Pricing by the hour is bad for business
Q What do the self-employed call Bank Holiday Monday?
A Monday!
Ha! Ha! Ha! Sigh!
It’s a fact of life that too many small business owners work far too hard for far too little. Why? I'd like to suggest that for many of them the reason is that they don't charge enough.
One of the most important marketing disciplines and one which businesses often struggle with is pricing. They don't know where to set their price. They worry that their price is too high. They worry that it's too low. They worry that it's not clear. The simple fact is that they largely start from the wrong place.
There are a couple of basic types of company that I meet on a daily basis. People who buy and sell stuff, and people who sell themselves. The people who buy and sell stuff I'll address in a future blog. Right now I want to talk about people who sell themselves.
What they are really selling of course is their expertise, knowledge, or skills. Most of the people I meet who sell themselves charge their services by time. "You can have me for £XXX per .." hour, day , week.
As a marketer I would say "NO! NO! NO!" As a consultant I have to admit to doing it. We do price our coaching services by time but we have moved away from that model for everything else. I don’t like time based pricing for a few reasons:
1. It doesn’t reflect the value of your work to the client. If you truly understand the value you are creating for your customer and can communicate that value clearly and unambiguously you should feel able to ask a reasonable level of reward for creating that value. If you worked for a week with a client on a project that saved him £2000 should you be rewarded the same amount as if you had saved him £20,000? More importantly would the client be happy to pay you more for a £20,000 saving? I know I would.
2. It focuses discussions on the time you spent doing the work rather than the outcome. No-one hires you because they like having you around. They hire you to deliver something. Do you want to be focussing the customers mind on hours and days of effort or the results he is going to see?
3. It incentivises you to do more, add more, work longer. In a time based pay environment you are under pressure to do more work to generate more income. You may be tempted to add more into the job, stretch the job out, take on more work so that you can pay the mortgage. This isn’t necessarily good for you or the client.
4. It limits your earning capacity to the number of hours you can work. Related to point 3. If you get paid by the hour then you can’t earn more than the hours you can work. Remember weekends? Remember holidays? What do you call Bank Holiday Monday?
What do you think? Does time based pricing work for you? Have you successfully moved away from that model? Let us know.
Comments
1/ To clearly articulate the value up front. This is always a hugely important activity for marketing.
2/ To provide evidence to support the value claims. Testimonials are nearly always used and they can be valuable if done well. I think video is very strong here. A video testimonial is significantly more convincing than a quote attributed to "John of Ashford"! Just as powerful can be objective measures of benefit where relevant. Follow-up surveys (surveymonkey.com is great for this) to quantitatively evaluate benefit are great. "99% of attendees quadrupled their investment" type statements.
3/ A very important but often overlooked element - really making sure that as many "clients" as possible do realise the benefits. This could be through support during the seminar/membership period. Follow-up reviews after the event - whatever it takes really. You want your members/attendees to be your strongest advocates. They will only do that if they have realised the benefits that you promised.
We found with our Marketing Mindset Group Coaching Programme that attendees finished the course fired with enthusiasm and really loved the course. Once they got back to the office though work got in the way of them carrying through what they had learned. We now recommend that each attendee has a follow-up 121 session a month or so later. This gives them not only a target to aim for (to complete their strategy and plans) but also a reassurance and a conscience! They know that there will be someone to confirm that they are doing the right thing and they know that there's someone who is expecting them to make progress. I think this is very powerful. So much so that we may well change the course to include a 121 follow-up in the standard programme.
To set the price of seminars/memberships you need to be really honest about the value you are creating for the client. QJ I know the area you address. It's very valuable but how do you quantify it? Especially if the benefits can only be measured qualitatively. Feeling more confident, more energised, more focussed will all help your business but it is not easy to link this directly to financial performance. Some of your clients may be doing it just to feel better about themselves. It's hard to set a value on that. If you asked 100 people you'd probably get 100 very different answers! I guess the starting point in this case would be to use as much empirical evidence as possible. Who is offering similar things? How much do they charge? Are clients happy to pay these charges? If there is an exemplar in your industry then looking at their pricing might be a good starting point.
What is a little more tricky is pricing an intangible service, like Membership subscriptions. Businesses buy in advance for a whole range of services. The value is in using them, but as the old saying goes, 'you can take a horse to water but you can't make it drink!'
