There seems to be a lot of confusion around making the choice of hourly charges or value based pricing / results based pricing.
Its a great question to ask and today I'm going to share thoughts on what charging for results means.
Pricing: Charging by the Hour
This model of charging for services is pretty common. Many coaches, health practitioners, designers, etc. use this model. In a typical employer/employee model, it is the same model that we learned in our first minimum wage job — show up and work and get paid for the time put in.
The Different Names of Time-Based Pricing
Just to keep us on the same page, time-based pricing is also known as:
- Charging by the hour
- Charging by the session
- Charging by the day
When you charge based on time, clients often have three emotional responses:
1 – Fear of what the total will eventually come out to. “Gee, is this going to be $500 or $50,000?”
2 – Comparison to their own hourly evaluation of themselves.
3 – Back of mind thoughts that they can always stop services. This last one happens all of the time with coaching services. The coach charges by the session and the coachee looks at budget and decides they can let that expense go. Or, they come to a challenging part of coaching and decide they no longer can afford it. When you value price and charge by a program/package, the client typically stays more committed.
Pricing: Charging for Results
A results based model looks a bit different depending on the type of service industry you are in. The amount of time put into the project becomes less important compared to the results you produce. In a typical employer/employee model, this is similar to someone that is on a salary. The salaried employee gets paid X per month regardless of how many hours he/she works. The focus is on the skill that person brings to the table and the expected results.
I've used the model since my days of consulting with Fortune 100-50 companies and use the model today too. I'll share some here, but moving from hourly to results based is more than a blog post can cover. There are a number of variables and emotional hurdles the business owner needs to overcome.
The Different Names of Results Based Pricing
Just to keep us on the same page, results-based pricing is also known as
- value-based pricing
- package pricing
When You Price Based on Value vs Charging by the Hour a Few Things Happen
You step away from fear.
Hourly pricing is based in fear because you tell yourself that stuff might come up that would mess up your hourly value (which often indicates your hourly value is too low, but that is a different conversation.)
You allow your prospects to understand and step into the transformation they want.
By charging the value of the transformation, there is no question of what the end cost will be and they decide if they want to invest in themselves or not.
You get really clear on the value you bring to the world.
You get really clear on the transformations you can deliver. You get really clear on the scope of your work. When you create a program or package, you define the results that your client will get.
You treat yourself as the valuable contributor that you are vs a commodity.
When you charge by the hour you are easily compared to every other coach/healer/designer that charges by the hour. Clients start comparing like they would a commodity like a car. “Let's see, they are both made by Honda that are red with the same amenities…. I'll go with the cheaper one.”
Your billing processes become much less complex.
Charging by the time you put into your work means that in order to be in integrity with yourself and your clients, you have to track your time! When you create programs/packages you have a much more simplistic billing process.
You become more effective at what you do.
When you stop charging by the hour, it becomes important to focus on your productivity. You have financial motivation to use your time effectively. The better you can use your time, the more you can accomplish in a day, including having more time for fun.
Your communication with your client gets much more clear and you serve your clients better!
I find that my clients that switch to this model SERVE THEIR CLIENTS BETTER. By focusing on what your client really needs (vs what you think they'll pay for) you are in a totally different mindset. You listen and respond differently.
Would You Like Some Help?
Switching to charging for value can be quite a mindset change. If that is something that you have been wanting to do in your business, let's talk!