My client, Elena, didn’t know what to do. She and her staff design gorgeous websites for her business clients. They attract lots of readers and the Google Analytics are impressive.
Elena was in a bind. She was inundated with requests for her work and worked furiously nearly day and night. She hired several other designers and oversaw their work to ensure clients got what they expected.
And…she was losing money!
“Susan, I can’t keep this up and not even make any money. What do I do?”
Study the Recent Past
We looked carefully at the last six months of projects. There were dozens, which is a lot for a firm of 5 people.
I noticed three facts immediately. They:
- Charge by the hour.
- Estimate the number of hours in every proposal.
- Reduce billable hours if they exceed 10% of the estimate.
She Isn’t Alone
I must say, Elena isn’t alone in doing these three things.
And she’s not alone in losing money even though they are very busy.
However, instead of jumping right in to “fix” things, we talked. I asked Elena about her current needs, her near-term wants, and her future (1 year) desires.
- Current needs: reduce the hours everyone is working. No one can comfortably take any time off and still deliver as promised to their clients.
- Near-term wants: making some profit on every project. Profit is built into the hourly rates, but when they exceed the estimated number of hours and reduce the invoice, they lose the profit.
- Future Desires: to reliably achieve a profit for the year that reflects the life-changing value they deliver to clients.
With these answers in mind, we discussed her options for improvement in each area.
I asked her how she would feel if they could regularly attract PERFECT Fit client? There would be fewer clients, and the firm would generate more revenue and reliably produce profit.
She immediately said “Yes, that would awesome. How do we do that?”
The starting point is their Pricing Strategy. The choice of pricing approach–how the firm sets its prices, not what those prices are—affects very nook and cranny of the firm. It is the first place to make changes when a firm wants to reduce crazy schedules and make more money, both per project and for the firm overall.
Using my process for understanding the firm’s history of fee-to-value ratios, we analyzed the past six months of projects. It quickly became clear that they offered a ton of great value that they weren’t being compensated for. They were perfectly suited for Value Based Pricing.
Elena vowed to correct that with the very next client.
Phasing in Value Based Pricing
I told her that the first few months would involve some trial-and-error while they moved to Value Based Pricing. She was okay with that because she could see that the trial would help her reduce the number of hours and increase the number of projects that generated a profit. By the end of the year, she would reach her goal of firm profitability.
She understood and embraced that getting there would require some risk and some things that wouldn’t go exactly according to plan. And those disappointments would provide new data to help get better at value based pricing.
We are currently about 6 months into the new pricing strategy. The team’s number of hours has decreased to much more manageable levels and 77% of projects offered for value based prices have generated the profit they were counting on.
If Your Story is Similar to Elena’s
If you are talented and don’t know what to do about little to no profit, would you consider booking a STARTER Call with me? Elena did just that and in 45 minutes she was able to start thinking differently about her pricing. After a month of thought, she decided to make progress faster by working with me on the first phase, Discovery and Analysis. And from there—well, she could have made recommendations to herself and implemented them. After some thought and a few U-turns, she chose to get my help.
The choices are yours. It all begins with a STARTER Call. Book yours here or text STARTER to 703-801-0345.