Don’t Limit Your Income
Does tracking time feel like a hassle? Like most business owners, you do it anyway since profitability and time are closely related.
Time, as you know, is finite. This pricing strategy, which sells your time, literally caps your earning potential.
Now I realize charging an hourly rate is the easiest way to get paid for your work. You do the work, bill for your time and then expect payment. Tracking time; however, has major pitfalls.
Drawbacks of Tracking Time
Donna left her corporate position as a financial analyst to start a bookkeeping firm. When we originally met she charged $75 per hour.
Like most bookkeepers, she tracks time. Donna admits that letting go of time sheets makes her slightly uncomfortable. How would I know if a job was profitable?
She claims charging an hourly rate keeps things fair. Time; however, isn’t her highest value.
The hours she spends gathering data doesn’t really matter to her clients. That’s because clients hire her for consulting and CFO services. They care about the results. Basically, they want her guidance on ways to save money and how to increase their profits.
We continued to discuss the downside to her hourly rate. Without a thorough diagnostic, things take longer than originally planned. Those unexpected problems slow her down.
When that happens, she faces two options. Either her clients receive a larger bill than expected. Or, she writes off the additional time spent working. Both options stress her out.
Charging by the hour actually takes time away from client work. Since Donna doesn’t routinely track her hours, she painstakingly recreates her time sheets at the end of each month. As a result, her invoices rarely go out on time.
Periodically she needs to address payment issues. Declined credit cards, clients upset about larger bills than expected and writing off for non-payment. We got out our calculators and figured her time spent chasing money. Dealing with these things cost her about $10k annually.
By the way, we didn’t even go into the work she does for free because she doesn’t know how to charge for it. Five minutes here and there, or time spent with customer service, quickly adds up.
This got Donna’s attention. Tracking time isn’t fair to her or her clients. They want the work quickly completed to pay the least amount of money necessary. Whereas, an hourly rate doesn’t encourage Donna to quickly complete her tasks. Charging for her time actually reinforces inefficiency.
Value Pricing Brings New Possibilities
Consider the alternative. If she educates her clients about how her services increase their cash flow, she can charge a significantly higher rate. Rather than buy time, clients now invest in results.
Her expertise is her highest value. Whereas an hourly rate downplays her knowledge, value pricing highlights it. Clients now view her as a trusted advisor who also happens to offer bookkeeping.
Separating fees from time changes everything. We spoke about doubling, or even tripling, her income without working any additional hours.
Here’s the bottom line. As a trusted advisor, Donna no longer accepts work which feels like punishment. Instead, she focuses on the areas she enjoys most. Plus, Donna works with better clients.
How would this change things if you no longer tracked your time?
Choosing a niche is the first step. She either selects a specific industry, a specific topic or combination of both. As Donna continues to work in that niche, she gains authority status. The accumulated knowledge and experience positions her as a trusted advisor; it’s her highest value.
2. Package Your Services
Rather than sell ala-carte services or one session at a time, she now offers packages. The results-focused packages strategically combine a variety of services together. This starts to separate her fees from time.
Here’s the best part about packages, she’s now compensated for work that she didn’t know how to charge for. Donna’s various packages include unexpected change requests, additional meetings and other services which she previously wrote off.
3. Develop Your Value Pricing System
Value pricing is a transition. Next, we outlined her sales process. Her sales system includes:
a. First Contact
When someone first finds out about her, they want to decide if Donna can solve their problem. Her site makes it super easy to get this information. Plus, her web page tells them exactly how to connect with her.
Winging free consultations isn’t a strategy. Donna now asks great questions during the first meeting. Rather than a traditional sales conversation, she guides them through a value conversation. This emphasizes the client’s needs instead of her own achievements.
Her questions are designed to learn about their goals, specific challenges and why it’s important to them now. With the right questions, ideal clients recognize her value and naturally ask how to get started.
c. Value Pricing
Once she separated her fees from time, she happily ditched her time tracking app. Her prices now reflect the value she offers, which significantly increased her profits. She’s compensated for all the elements–strategy, research, planning and diagnostics.
Not only does the billable hour reduce income; it overlooks knowledge. Instead price according to the value you generate for your clients. The time necessary to get a result is separate from your fees. Read full post.… Click To Tweet
Value pricing considers the client’s needs and the value delivered, not her time. If she delivers $100,000 worth of value, she can quote a value price and make as much as 10x compared to her former $75 per hour rate.
Complexity is the enemy of execution. Value pricing frees her from tracking time.
This has been on her mind for a couple years now. She’s done the research and she finally took action. Specific time was blocked in her calendar to work on this.
Discussing her new rates was uncomfortable. To get beyond her insecurities, she practiced value conversations, explaining package options and their prices with an accountability partner. Then she set a deadline and let things unfold.
Clients don’t like change. Current clients were perfectly fine with her hourly rate. With that in mind, Donna introduced value pricing to new clients first.
After she got comfortable with this process, she scheduled time to meet with her current clients. These conversations focused on client goals and aspirations. The new packages and pricing structure were introduced during these meetings.
Not only does the billable hour reduce income; it overlooks knowledge. Tracking time fails to recognize your hard work and dedication.
In value pricing, your price is based on the value you generate for your clients. The time necessary to get a result is separate from your fees.
Follow these recommendations for your business to be successful, and grow while keeping your passion alive. Are you tired of doing work for free because you don’t know how to charge for it? Discover how to get paid what you are worth and attract clients who understand your value. Right NOW claim your FREE RESOURCE to create value based pricing.