When your intellect doesn’t crank out content in neat hourly increments why should you sell or buy hours?
I had a fierce disagreement with a CEO last week about value based pricing versus hourly billing. He insisted that the only way he could have control over my work was to pay by the hour. I, of course, offered my services for a fee commensurate with the value of the outcome.
Those of you who know me even a little can imagine that his perspective did not go over well.
First, clients are not entitled to control over the work of the professional or knowledgeable expert. They are entitled to valuable outcomes. How the expert provides those outcomes is up to them.
If the client or prospect doesn’t like the valuable outcomes that are promised, he or she can ask for different outcomes or choose someone else.
Second, knowledge work is not assembly line work. It’s not even close. The terrible practice of hourly billing for professional or business services work derives from the development of the assembly line.
On an assembly line, a worker repeats a task over and over within a specified time frame. A company could calculate what percentage (tiny) of the finished product that one task represents. Then they choose the selling price of that product and assign a dollar value to the work which becomes the hourly wage.
Knowledge work unfolds in the vastly varied ways that people think. There is no assembly line of the mind. An expert could have a burst of insight and understanding which leads to some of the value, followed by a pause, some research, reading, reviewing, or conversation with other experts. Then there could be another burst, and so forth.
I don’t know a knowledge worker that doesn’t have thoughts about client projects and needs running through their head at all hours of the day and night. These help bring depth and insight; solve knotty problems; create a slap-upside-the-head moment of clarity; and otherwise inform the final valuable outcome.
I asked this CEO if he wanted only what I could deliver in 60-minute increments, or did he want the value I could deliver while thinking about his needs 24/7 for a couple of weeks?
The thing about Value Based Pricing is that it benefits the client in ways that hourly billing simply cannot. The true, whole value delivered will be generated not during hourly stints in front of a computer or on a call. The true and complete value will be generated during the entire time the expert is thinking about (i.e., WORKING on) the client’s needs.
We had a tense conversation, and he finally accepted my Value Based Pricing approach. True to my promise to him, I am thinking about his needs and the outcome I promised him all the time this week.
As the project unfolds, and my ongoing thinking helps me improve the work in real time, he is seeing firsthand what I meant. The final value delivered will reflect this evolution and deeper insight of my mind in a way that hourly increments never could.
How do you handle your own thinking about hourly billing and that of your clients? Do you act like your mind is an assembly line or do you value, and ask your clients to value, the mighty power of a thinking, knowledgeable expert?
Doubts? Questions? Text VBF to 703-801-0345 and I’ll give you moral support and some ideas for implementing Value Based Pricing for your professional or business services.