Coming out of this hard work scenario you’ve been on with me, I wanted to talk a bit about investments.
When you invest in something, you expect a return. You put in $10, you expect at least $10.01 back. Hopefully more like $12 or $20 though.
When you invest time in something, you expect you’ll get something back. Like this blog. I expect that I’ll generate new ideas for myself and help myself grow over time. If someone reads, fine, but that’s not why I write it. I’m investing time so that I force myself to write and thus (yes I said thus), I get a return in the form of personal growth. Maybe other things, but at least that.
My friend Ryan so graciously introduced me to the idea of value-based pricing recently. He didn’t invent it of course, but it’s how I heard of it.
The premise is that
[Tweet “You should be paid based on the #value you bring to a project and rather than selling hours. #entrepreneur”]
This helps you stop trading time for money, which is something I’ve been trying to figure out how to do for a long time now.
There are several reasons of course but these are the basic ones.
- At some point, you can only work so many hours in a week so you hit a ceiling where you can’t make any more money because you can’t physically work more hours. So you hire someone and pay them less or you raise your rates, which no one likes. (Neither of these sound fun to me)
- Your interests are not aligned with your clients when you bill hourly. They want less hours. You want more.
- The better you get, the faster you get, the less you make. (This is a problem I have right now. I’ve been told I’m very fast at coding by other developers. Which means, my clients pay me less per hour than they do a newbie because I’m much more efficient. So all my experience really gets me paid less. That’s not right.)
- You make your client serious cash, you don’t really get to share in that victory.
- You end up competing on price with others in your industry.
I won’t attempt to explain it all here but basically, the above illustrates that hourly rates are terrible for the service industry, particularly the web/creative industries in my opinion.
There is one major assumption to this model though. It assumes you actually do bring value to your project and clients. It doesn’t have to be monetary either. Just as long as the client understands the value they get from you and the investment they are making, you all win.
More on this at some point but if you want to read the two places I’ve been getting some great information from, check them out below. The first describes it the best, but the second has some great resources that help support and go a little deeper into understanding it. Let me know what you think.
Breaking the Time Barrier – From Mike McDerment, Freshbooks Co-founder and CEO
FreelanceLift.com – Liam Veitch, Freelancer