Search the Nework website    site map

No 91                                                                             September 2006

Hourly rates? No thanks!

I was recently asked "How do I establish a price for a job?" As an independent professional, how you charge for your services can either make or break you. It can mean the difference between a mediocre and a successful business. In my experience, most people don’t spend enough time thinking strategically about what pricing strategy they should use.

Typically, portfolio workers or NEWORKers who sell services establish an hourly rate. They use a process called “reverse competition” to determine what their rate should be. This involves taking a look at what your geographical competitors are charging, and deciding where in the range you want to fit on the spectrum of hourly rates.

Inevitably, we choose a rate somewhere in the middle, so we can say that we’re not the most expensive, but neither are we the cheapest!

With this approach we are showing absolutely no differentiation from any other company or competitor business – just sticking ourselves straight down the middle. In other words, we compete with everyone! I understand that such is not a very prudent marketing decision.

So pricing simply using an hourly rate that sits in the middle of the spectrum is, in my view, a wasted opportunity to create a point of difference.

Getting Away from the Hourly Rate Mentality

Before you do business with a new customer, you hold all the leverage in the relationship. After the services have been performed, the customer possesses the leverage. The lesson is that you want to set your prices when you possess the leverage - before the engagement begins.

The minute you quote an hourly rate, you put a fixed limit on your earning potential. It’s hard to increase an hourly rate once it has been set. Many successful service providers charge for the job as a whole, and then don’t specify exactly how many hours it will take to complete the job.

Customers are value conscious, not price conscious. They look to do business with people they feel give them more than they are paying for. So your goal is to make sure your customer perceives the full value of the service, not simply the price component. Your services need to be packaged up and sold as a valuable bundle, rather than as a multiple of hours which only reflects the time value of money.

An example that I recently saw:

Let’s say you needed a consultant to analyse the effectiveness of your intranet site, and make some recommendations about modifying the navigation structure. Which would you feel more encouraged to purchase?

Cost of analysing site and recommending new structure:

Phase 1: Analysis of Existing Intranet Site: $7800.

Price includes:

• 8 hours of interviews with high end users 
•  analysis of site map 
• analysis of internal complaints and suggestions
• detailed report outlining strengths and weaknesses of the current functionality 
•  identification of potential cost savings through structure modification

Phase 2: Recommendation for Improving the Proposed Structure: $6400

Price includes:

• ·         Focus groups with users to identify preferred structure options
• ·         Repeated testing of proposed structure with a wide variety of users
• ·         Refining preferred structure based on user feedback
• ·         Detailed report on recommended navigation changes, including rationale for each decision

or

• Estimate 20 hours work @ $150 per hour = $3000

The first gives an indication what might be done.  The second says well …..nothing really. I know which one attracted the attention of the client. She was initially much more interested in what was going to happen.  It was some time later that the cost started to be an issue and even then, the questions related around what might be done for the $3000

Price is a Fickle Indicator

There is absolutely nothing positive about competing on price, unless you specifically position yourself as a low-cost provider. No matter what you charge, there is always someone, somewhere, willing to perform the work for less money.

NEWORKers also know that if they price their services at the low end of the market, customers do not take their advice seriously. On the other hand, if you charge rates on the upper end of the spectrum, the customer will hang on every word you say and has a higher probability of implementing your suggestions.

So do yourself a favour. Start to think of how you can price and package your services in ways that don’t correspond to hourly rates. It’s all about value you provide, and the perception of value in your customers’ mind.

Incidently in the example above, the client went with Phase 1 leaving Phase 2 option open.

Setting boundaries in business

The lack of strong boundaries is one of the chief causes of stress and overwork for NEWORKers professionals. If you're feeling overwhelmed in your business, the chances are this is the problem.

Clearly-set boundaries help other people to understand how you want to be treated. They are the rules that apply when others deal with you and your business.

Many of us aren’t good at establishing these boundaries, something that probably stems from way back in our childhoods. As children we were taught that other people’s needs were more important than ours. We were rewarded for pleasing other people and sacrificing our own needs. Sometimes we put ourselves last because we dislike conflict, or because we don’t want to hurt other people’s feelings.

This behaviour of putting ourselves last contributes significantly to why we fail to set boundaries. It’s such a habit that we find it really difficult to tell people what we want.

The good news is that breaking bad habits and setting boundaries are learnable skills - ones that can make a huge positive difference to the quality of the independent professional’s life. Here’s five ways to help you feel more in control of your business and restore the balance between your clients needs and your own.

1. Be clear about what you do and what you don’t do

If something is outside the bounds of your normal scope of work, then simply say so. It is easy to get caught up agreeing to do unusual things or one-offs that take up a lot of extra time. Your time is valuable and you want to spend it accordingly.

2. Be clear about your on-call hours

If you are one of these soloists who is basically on call 24/7, then I believe you are doing yourself - and your clients - a disservice. It’s just as important that you have time away from the business as time in it. Communicate your available hours widely, and let your voicemail take messages outside of those times. Really – turn the phone off!

3. Set payment terms that put you in charge

Outstanding debtors can be a huge source of stress for solo professionals. If people aren’t respecting your payment terms you need to let them know that this is unacceptable. Be clear upfront about what your terms are (actually advise new customers verbally), and consider using payment options that give you control (e.g. credit card payment and direct debits).

4. Setting expectations about deadlines

You are in control of your diary, not your clients. If you find yourself consistently working excessive hours, or longer than you want, then you are taking on more work than you can manage. It’s time to stop doing this! If you really want the work, then you’ll need to hire in some assistance. It’s all about putting yourself on an equal footing with your business. You are no good to anyone stressed out and under too much pressure.

5. Practice makes perfect – Just say no!

Don’t feel uncomfortable about saying no to an unreasonable request. And guess what? You don’t need to explain why. After all, we don’t offer an explanation when we say yes.

Implementing these simple practices will help you to regain control of your schedule, your time and your workload. Asking for what you really want - and getting it - is one of the advantages of being an adult! Remember: It's your business, it's your rules.

© 2003 The Nework Centre   |   email neworknz@yahoo.co.nz

Top of the page