While rebranding my business, I’ve had several months to think about what I wanted to do differently with ka-POW-er! My biggest frustration has been the disparity between the results I bring to my clients and how I am often compensated for my services. Why? A significant number of engagements are still compensated based on time.
“Why is that a problem?” you may ask. The problem is that I don’t sell time; I sell results. I help my clients become more effective at serving their clients.
Most creative businesses are in a similar predicament. Quoting Tim Williams in this Propulsion Blog post:
In groups of agency professionals around the world I have often asked the question, “What do clients really buy from your agency?” Their answers usually include things like “Solutions to marketing problems,” “Insights and innovation,” “Expertise,” and “Successful marketplace outcomes.”
Not a single person has ever said “Time.”
Yet billing for time (or costs) is exactly how most creative businesses choose to be compensated for their work. And it must be stopped.
Hourly billing undermines the collaborative process by putting service providers and their clients on opposite teams. If compensation is based on costs and labor, the service provider is pressured to reduce costs and labor in order to be profitable. There is a disincentive to collaborate, experiment, and seek better ideas. Trust diminishes. Relationships are weakened. The client’s success is adversely impacted.
The most hideous danger of time-based billing, however, is that our services and expertise become thought of as commodities; activities that are the same from provider to provider, like goods produced on an assembly line.
What then, should we do? We need to shine a spotlight on the value we provide to our clients, emphasizing their success (and being compensated accordingly).
Agreeing in advance with our clients on what determines a successful outcome, then establishing the value of that outcome. Can we profitably guarantee that outcome for 1/10th or 1/20th of that value? Or even a smaller fraction? Are our clients happy to pay that amount given the return on their investment? Do we all think we are getting the better end of the bargain? Then we are off to a great start!
We’ll be more profitable and more satisfied in our professions because we will be working to make our clients more successful. And our clients will be in complete agreement.
(Tim Williams’ Propulsion Blog post offers a comprehensive list of factors which discredit the practice of hourly billing in a knowledge-based service business. Be sure to read it. But don’t be left hanging. Check out his other posts on how to start with value pricing here and here.)