image for post - FT 042: Demystifying Pricing Based on Value with Jonathan Stark

FT 042: Demystifying Pricing Based on Value with Jonathan Stark

Far too many freelancers select a pricing model that cripples their business from the onset and makes it almost impossible to get paid what they are worth. Especially with hourly billing.

Today's guest, Jonathan Stark, experienced first-hand the problems with hourly pricing. And when he set out on his own, he decided to apply an approach that works out far better for him and for his clients.

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Jonathan shares with us:

  • Why Hourly Pricing Works Against You: Jonathan explains how the senior developer at a firm he worked at was weirdly unprofitable compared to a much more junior developer, and how billing hourly was the culprit.
  • Why It's Impossible to Compare Hourly Rates: it's virtually impossible for clients to fairly compare hourly rates. Details like how long the job will actually take at that rate get lost, and what stands out is the rate.
  • Pricing Based on the Result Instead: client wants to pay for a certain result, so price based around achieving that result, not working some arbitrary amount of hours. You remove the risk for the client. It also exposes which projects are even worth doing. You don't want to work on a project that won't provide a return on investment even if you accomplish what you set out to do.
  • How to Introduce Value-Based Pricing into Your Business: do it slowly! You will make mistakes, such as merely converting your hourly estimates into fixed rate projects. Give yourself room to figure it out.
  • Charging for Advice vs Implementation: often times the advice is the most valuable component of what you provide. Yet most technical people have trouble thinking beyond their specific craft, such as hooking up a shopping cart, which is actually the lowest value part of the service the could be providing.
  • Pricing Larger Projects: very large projects that can't simply be quoted as a single cost without too much risk to you, can be broken down into smaller projects. You don't necessarily need to switch to a model like a weekly rate.

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