Value vs hours: how do we know when the price is right?

price-is-right

Pricing is a strange game in the consulting market. As consultants, we want to make as much as we can, and simultaneously we tend to charge for our time, and not for our value. Why do we do this? And how can we change?

The dynamic is a tough one. Often, we get leads from people or organizations we know, and we understand that they have a budget. So I’m sure that you, like me, have tried to assess your potential clients needs and put together a quote that will meet those needs; but you always have a dollar amount in the back of your head that you assume is as high as they can go.

Maybe they even told you their max budget. And it’s tough to get outside that mindset.

But if we are to truly make as much as we can, and more importantly, as much as we’re worth, perhaps we need to reconsider the value we bring as skilled developers and to the web project as a whole.

And if we can’t justify our value to the client, perhaps we should reconsider the client.

Potential Clients

Let’s throw out a number:

$15,000.

This is a number that represents your time for some website. It doesn’t matter what all goes into that number. It’s a calculation of your hours multiplied by “x” functionality, at your hourly rate.

A client with an already successful business is the easy kind.

The value of this sort of website can be assessed to a degree.

What does this number mean to a client with an already successful business? Probably not much. Maybe they make $5 million a year, or maybe they make $500 million a year. Either way, paying $15,000 for a new website is not very much money for this type of client. They just want the job done right.

In fact, $15,000 is probably too cheap. The website is important in a modern business. It’s no longer a yellow pages for the web. It’s the brand hub for just about any modern company.

$15,000 could be so low for such a business that they are afraid you will be flaky and unreliable. Four times out of five, you might lose this potential client for being too cheap.

Now let’s assess that $15,000 price tag again.

Except this time, the $15,000 is for a client with business plan, but it’s not off the ground yet. Suddenly, with a lack of expected income, and so many unknowns, $15,000 is a ton of freaking money.

The website is no different. The “modules”, or anticipated necessary functionality, hasn’t changed.

But the mindset is completely different.

Now someone is putting their money in your hands. You – the consultant. There is a huge (in their mind) sum of cash tied up in this website that could help make or break them.

The value of the website is considerably lower in this scenario. But the risk is much, much higher than our first scenario.

Now let’s assess that $15,000 price tag one more time.

This time, you’ve got a potential client with a “great idea.” It’s not their full time job yet, but if you can develop this website for them… man! They can rock it. This eCommerce site, or listings business, or ad-driven blog will be fantastic!

Problem is, they have no business model. They’ve come to you with an idea for a website, but that’s not a business model. Is it?

And all the chips they’ve got are in this website.

You’re no longer a web developer. You are a partner.

And you didn’t even ask to be.

If this business doesn’t get off the ground, it’s probably because you did a poor job developing the website. “This was a sure thing”, says the client.

What’s your value?

In each scenario above, I’ve of course simplified the myriad of potential client situations that could come your way. But my point is that the value of the website for each client is completely different.

But we tend to price them pretty much in the same way. As a linear calculation of our hours and rate.

A website with the same functionality, that takes the same time, has completely different value to these three clients.

So why are we continuously quoting our time at a set rate and not often enough considering the following:

  1. Our value as skilled developers.
  2. The overall value that we bring to the web project.

Suddenly, we’re in a whole new ballgame.

We’re able to say no to clients without a business plan, and we’re able to justifiably charge more for clients that consider their websites to be a valuable part of their existing business, or charge appropriately for clients with a business plan they are willing to invest in properly (if this is client #2).

No longer will the potential client put the weight of the entire business on us, the developers. Because we no longer accept those types of clients.

And we’re charging more to the clients that value their website as a significant part of their business. So all in all, we’re making better money on the good clients, and avoiding losing money on the bad clients.

Further reading

If you are nodding your head yes, but you want to know how to put some of this to practice, I highly recommend you read this article by Patrick McKenzie that discusses charging for value, with practical steps for growing a consulting business.

11 thoughts on “Value vs hours: how do we know when the price is right?

  1. LOL. I’ve lived this for so long that the pricing just comes natural I suppose – there’s not much thought involved.

    Although… i’m trying to relieve myself of this world now.

    😉

  2. I think another important factor that comes into play is the Type of Project/Website you are going to work on. If you are given the chance to work on a new project with a group of people you want to work with or a new type of technology you might also discount your hourly/overall rate to do this.

    1. Yeah, I definitely don’t think consultants should just turn down any site that doesn’t fit the perfect mold. But there needs to be some sort of methodology for how you discount. Whether you spend fewer hours or charge fewer dollars per hour, it needs to make sense in how you discount.

  3. It’s good to see the drive to Mr. P’s paying off.

    I couldn’t agree more with this post. Pricing ourselves hourly on projects where clients have no idea where they’re going puts us in the position of being executors (code monkeys, photoshop monkeys, basically any type of monkey) when what those clients need is a partner.

  4. lol… great article and I must say describes the reality of web designer + client relationships. I did the web design thing long ago and let’s just say it was an experience. I eventually moved to the theme/template model and I can easily say that it was the smartest move ever. I still have an hourly rate though for small jobs, but for full client sites, that’s a thing of my past.

  5. You make some great points, It’s funny too, though. I’ve grimaced sending off a quote before becomes I ASSumed that a client was in situation C when they were really in situation A or B. I thought I’d for sure lose the client (in a time when I really needed the money), and they came back with “Oh man, we thought it was going to be a lot more that this.”

    I also NEVER charge a client for my education time. That’s my investment. However, I also don’t necessarily charge less for future clients just because I’ve already developed code to fix their problem or I’ve automated a process that I had to manually wade through previously. Not charging for my time learning gives me the ability to charge all clients the same fee without feeling guilty about it, even if the first time around it took me 8 hours and the last time it took me 30 minutes.

    1. That’s an interesting way to put it Ryan. See, I don’t feel guilty for charging while learning something new / I haven’t done before. I certainly agree that it is an investment (what type of education isn’t?), but your client isn’t taking the time to learn that something for themselves are they? It’s really about perspective. I value my time as a developer, and if the client wants me to create something that neither of us know how to do, why should I take the time to do it for free? I hope that makes sense 🙂

  6. In several of these situations, I think you overestimate both the permanency of your website as well as the value that it brings to the “idea”.

    As you have described in C) you are not a partner, though you are a creditor.

  7. Your post opens lots of thoughts on my mind. The main thing here is how we access the value of client’s business, not the website project. When clients came to me, they often talked about what they needed for the website, and rarely talked about their business. At that time, I usually quoted by hours, because this is the only clue I had in hand. Your post makes me think more about this, cause I’m not always happy with clients. Thanks.

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