark (35:13):

Not if you're an expert. I mean, if you are just getting started and you don't really know what you're doing and you kind of are commodity, like you are interchangeable with a bunch of other people on Upwork, then you might have some work to do to get to the point where you really do feel like you know what you're doing, but that said maybe, don't start doing...maybe you're in house and you're thinking about going freelance. Maybe don't do that. Maybe stay in house and start a product business on the side, or maybe start a community on the side or a mailing list on the side and start to get a sense of like what you're positioning is gonna be. Instead of just being a pair of hands that those Photoshop or audio editing or something like that.

If you're not an expert, if you're not recognized as the go-to person for something, then you're never gonna get a good answer to that last why question? Which is why someone expensive like me and they'll be like, I don't know why you seem the same as everybody else we talk to. Well, yeah then it's not gonna be great for you. So if you wanna use hourly billing as a way to bootstrap yourself into some kind of expertise and a good, clear positioning statement then, okay, if you want to do that, you know, the first year or two of freelancing usually goes, okay, because there's a story to it. All of your friends are like, Alice finally decided to tell the boss to take that job and shove it. And she's doing a web design on her own now. And it's exciting. And everybody wants to help Alice because it's this, you know, rags to richest story potentially. But after two years, you're just another garden variety freelancers. So you basically have like 18 to 24 months to figure your business out and treat it like a business before those leads disappear completely when you've exhausted your personal network and like nobody, nobody's calling.

Chris Ronzio (36:58):

So it's okay at the beginning, but experts don't charge hourly is what you're saying.

Jonathan Stark (37:02):

Yeah. I mean it gets worse and worse and worse the longer you freelance. But I would say just start a product business. If you're employed, instead of freelancing, start a product business, if you're, if you're unknown and don't really feel like you're, you have valuable expertise, then you know, it's like then do product. Why do it, you know, like why go solo?

Chris Ronzio (37:26):

All right. Well, great advice. This has been such an interesting conversation. I think people should head over to your website because really you could almost get a, like a PhD in how to price and bill customers from all the blogs that you've written, from your book and anything else you'd leave people with or where can they find you?

Jonathan Stark (37:43):

No that's great. I mean, if people wanna find out more specifically about value pricing, you can go to valuepricingbootcamp.com to take my six day email course that goes into individual topics and like, you know, much more depth and you can reply to any email goes right to my inbox so we can start a conversation there.

Chris Ronzio (38:01):

Amazing. Well, thank you so much for sharing and for anyone that does head to his website, I'll just throw out a little teaser here. He's got one post about why you should charge for a hundred percent of what you do up front. I feel like that will just add a ton of value to your business. So I'm gonna leave that as like a little bait to go check out his website. Jonathan, thank you so much for coming on.

Jonathan Stark (38:20):

Thanks for having me.

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