Pricing for Success – Why hourly rates are detrimental to your success

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Project Pricing rewards your ability, experience and speed, removes the income ceiling and helps you win more projects

As a business owner, one of the most important questions you’re asked is “How much do you charge to…”. Your response will have an enormous impact on whether or not you win the project, how much money you’ll make, your future dealings with the client and possibly even the quality of your business life.

This may sound rather dramatic, but read on, and I’ll explain why an hourly rate isn’t good for you or your business.

When asked the “How much…” question, you have two options. To quote your hourly rate or to quote a project price. Charging an hourly rate may seem like the simplest option but don’t be deceived by the illusion because an hourly rate throws up a number of gloomy scenarios…

You’re worth how much?
Quoting an hourly rate invites the client to decide how much YOU are worth rather than how much the project is worth. If your hourly rate exceeds their hourly salary, they may think you’re asking too much.

How long will the project take?
If you’ve quoted an hourly rate, this will naturally be their next question so now you have to provide a potentially uneducated estimate that may be far too high, or low. Either way you risk looking like an amateur.

Keeping track of time
When you price by the hour clients invariably want to see a detailed timesheet. But, they also want your shower time. By that I mean the ideas you have when you’re in the shower, walking the dog, mowing the lawn, etc. If you were to timesheet your thoughts, you’d do little else. It becomes all consuming and a real drag.

It limits your income
Charging an hourly rate limits your income because there are only so many hours in a week that you can work on client stuff. You still need to manage your admin and your marketing – all stuff for which you receive no income. Short of working round the clock, you simply cannot increase your income if you charge an hourly rate.

Law of diminishing returns
The real clincher is that the better and faster you become at what you do, the less you get paid for that expertise!

So what should you do?

Price by the Project
Once you start pricing by the project, you begin to reward yourself for being great at what you do. Your abilities, experience and speed mean you exceed your clients’ expectations and deliver an outstanding project. And they’re happy to pay £1500 for your work because it’s invaluable to them. BUT, because you completed the project in less than a day, it means your hourly rate is around £300. If you’d quoted that when they first called it’s likely they’d have hung up on you! But you didn’t, you project priced and everyone is happy.

Making the switch
Unless you know the scope and cost of every project you’ve ever worked on, answering the “how much…” question with a ball-park price is almost impossible. However, what if you had a list, let’s call it a fee schedule, containing price ranges for both your services and examples of projects? Wouldn’t that make it easier to provide an educated and immediate response?

But what is a fee schedule?
A fee schedule is simply a document that lists your services and your fee range for those services. For example, if you’re a web designer it would be reasonable for your fee schedule to state that the cost for a 5-page website is between £x and £y because every website is different. Thinking about the services you provide and how they can be documented and priced is, initially, time-consuming. However, the confidence it will give you and the time it will save is massive.

With a fee schedule, Everyone’s a winner
Having a fee schedule makes the quotation process much easier and less time-consuming. It provides prospective clients with a list of your services and a guide to your fees (thus also deterring low-paying clients). It gives you an accurate idea of what to say when asked how much a project will cost. And, most importantly, it will help you win more projects.

Win more projects?
When a prospective client calls and you confidently provide a ball-park project price, it means you’re immediately broaching the tricky subject of money. If you’re way off the mark, the client will tell you, and this gives you the opportunity to work out a compromise. Without a fee schedule, you’d have said that you’ll prepare a quotation and email it to them. You wouldn’t have known that their budget is set in stone; you wouldn’t have been able to negotiate and discuss the project and, for this reason, you’d have significantly lowered your chances of winning the project. Also, you’d have wasted hours preparing a quote that didn’t meet your client’s budget.

However, because your client was delighted with your ballpark price, you went on to discuss the scope of the project and sent them an accurate quotation. Job done, project in the bag. Not quite. The final thing you need to do is follow up.

Following up
To take advantage of the momentum that was generated during the initial enquiry, you should follow up your quotation the same day, or at least the following morning. When you call the client, there’s no need to discuss the price (you dealt with this during the initial conversation). You can boldly state “the next step is for me to research phase 1 and create an outline. I can start that right away. Okay with you?”

Project pricing means everyone knows where they stand from the outset. Clients prefer it because they can manage their budget. You’ll prefer it because you stop being a commodity, you’ll win more clients and you’ll no longer have your income limited.

Although creating a fee schedule is easier for some businesses than it is for others, don’t be put off. Do your research and see how others in your field present their fee range. But most importantly get on and do it so you can price projects quickly and stop charging an hourly rate!