You probably grew up hearing ‘Time is Money.’ When you landed that first retail job, it felt like it too. For every one hour I work, I make $8.50 – therefore, time is money. We get in the habit of measuring everything by how many hours it took us to earn that money. We even apply that to purchases, these shoes will cost me 10 hours of work.
Time is money has a fatal flaw – you can’t generate more time. This problem highlights the inherent weakness of the idea. If you want to earn more money, you will eventually max out. There are only 24 hours in a day and 168 hours in a week. How many of those can you work before you suffer?
What is the answer? Value pricing. You develop a product or skill that you uniquely bring to the table and then price based on the value it provides, not the time it takes to create it. Another way of saying this is project pricing.
What Is Project Pricing, Anyway?
Project pricing is the antithesis of hourly billing. It is all about the value of the outcome, not the time it takes to achieve it. In the end, everyone wants the result, not the process. Even those who ask about the process are most interested in the outcome. It is up to you to develop how you do the work – you pitch the client on the results.
An example comes to mind from when my wife was a wedding photographer. We would meet with clients all the time, and they would ask, “what lenses do you use?” Usually, a wedding magazine said they should ask – they didn’t care or understand what our answer meant. The truth is, there are several major brands of cameras and lenses, and they all can take great photos in the right hands.
What they truly wanted were great photos of their wedding day. That is what they were paying for, not understanding lens theory. When we focused on the outcome based on our experience, we could charge more and close more frequently.
But Isn’t Time Easier to Price?
Hourly billing masquerades as fairness. The truth is that tracking time and passing those costs on is a risk-filled variable for your client. You can estimate all you want, but if it takes longer than you expect, you will be returning to the client with a higher cost.
It probably sounds dangerous to say a fixed price and then imagine you may stretch that to below minimum wage. Here is the beauty; if you define the outcome with your client and what it means, you can charge more. Then you can increase your efficiency and make a ‘profit’ – and the client will be thrilled you finished faster.
No client has ever complained about getting what they paid for quickly. In fact, if turn around times are really tight, they will pay more for that. Another benefit you can sell because they aren’t buying your time. If you use hourly billing, then the time spent rushing their project to completion isn’t worth any more than any other hours.
If you understand the outcome well, this is critical to understand; you create profit for the business too. For example, if you can write marketing copy that brings in $15,000, but you charge $5,000, the client also profited $10,000. This simple shift in thinking helps you earn more money and enables you to sell effectively.
The Truth About Luxury Brands
Luxury brands aren’t actually any better at their primary function than economy brands. Cars are a great example of this. A Toyota Camry will transport you just as well as the Lexus ES, but they aren’t close to the same price. They even share the same chassis. Thanks to modern manufacturing, it doesn’t take much longer to create an ES vs. a Camry.
The car-buyer doesn’t pay more for the Lexus because it is better at physically moving them. They buy it for comfort, for status, for the intangible benefits. The value is pre-defined because of those perceptions.
That is why you never hear a buyer head into the dealer to ask how long it took to make the car. And when comparing Toyota and Lexus, production time isn’t essential to know. If you want to get blank stares, go into a dealer and ask them how many hours it takes to make a luxury model vs. an economy model.
A Shift in Thinking is Required
Your job is to create the value that Lexus has for its customers. Even if you are selling a cheap product at volume, you still need to understand the value to price it correctly. Your goal is to set your prices so that both you and the business profit from the value generated. Then you can stop selling your time and start creating profitable outcomes.