Moving away from hourly pricing.

The desk of Jack Watkins, with glasses, MacBook, notepad and plant

Let’s start with a bit of background…

My old process for charging by the hour would be to first discuss the project in-depth with the client, estimating how long I expected the project to take, and then creating a detailed proposal and specification for the client to read, and ultimately approve. I was transparent with the number of hours that were included for the project, and also my hourly rate.

In these early stages of my business, I chose to charge by the hour because it seemed to be more flexible. Theoretically speaking, it meant that if a project was taking longer than expected, or it ended up having ten rounds of refinements (I’m exaggerating!), I could theoretically charge for the extra time (although in reality, I never did).

So, about six months ago, after some brand development, research, and advice from my mentor, I decided to move to value-based project fees, instead of charging by the hour.

What this meant in reality was charging a definitive project fee, outlining clearly what was included, and introducing a robust refinements and feedback process. It was a move I took with trepidation, but I’m a big believer in feeling the fear, and doing it anyway. So… I made it happen! It’s had such a positive impact on my business, mindset and client experience, and the changes have been hugely beneficial for both my clients, and me. Here’s why…

The client knows their overall investment up-front.
I know exactly how much the project is worth.

Gone is the anxiety for the client of thinking “What happens if the project takes longer?”, “What happens if the project ends up going over my budget?”. And for me, I’m no longer thinking “I wonder how much I’ll earn this month?” or “How many hours of work will I need to do this month to pay my bills?”.

Both myself and the client are focused on a clear scope for the project, and delivering an amazing end result.

The client can spread out their investment.
I have more positive cash flow in the business.

When charging hourly, I’d need to know how many hours had been worked before sending my invoice… this has a negative impact on cash flow.

In conjunction with a new payment schedule, my clients are able to spread out their payments over the course of our project which they’ve told me is really helpful. With payments structured in line with project milestones, I can more accurately foresee when I will receive a payment, and I know my income for each month in advance, which definitely helps to reduce the financial anxiety that comes with running your own business.

The client isn’t thinking about whether I’m productive or not.
I am no longer penalised for working fast.

An hourly rate is a big psychological hurdle for a lot of people. The same job priced in two different ways can provoke completely different reactions… a discussion around that is enough for a whole other article {adds topic to the ever-growing list}.

It’s natural that the more you do something, the faster you become at doing it. It makes sense to benefit from that, rather than be penalised for it. Charging by the hour gives you an incentive to work less efficiently since you’re paid for your time, rather than the overall outcome. Seems counter-intuitive doesn’t it?

Refinements are a clear part of the process, instead of an awkward add-on.

Design is somewhat subjective and refinements are a natural part of the process. I now allow for a set number of refinement rounds in each project, and I’ve never yet had an experience where I’ve not been able to arrive at a happy end result for a client. I take great pride in that.

There is a ceiling to charging by the hour.

When charging by the hour, it’s worth noting that not every hour of the day is billable i.e. responding to emails, client communication, invoicing, admin. These are all key parts of the process and experience, but not parts that you can directly charge for.

My own personal opinion is that there’s only so much you can charge per hour in certain sectors and industries too. Definitive project pricing allows me to more accurately reflect the value and comprehensive approach that I bring to each and every project, and allows me to be compensated accordingly.

It’s easier to increase my prices if needed.

As demand becomes greater, and availability becomes less, it’s important to be able to increase investment amounts. With project pricing, this is easy because the project fee is as is, whereas with hourly pricing, you’d need to go through the whole “I’ve increased my hourly rate” rigmarole which is not a discussion I am up for. Time is precious!

My investment amounts more accurately reflect the value I bring to each and every project.

As a rough example, a logo may take around 30 hours to design, but its value to the company could be much higher because of its frequent use and visibility. A powerful brand can work wonders for a business, hence its higher value.

Clients don’t hesitate to ask me for advice.
There is more trust in the relationship.

Imagine that designers worked in the same way as most solicitors… every time you ring them you’re charged by the minute (ugh). Just the thought of it fills me with dread. I think there’s more trust in a relationship based on value… I’d rather be my client’s go-to person than their last resort.

So, with all of that said… how do you make the switch? It’s quite a shift in mindset and approach I know, but making small tweaks here and there will help to smooth out the process for both you and your clients.

Here’s some useful steps to take…

  1. Figure out profiles for your ideal clients. How well does your price reflect where you’d like to sit in the market? Why will your clients choose to spend money with you rather than someone else? What magic do you bring?
  2. Outline your signature services. What’s included as part of the process for every client? Create a proposition that your ideal clients will love.
  3. Ask the right questions to prospective clients as early as possible in order to accurately scope out the project in detail. Put time and effort into creating a proposal or welcome guide that wows and clearly shows your value.
  4. Create a thorough refinements and feedback process, and have a solid legal agreement in place which protects both you and your client. Limits and boundaries are an important part of any relationship. Be consistent in your approach.
  5. Use value-based pricing for each new proposal you send out. Gauge what works and what doesn’t. I’m sure you’ll be positively surprised by the results!

Some of these steps deserve their own blog post, so I’ll add them to the list!

Charging hourly is the easy option, because there’s no need to go through the process of thinking about what value the client is getting from the process. Value-based pricing on the other hand incentivises you to work more efficiently to maximise your effective hourly rate (your revenue divided by your time), and allows you to gain clarity on how you’re really helping your clients. As an example, do I design brands and websites, or do I create experiences which help my clients to draw in more of their dream clients? The value is in the magic I bring to the experience and the results it creates for my clients.

A clear process is a smooth process, and I know that if I was hiring someone else for a job, I’d prefer no surprises, a definitive amount that I can plan for, and clear expectations for both of us. I’m a firm believer that building a profitable, sustainable business is built on client satisfaction and success. For me, that means creating memorable experiences that delight not just for my clients, but also as part of my own process too.

Along with my rebrand last year, these changes have really helped me to level up, improve the client experience and increase my income. My clients buy an end result and the experience which delivers that. So with this clear, transparent approach, they know their investment up front, and we’re both clear on our deadlines and expectations. It’s win, win for all of us!

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Moving away from hourly pricing.

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